UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended December 31, 2015[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

ORFor Quarterly Period Ended September 30, 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 Namename of Registrantregistrant issuer as Specifiedspecified in Charter)its charter)

(800) 888-8945(714) 400-2121

(Registrant’s telephone number, including area code:code)

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

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and postedpursuant 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 and post such files).

Yes [X] No [  ] No [X]

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

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 registrantRegistrant is a shell company (as defined byin Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

AsThe number of March 21, 2016, there were 2,072,139,662 shares of the issuer’sregistrant’s common stock $0.001 par value per share, outstanding.outstanding as of June 1, 2020 was 24,536,963.

SALEEN AUTOMOTIVE, INC.

FORM 10-Q

INDEX

PART I -Saleen Automotive, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL INFORMATIONSTATEMENTS

Item 1. Unaudited Condensed Financial Statements:

Saleen Automotive, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

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

Saleen Automotive, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

See accompanying notes which are an integral part of these condensed consolidated financial statements.SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Saleen Automotive, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Deficit (Unaudited)Saleen Automotive, Inc.

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

For the Nine month period ended December 31, 2015Six Months Ended September 30, 2019

See accompanying notes which are an integral partSaleen Automotive, Inc.

Condensed Consolidated Statements of these condensed consolidated financial statements.Stockholders’ Equity (Deficit) (Unaudited)

For the Six Months Ended September 30, 2018

SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Saleen Automotive Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(continued)

Saleen Automotive Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(continued)

See accompanying notes which are an integral part of these condensed consolidated financial statements.SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Saleen Automotive Inc. and Subsidiaries

Saleen Automotive Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Three and Nine month Periods Ended December 31, 2015 and 2014NOTE 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, 2019 and for the three-months and six-months ended September 30, 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 subsidiaries (“Saleen,” “we,” “us, “our” and “our Company”) have been preparedfor the periods presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Operating results for interim financial informationthe three-months and the rules and regulations of the Securities and Exchange Commission. Accordingly, the unaudited condensed consolidated financial statements do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for a fair presentation. Interim operating resultssix months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2016,2020, or for any other interim period. These unauditedperiod 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 Company’s audited condensed consolidated financial statements as of and for the year ended March 31, 2015, which are includednotes thereto contained in the Company’s Annual Report on Form 10-K for suchthe fiscal year filed on July 14, 2015. The consolidated balance sheet as ofended March 31, 2015, has been derived from2019 filed with the audited financial statements included in the Form 10-K filedSEC on July 14, 2015.

NOTE 1 - NATURE OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIESOctober 4, 2019.

Description of the Company

Saleen Automotive, Inc. (formerly W270, 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. 

Saleen OEM

The Company designs, develops, manufacturesmanufacturers 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 sells high performance vehiclesrelated 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 owed to us by S7 Supercars. Furthermore, the amount of accounts receivable balance eliminated increased by $317,304 to $682,304 increasing the 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 previous 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. 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 7 for more details.

The Company is also in the process of completing the engineering, design, and certification 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, Chevrolet Camaros, Dodge Challengers and Tesla Model S vehicles.vehicles, and Ford trucks. The Company is a low volumespecialist in vehicle design, engineering and manufacturing company focusing on the mass customization (the process of customizing automobiles that are mass produced by the manufacturers (Ford, Chevrolet, Dodge and Tesla)manufacturers) of OEM American sports and electric vehicles. A high performance car is an automobile that is designedvehicles and constructed specifically for speed and performance. The design and constructionthe production of a high performance car involves not only providing a capable power train but also providing the handling, aerodynamics and braking systems to support it. The Company’shigh-performance USA-engineered sports cars. Saleen-branded products include a complete line of upgraded high performance vehicles,and upgraded muscle and electric cars, automotive aftermarket specialty parts and lifestyle accessories.

MergerLiquidity

On May 23, 2013,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 entered into an Agreementsufficient capital and Plan of Merger (“Merger Agreement”) with Saleen California Merger Corporation,liquidity to fund its wholly-owned subsidiary, Saleen Florida Merger Corporation, its wholly-owned subsidiary, Saleen Automotive, Inc. (“Saleen Automotive”), SMS Signature Cars (“SMS” and together with Saleen Automotive,operations for at least one year from the “Saleen Entities”) and Steve Saleen (“Saleen” and together with the Saleen Entities, the “Saleen Parties”). The closing (the “Closing”) of the transactions contemplated by the Merger Agreement (the “Merger”) occurred on June 26, 2013. At the Closing (a) Saleen California Merger Corporation was merged with and into SMS with SMS surviving as one of the Company’s wholly-owned subsidiaries; (b) Saleen Florida Merger Corporation was merged with and into Saleen Automotive with Saleen Automotive surviving as one of the Company’s wholly-owned subsidiaries; (c) holders of the outstanding capital stock of Saleen Automotive received an aggregate of 554,057 shares of the Company’s Super Voting Preferred Stock, which was subsequently converted into 69,257,125 shares of the Company’s Common Stock and holders of the outstanding capital stock of SMS received no consideration for their shares; and (d) approximately 93% of the beneficial ownership of the Company’s Common Stock (on a fully-diluted basis) was owned, collectively, by Saleen (including 341,943 shares of the Company’s Super Voting Preferred Stock, which was subsequently converted into 42,742,875 shares of the Company’s Common Stock, issued to Saleen pursuantdate these condensed consolidated financial statements are issued.

In response to the AssignmentCOVID-19 pandemic which impacted operations in early 2020, we have reduced manufacturing schedules to balance production with our demand and License Agreement)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 former holders of the outstanding capital stock of Saleen Automotive. As a result of the Merger the Company is solely engaged in the Saleen Entities’ business, Saleen Automotive’s then officers became the Company’s officerseffects on our operations are highly uncertain and Saleen Automotive’s then three directors became members of the Company’s five-member board of directors. On June 17, 2013, the Company consummated a merger with WSTY Subsidiary Corporation, its wholly-owned subsidiary, pursuant to which the Company amended its articles of incorporation to change its name to Saleen Automotive, Inc. In October 2013, SMS effected an amendment to its articles of incorporation to change its name to Saleen Signature Cars. In January 2014, the Company effected an increase in the number of its common shares authorized to 500,000,000 and all the remaining shares of Super Voting Preferred Stock were converted into Common Stock of the Company and the Super Voting Preferred Stock ceased tocannot be a designated series of the Company’s preferred stock.predicted at this time. 

Consolidation Policy

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

Going Concern

The Company’s condensed consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. During the nine months ended December 31, 2015, the Company incurred a net loss of $2,077,085 and utilized $894,423 of cash in operations. The Company also had a stockholders’ deficit and working capital deficit of $10,664,234 and $7,446,888, respectively, as of December 31, 2015, and as of that date, the Company owed $762,639 in past unpaid payroll and other taxes; $846,004 of outstanding notes payable were in default; $1,317,928 of accounts payable was greater than 90 days past due; and $401,689 is owed on past due rent as of the date of filing of this Form 10-Q. In addition, in May 2015, the Company received a complaint from a bank alleging breach of the loan agreement and breach of a commercial guaranty by Steve Saleen and demanding full payment of principal, interest and fees of $369,302. A default under the loan agreement triggers a cross default under the Company’s 3% Senior Secured Convertible Notes and 7% Convertible Notes (see Note 5) enabling the holders thereof to, at their election until the later of 30 days after such default is cured or otherwise resolved or the holder becomes aware of such cure or resolution, accelerate the maturity of the Company’s indebtedness.

These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s independent auditors, in their audit report for the year ended March 31, 2015, expressed substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

The Company’s ability to continue as a going concern is dependent upon its ability to raise additional capital and to ultimately achieve sustainable revenues and profit from operations. At December 31, 2015, the Company had cash on hand in the amount of $60,850 and is not generating sufficient funds to cover operations. The Company has utilized funding to operate the business during the nine months ended December 31, 2015 with advance royalty payments of $500,000 obtained from an Intellectual Property License Agreement entered into in June 2015 and has received proceeds of $750,000 and $120,000 in secured convertible notes and notes payable from a related party, respectively. However, the Company will need and is currently working on obtaining additional funds, primarily through the issuance of debt or equity securities to operate its business through and beyond the date of this Form 10-Q filing. As further discussed in the Company’s Form 8-K filed on December 8, 2015 and further in Note 5, on December 2, 2015, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”), with SM Funding Group, Inc. (“SM Funding”). Under the Purchase Agreement, the Company issued to SM Funding a 12% Senior Secured Convertible Note (“Senior Note”) under which SM Funding may advance to the Company up to $2,000,000. Amounts outstanding under the Senior Note are convertible into Preferred Stock the Company may issue to accredited investors in a private placement of up to $10,000,000, but not less than $8,000,000. Under the Senior Note, the Company agreed that it will not enter into, create, assume or suffer to exist any additional indebtedness for borrowed money. The Company has received aggregate advances from SM Funding of $750,000 as of December 31, 2015 and $960,000 as of the date of this filing of Form 10-Q. However, SM Funding is currently in default of its obligations to make advances to the Company under a Binding Letter of Intent (the “LOI”) the Company entered into with SM Funding on October 21, 2015. Accordingly, no assurance can be given that the Company will complete the financing transactions with SM Funding, including obtaining additional advances under the Senior Note, and no assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions and covenants on its operations, in the case of debt financing or cause substantial dilution for its stockholders in the case of convertible debt and equity financing.

Use of Estimates

FinancialThe preparation of condensed consolidated financial statements prepared in accordanceconformity with accounting principles generally accepted in the United States requireGAAP 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, warranty reserves, and the valuation of inventories and long lived assets, warranty reserves, the assumptions used to calculate derivative liabilities, and equity instruments issued for financing and compensation.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. 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, 2019 and March 31, 2019, the Company did not have cash equivalents. From time to time, including as of September 30,2019, 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

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 trade receivables are not overstated due to 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, 2019 and March 31, 2019, the Company deemed an allowance for doubtful accounts was not required against its receivables.

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.

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:

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 an impairment loss for the three and six months ended September 30, 2019 and September 30, 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.

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, 2019 and March 31, 2019 comprised of funds received in advance of shipment and amounted to $99,692 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 unaltered 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-months ended September 30, 2019 and 2018, advertising, sales and marketing expenses were $682,488 and $294,951, respectively. During the three-months ended September 30, 2019 and 2018, advertising, sales and marketing expenses were $251,058 and $167,805, 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (ASC)FASB ASC topic 820, “Fair“Fair Value Measurements and Disclosures” (ASC 820), formerly SFAS No. 157 “Fair Value Measurements”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.

The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable, accrued liabilities, and customer deposits, and notes payable.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 that 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.

As of December 31, 2015 and March 31, 2015, the Company’s condensed consolidated balance sheets included the fair value of derivative liabilities of $181,565 and $1,268,588, respectively, which was based on Level 2 measurements.

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

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

Net Income Taxes

The Company accounts for income taxes under FASB ASC 740-10-25. Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company maintains a valuation allowance with respect to deferred tax assets. The Company established a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carry forward period under the Federal tax laws.

Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of any related deferred tax asset. Any change in the valuation allowance would be included in income in the year of the change in estimate.

Stock Compensation

The Company uses the fair value recognition provision of ASC 718, “Stock Compensation,” which requires the Company to expense the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of such instruments. The Company uses the Black-Scholes-Merton option pricing model to calculate the fair value of any equity instruments on the grant date that vest over a period of time.

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

Income (Loss) per Share

The basic EPSBasic income per common share is calculatedcomputed by dividing the Company’s net income or loss availableattributable to common stockholders by the weighted average number of common shares during the period. Outstanding shares of Super Voting Preferred Stock are included in the calculation as they are considered as aoutstanding. Diluted net income per common stock equivalent. The diluted EPSshare is calculatedcomputed by dividing the Company’s net income or loss availableattributable to common stockholders by the diluted weighted average number of common shares that would have been outstanding during the period. The diluted weighted average numberperiod assuming the issuance of common stock for all potential dilutive common shares outstanding. Potential common shares consist of shares outstanding isissuable upon the basic weighted average numberexercise of shares adjusted for any potentially dilutive debt or equity securities unlessstock options and warrants and the effects thereof are anti-dilutive, that is inclusionconversion of such shares would reduce the net loss or increase the net income.convertible notes payable.

ForThe following table sets forth the three and nine months ended December 31, 2015 and 2014, thecomputation of basic and diluted shares outstanding werenet income per common share for the same, as potentially dilutivethree-months and six months ended:

The following table sets forth the number of potential common shares were considered anti-dilutive. As of December 31, 2015, stock options, warrants, and convertible notes convertible or exercisable into 6,870,333, 13,313,099, and 485,568,933 shares of common stock, respectively, have been excluded from dilutedthe calculations of net loss per diluted share because they are anti-dilutive.their inclusion would be anti-dilutive:

As of December 31, 2014, stock options, warrants, and convertible notes convertible or exercisable into 7,271,333, 13,313,099, and 139,159,937 shares of common stock, respectively, have been excluded from diluted loss per share because they are anti-dilutive.

Significant Concentrations

Two customers comprised 18% and 10% of sales, respectively, for the three months ended December 31, 2015 and one separate customer comprised 14% of sales for the nine months ended December 31, 2015. One customer comprised 93% of accounts receivable at December 31, 2015.

Sales to three separate customersChina-based customer, JSAT (see Note 2) comprised 28%, 11%68% and 10%, respectively, and one separate customer comprised 13%76% of revenues for the threethree-months ended September 30, 2019 and nine months2018, respectively. Sales to China-based customer, JSAT comprised 78% and 71% of revenues for the six-months ended December 31, 2014,September 30, 2019 and 2018, respectively.

Two different customers comprised 63% and 37%88% of accounts receivable as of DecemberSeptember 30, 2019. One customer, a related party, comprised 98% of accounts receivable as of March 31, 2014.2019.

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 IssuedAdopted Accounting Standards

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is in the process of evaluating the impact of ASU 2014-09 on the Company’s financial statements and disclosures.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15 (ASU 2014-15), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted.

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

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). ASU 2016-02 requiresTopic 842 will require the recognition of a lessee to record a right of useright-of-use asset and a corresponding lease liability, oninitially measured at the balance sheetpresent value of the lease payments, for all leases with terms longer than 12 months. ASU 2016-02For 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 allannual and interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. ATopic 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 transition approach, is required for lessees for capitalusing 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 leases existing at, or entered into after, the beginninglease liabilities on its condensed consolidated balance sheets as of the earliest comparative period presentedthat date in the financial statements, with certain practical expedients available.amounts of $4,059,492 each. The Company is in the processadoption of evaluating the impact of ASU 2016-02this standard did not have a significant effect on the Company’s financial statements and disclosures.amount of lease expense recognized by the Company.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants,Operating lease assets are included within operating lease right-of-use assets, and the Securitiescorresponding operating lease liabilities are on our condensed consolidated balance sheet as of September 30, 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 Exchange Commission diddo 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:

See Note 11 for details regarding the Company’s operating leases.

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, 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. 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, 2019 (the “September Addendum”) and the other dated December 20, 2019 (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 expects 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 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.

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 and $0 for the three-months ended September 30, 2019 and 2018, respectively, and $4,309,503 and $0 for the six-months ended September 30, 2019 and 2018, respectively.

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

During the six-months ended September 30, 2019 and 2018, the Company recognized revenue of $2,977,666 and $3,130,611, respectively, related to its completed performance under the engineering services contract. During the six-month periods ended September 30, 2019 and 2018, the Company recognized revenue of $17,295,719 and $0, respectively, related to its completed performance under the Cup Agreement. During the three-months ended September 30, 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 7 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, 2019 and 2018, the Company recognized revenue of $1,388,018 and $645,986, respectively, from the sale of Signature cars. During the six-months ended September 30, 2019 and 2018, the Company recognized revenue of $1,872,123 and $1,164,673, respectively, from sale of Signature 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, 2019, the Company recognized revenue of $556,300, from the sale of S7 vehicle. During the six-months ended September 30, 2019, the Company recognized revenue of $764,433, from the sale of S7 vehicle.

Contract Liabilities

As of September 30, 2019 and March 31, 2019, the Company’s contract liabilities balances included advances received prior to revenue being recognized of $1,323,696 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 2 -3 – PROPERTY AND EQUIPMENT

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

Depreciation and amortization expense was $79,664were $37,168 and $109,715$10,843 for the nine monthsthree-months ended December 31, 2015,September 30, 2019 and 2014,2018, respectively.

Depreciation and amortization expense were $97,724 and $38,530 for the six-month periods ended September 30, 2019 and 2018, respectively.

NOTE 3 -4 – NOTES PAYABLE

Notes payable exclusiveconsisted of accrued interest, are comprisedthe following as follows:of September 30, 2019 and March 31, 2019:

NOTE 4 - NOTES PAYABLE TO RELATED PARTIES

Notes payable to related parties, exclusive of accrued interest, are as follows:

NOTE 5 -– CONVERTIBLE NOTES PAYABLE,

Convertible notes payable, exclusive of accrued interest, are as follows:

3% Senior secured convertible notes

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

Each 3% Note is convertible at any time into Common Stock at a specified conversion price, which initially was $0.075 per share. In June 2014, the Company entered into a First Amendment to Saleen Automotive, Inc. 3.0% Secured Convertible Note (“3% First Amendment”) and removed all specified adjustments to the conversion price except for standard anti-dilution provisions whereby if the Company consummates a reorganization transaction, pays dividends or enters into a stock split of its common shares the conversion price would adjust proportionally. In addition, if a Fundamental Transaction, as defined in the 2013 Note agreement, were to occur the potential liquidated damage was set to a fixed amount. As an inducement for the amendment, the Company issued an aggregate of 389,923 shares of Common Stock with a fair value of $58,488 determined based on the market value of the Company’s Common Stock of $0.15 as of the date of issuance. Further, the Company accounted for this amendment as a modification for accounting purposes, and as such, the derivative liability recorded of when the note was originally issued was deemed extinguished.

On January 23, 2015, the Company entered into a Second Amendment to 3% Senior Secured Convertible Notes whereby the conversion price of the 2013 Notes were amended to be the lesser of (a) $0.075 and (b) 70% of the average of the three lowest VWAPs occurring during the twenty consecutive trading days immediately preceding the applicable conversion date on which the note holders elect to convert all or part of the note. However, in no event shall the conversion price be less than $0.02. In conjunction with this amendment, the Company entered into two additional 3% Senior Secured Convertible Notes in the principal amount of $499,892 with two accredited investors who participated in the June 26, 2013 offering (“2015 Notes” and collectively “3% Notes”) of which $98,708 was converted from a revolver note payable previously entered into with one investor in November 2013.

In May 2015, the Company received a complaint from a bank alleging breach of the loan agreement and breach of a commercial guaranty by Steve Saleen and demanding full payment of principal, interest and fees of $369,302 (see Note 3). A default under the loan agreement triggers a cross default under the 3% Notes enabling the holders thereof to, at their election until the later of 30 days after such default is cured or otherwise resolved or the holder becomes aware of such cure or resolution, accelerate the maturity of the indebtedness under the 3% Notes requiring the Company to pay, upon such acceleration, the sum of (1) 120% of the outstanding principal plus (2) 100% of all accrued and unpaid interest plus (3) all other amounts due under the 3% Notes. Upon the occurrence of an event of default under the 3% Notes interest accrues at the rate of 12% per annum. The Company continues to classify the 3% Notes as long term, as a judgment against the Company has not been granted and the Company disagrees with the compliant and plans to defend its position. As of the date of this filing of Form 10-Q, the Company has not received a notice of default from the holders of the 3% Notes.

In June 2015, the Company determined that there was not sufficient authorized and available Common Stock available for issuance upon conversion of the 3% Notes. As a result, the Company determined that the conversion feature of the 3% Notes were not considered indexed to the Company’s own stock pursuant to FASB guidance on “Determining Whether an Instrument Indexed to an Entity’s Own Stock,” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability or whether or not within the issuers’ control, means the instrument is not indexed to the issuers own stock. Therefore, the Company characterized the fair value of the 3% Note conversion feature of $106,781 in June 2015 as derivative liability. See Note 6 for further discussion.

During the nine months ended December 31, 2015 and 2014, the Company amortized $24,761 and $270,701, respectively, of the valuation discount. The remaining unamortized valuation discount of $49,260 and $74,021 as of December 31, 2015 and March 31, 2015, respectively, has been offset against the face amount of the notes for financial statement purposes. As of December 31, 2015, the principal balance of the convertible Notes outstanding was $2,501,612 and potentially convertible into 133,666,799 shares of Common Stock including accrued and unpaid interest.

12% Senior secured convertible note PAST DUE

As noted above under “Going Concern” on December 2, 2015, the Company entered into the Purchase Agreement with SM Funding. Under the Purchase Agreement, the Company issued to SM Funding a 12% Senior Secured Convertible Note under which SM Funding may advance to the Company up to $2,000,000. Pursuant to the LOI (defined below) SM Funding was required to advance the Company at least $1,000,000 within seven business days after its execution in October 2015. However, as of DecemberSeptember 30, 2019 and March 31, 2015,2019, the Company had only received aggregate advances from SM Funding of $750,000 evidenced by the Senior Note. Advances under the Senior Note will mature on October 12, 2016, bear interest at a rate of 12% per annum, and will be, at the holder’s option,one unsecured convertible into shares of preferred stock (“Preferred Stock”) that may be issued by the Company in an offering described below.note outstanding for $100,000. The Company’s subsidiaries have guaranteed the obligations under the Senior Note pursuant to a Subsidiary Guaranty, and the Company’s obligations under the Senior Note and the obligations of its subsidiaries under the Subsidiary Guaranty are secured pursuant to a Security Agreement and an Intellectual Property Security Agreement the Company entered into in favor of SM Funding. In addition, pursuant to a Binding Letter of Intent (the “LOI”) the Company entered into with SM Funding on October 21, 2015, the Company entered into a Subordination Agreement with SM Funding and certain existing holders of the Company’s existing 3% Senior secured convertible notes discussed above and 7% Unsecured convertible notes discussed below (the “Existing Lenders”) to memorialize the senior position of the Senior Note relative to the notes held by the holders of the 3% Notes.

Amounts outstanding under the Senior Note are convertible into Preferred Stock the Company may issue to accredited investors in a private placement of up to $10,000,000 (the “Target Amount”) but not less than $8,000,000, including the conversion of the principal and interest under the Senior Note (the “Qualified Offering”). Pursuant to the LOI and the Senior Note, upon completion of the Qualified Offering at the Target Amount, the investors in the Qualified Offering will collectively and beneficially own 60.9% of the Company, the Existing Lenders will beneficially own 26.1% of the Company (pursuant to the conversion of their notes into shares of preferred stock), Steve Saleen will beneficially own 10% of the Company (excluding a warrant to purchase 5% of the Company’s outstanding shares of Common Stock), and all other stockholders will beneficially own approximately 3% of the Company. There can be no assurance that SM Funding will make additional advances to the Company under the Senior Note or that the Company will be able to consummate a Qualified Offering with SM Funding or otherwise.

Without the prior written consent of the holder of the Senior Note, the Company is prohibited from (i) entering into, creating, assuming or suffering to exist any additional indebtedness for borrowed money, (ii) entering into, creating, assuming or suffering to exist any additional liens on or with respect to any of the Company’s properties or assets, (iii) repurchasing shares of the Company’s Common Stock or common stock equivalents other than repurchases of common stock or common stock equivalents from departing employees up to an aggregate maximum of $150,000, (iv) paying cash dividends, and (v) entering into transactions with its affiliates that would be required to be disclosed in public filings with the Securities and Exchange Commission, unless such transaction is expressly approved by a majority of the disinterested directors on the Company’s board of directors.

7% Unsecured convertible notes

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

In June 2014, the Company entered into a First Amendment to Saleen Automotive, Inc. 7% Convertible Note whereby effective as of March 31, 2014 or the applicable issuance date for notes issued thereafter, the conversion price would in no event adjust below $0.03 per share. In addition, if a Fundamental Transaction, as defined in the Agreement, were to occur the potential liquidated damages was set to a fixed amount. As an inducement, the Company issued an aggregate of 357,143166,667 shares of its Common Stock with a fair value of $53,571 based on the market value of the Company’s Common Stock of $0.15 as of the date of issuance.

As the initial conversion price of $0.07 reflected a price discount below the fair market value of the Company’s Common Stock as of the issuance date of the 7% Notes, the Company determined that there was deemed a beneficial conversion feature associated with these 7% Notes. As such, the Company recorded $2,250,000 and $250,000 in March 2014 and April 2014, respectively, representing the intrinsic value of the beneficial conversion feature at the issuance date of the 7% Notes in additional paid-in capital. The value of the beneficial conversion feature is being amortized as additional interest expense over the term of the 7% Notes, which totaled $544,556 and $422,206 for the nine months ended December 31, 2015 and 2014, respectively. As of December 31, 2015 and March 31, 2015, the remaining unamortized valuation discount of $904,744 and $1,449,300, respectively, has been offset against the face amount of the notes for financial statement purposes. As of December 31, 2015, the outstanding principal balance of these notes was $2,200,000 and potentially convertible into 82,077,448 shares of Common Stock including accrued and unpaid interest.

In May 2015, the Company received a complaint from a bank alleging breach of the loan agreement and breach of a commercial guaranty by Steve Saleen and demanded full payment of principal, interest and fees of $369,302 (see Note 3). If the bank is successful in their claim of default, such default would trigger a cross default under the 7.0% Notes enabling the holders thereof to, at their election, accelerate the maturity of the outstanding indebtedness under the 7% Notes requiring the Company to pay, upon such acceleration, the greater of (1) 120% of the outstanding principal (plus all accrued and unpaid interest) and (2) the product of (a) the highest closing price for the five trading immediately preceding the holder’s acceleration and (b) a fraction, of which the numerator is the entire outstanding principal, and of which the denominator is the then applicable conversion price. Upon the occurrence of an event of default under the 7% Notes interest accrues at the rate of 24% per annum. The Company continues to classify the 7% Notes as long term, as a judgment against the Company has not been granted and the Company disagrees with the compliant and plans to defend its position. As of the date of this filing of Form 10-Q, the Company has not received a notice of default from the holders of the 7% Notes.

In June 2015, the Company determined that there was not sufficient authorized and available Common Stock available for issuance upon conversion of the 7% Notes. As a result, the Company determined that the conversion feature of the 7% Notes was not considered indexed to the Company’s own stock pursuant to FASB guidance on “Determining Whether an Instrument Indexed to an Entity’s Own Stock,” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability or whether or not within the issuers’ control, means the instrument is not indexed to the issuers owncommon stock. Therefore, the Company characterized the fair value of the 7% Note conversion feature of $13,148 in June 2015 as derivative liability. See Note 6 for further discussion.

Unsecured convertible notes

From September 2014 to December 2014, the Company issued Unsecured Convertible Promissory Notes (“Notes”) to eight separate accredited investors with a remaining principal balance of $172,254 and $618,225 as of December 31, 2015 and March 31, 2015, respectively. The original Notes contained interest ranging from 8% to 12% per annum and matured on various dates from April 2015 to December 2016. The notes outstanding as of December 31, 2015 contain interest rates ranging from 8% to 10% and matured on dates prior to December 31, 2015 and as such, were in default as of December 31, 2015. The Company may not prepay the Notes without the Note holder’s consent. Notes under default contain provisions that, as defined in the agreements, the amount owed could increase by amounts ranging from 135% to 150% depending on the event of default. In addition, in the event of non-payment when due, the interest rates would increase to between 20% and 25% per annum from the date due until paid.

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

During the nine months ended December 31, 2015, Note holders converted $473,731 of principal and $33,040 of accrued interest into 750,387,791 shares of the Company’s Common Stock. In addition, in June 2015, the Company agreed to allow one note holder to assign their then note principal balance of $49,240, which was in default due to non-payment after maturity date and insufficient availability of Common Stock available upon conversion, to a separate note holder, who is also a note holder under the 3% Notes and 7% Notes, for the new note holder’s payment of $77,000 to the original note holder. As a result of this assignment, the Company recorded $27,760 as loss on extinguishment during the nine months ended December 31, 2015 as a result of the increase in principal balance from $49,240 to $77,000. As of December 31, 2015, the principal balance of the convertible Notes outstanding was $172,254 and potentially convertible into 269,824,686 shares of Common Stock including accrued and unpaid interest.

The Company considered the current FASB guidance of “Contracts in Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability of whether or not within the issuers’ control means the instrument is not indexed to the issuer’s own stock. Accordingly, the Company determined that the conversion prices of the Notes were not a fixed amount because they were subject to an adjustment based on the occurrence of future offerings or events. In addition, the Company determined that instruments with floor prices ranging from $0.001 to $0.00005 were de minimis and in substance not indexed to the Company’s own stock. As a result, the Company determined that the conversion features of the Notes were not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as derivative liabilities upon issuance. The Company determined that upon issuance of the Notes, the initial fair value of the embedded conversion feature was $1,306,455. As such, the Company recorded a $1,306,455 derivative liability, of which $638,225 was recorded as debt discount offsetting the fair value of the Notes and the remainder of $668,230 recorded as private placement costs in the Consolidated Statement of Operations for the year ended March 31, 2015. The balance of the unamortized discount was $313,507 at March 31, 2015. During the nine months ended December 31, 2015, the Company amortized $313,507 of the valuation discount to interest expense.

In addition, as a result of the assignment of note discussed above, the Company recognized a derivative liability of $54,508 in June 2015. The derivative liability is re-measured at the end of every reporting period with the change in value reported in the statement of operations (see Note 6).

NOTE 6 - DERIVATIVE LIABILITY– ACCRUED LIABILITIES

In June 2008, the FASB issued authoritative guidance on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. Under the authoritative guidance, effective January 1, 2009, instruments, which do not have fixed settlement provisions, are deemed to be derivative instruments. The conversion featureAccrued liabilities consisted of the Company’s senior secured convertible notesfollowing as of September 30, 2019 and unsecured convertible notes (described in Note 5 above), did not have fixed settlement provisions because their conversion prices could be lowered if the Company issues securities at lower prices in the future or the ultimate determination of shares to be issued could exceed current available authorized shares. In June 2015, the Company determined that there was not sufficient authorized and available Common Stock available for issuance upon conversion of the 3% senior secured and 7% unsecured convertible notes. In accordance with the FASB authoritative guidance, the conversion feature of the notes was separated from the host contract (i.e., the notes) and recognized as a derivative instrument. The conversion feature of the notes had been characterized as a derivative liability and was re-measured at the end of every reporting period with the change in value reported in the statement of operations.March 31, 2019:

The derivative liability was valued at the following dates using a Weighted-Average Black-Scholes-Merton model with the following assumptions:

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

During the nine months ended December 31, 2015 and 2014, the Company recognized $540,802 and $2,602,392, respectively, as other income, which represented the difference in the value of the derivative from the respective prior period. In addition, the Company recognized a gain of $720,658 and $2,586,732, which represented the extinguishment of derivative liabilities related to the conversion of the unsecured convertible notes during the nine months ended December 31, 2015 and 2014, respectively.

In June 2015, the Company determined that there was not sufficient authorized and available Common Stock available for issuance upon conversion of certain of its Notes. As a result, the Company was required to record a derivative liability of $174,437 in June 2015.

NOTE 7 - ADVANCE ROYALTY

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

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

As part of the License agreement, SMI agreed to advance to the Company $500,000 in royalties of which $250,000 was applied from loan advances previously made to the Company under the 10% Notes made by GTA pursuant to a Securities Purchase Agreement and 10.0% First Lien Convertible Note entered into in May 2015; $100,000 was applied from the cancelation of a note entered into between GTA and the Company in March 2015; and $150,000 was paid by GTA in cash to the Company. As of December 31, 2015, the Company recognized a deferred advance royalty of $500,000 and will recognize this amount as revenue based on actual future royalties resulting from sales by SMI under the License Agreement.

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

NOTE 8 -7 – RELATED PARTY TRANSACTIONS

The amountsJeffrey Kraws, Top Hat Capital, and Crystal Research

As of accounts payable to related parties as of December 31September 30, 2019 and March 31, 2015 are as follows: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.

Other TransactionsS7 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 month periods ended September 31, 2018, the Company recognized revenue from S7 Supercars of $379,969 and $288,597, respectively, for engineering and manufacturing services provided to S7 Supercars, LLC. 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, 2019 and March 31, 2019, the Company had accounts receivable due from S7 Supercars of $0 and $133,742, respectively. As of September 30, 2019 and March 31, 2019, deposits of $0 and $100,000 from S7 Supercars were included in customer deposits, respectively.

On June 22, 2015,May 31, 2019, the Company issued 63,000 sharesentered into an asset purchase agreement with S7 Supercars, LLC pursuant to which S7 Supercars sold all of Super Voting Preferred Stockits assets, consisting of chassis and other automotive parts relating to Michaels Law Group, APLC (“MLG”) asthe manufacture of the S7 supercar, and related intellectual property, to the Company for an initial purchase price of $1,482,304 comprised of a retainer for legal servicescash payment of $800,000, and the elimination of an accounts receivable balance of $682,304 owed to be providedus by MLG in connection with various outstanding claims and suits inS7 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 plaintiff,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 other legal matters. Jonathan Michaels, the founding member of MLG, previously served as a memberindemnification obligations of the Company’s Board of Directors and as our general counsel. The per share price of Super Voting Preferred Stock issued to MLG was based on the conversion ratio of Super Voting Preferred Stock into 1,000 shares of Common Stock, multiplied by the per share closing price ($0.0018) of Common Stock as of June 19, 2015, the date the issuance was approved by the Board of Directors. As discussed in Note 9, in October 2015, all shares of Super Voting Preferred stock were converted into shares of Common Stock.Company thereunder.

NOTE 8 – INCOME TAXES

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

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 is a full valuation allowance against the net deferred tax assets as of September 30, 2019 and March 31, 2019.

As of September 30, 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 six month period ended September 30, 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 9 -– STOCKHOLDERS’ EQUITY (DEFICIT)

Authorized SharesSeries B Preferred Stock

In June 2015, the board of directors approved an increase in the Company’s authorized shares from 500,000,000 to 2,500,000,000. The increase became effective in October 2015.

Issuance of Common Stock

During the nine months ended December 31, 2015, the Company issued an aggregate of 750,387,791 shares of common stock upon conversion of the Company’s convertible notes payable and accrued interest amounting to $506,771 (see Note 5).

During the nine months ended December 31, 2015, the Company entered into Settlement Agreement and Mutual Release agreement with a vendor whereby the Company issued an aggregate of 2,380,377 shares of Common Stock with a fair value of $47,607 in exchange for extinguishment of amount owed of $47,607. The value of the Common Stock was based on the market price of the Company’s Common Stock as of the date of the Settlement Agreement.

Designation of Super Voting Preferred

On June 12, 2015,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 Super Voting$0.001, 1,000 were designated as Series B Preferred Stock. The Series B Preferred Stock par value $0.001is convertible at the option of the holder into 1,000 common shares per one share pursuant to resolutions approved by the Company’s Board of Directors on June 11, 2015. In October 2015, upon the increase in our authorized shares of common stock to 2,500,000,000, all 384,142 outstanding shares of Super VotingSeries B Preferred Stock. The Series B Preferred Stock were automatically cancelledprovides for liquidation and converteddividend rights on an as-if-converted basis into 384,142,000 sharesequivalent common shares. The Series B Preferred Stockholders have voting rights with the common shareholders on an as-if-converted basis. The holders of Common Stock , and the Super VotingSeries B Preferred Stock ceased to be a designated class of Preferred Stock.

Issuance of Super Voting Preferred

Duringhave the nine months ended December 31, 2015, the Company issued 63,000 shares of Super Voting Preferred Stock to Michaels Law Group, APLC (“MLG”)right, voting as a retainer for legal servicesseparate class, following a “Change of Control” (as defined), to be provided by MLG in connection with various outstanding claims and suits in whichelect a majority of the Company is plaintiff, and for other legal matters. Jonathan Michaels, the founding member of MLG, previously served as a membermembers of the Company’s Board of Directors and as our general counsel. The per share priceto remove from office such directors and to fill any vacancy caused by the resignation, death or removal of Super Votingsuch directors.

In September 2018, the Company issued 666.66 units of Series B Preferred Stock issued was based on the conversion ratioand warrants for $600 per unit, for total cash proceeds of Super Voting$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 Commonthe 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 multiplied byconvertible 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 per share closing price ($0.0018)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 as of June 19, 2015, the date the issuance was approved by the Board of Directors. The Company recorded these fees as general and administrative expense during the nine months ended December 31, 2015.

During the ninethree and six months ended December 31, 2015, the Company issued 220,000September 30, 2019 and 2018, there were no shares of Super Voting Preferred Stockcommon stock issued.

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 Mr. Saleenemployees, directors (including non-employee directors), advisors and consultants. Grants under the Plan vest and expire based on periods determined by the Administrator, but in satisfactionno event can the expiration date be later than ten years from the date of $220,000grant (five years after the date of debt owedgrant if the grant is an incentive stock option to Mr. Saleen.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 Super Voting Preferred Stock issued to Mr. Saleen was based on the conversion ratiofair market value of Super Voting Preferred Stock into 1,000 shares ofthe Company’s Common Stock multiplied by the per share closing price ($0.001) of Common Stock as of June 11, 2015,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 Board of Directors.

During the nine months endedstockholders on December 31, 2015, the Company issued to Mollypop, 19,007.777 shares of Super Voting Preferred Stock to reimburse Mollypop for $34,214 of merchandise previously purchased by Mollypop on the Company’s behalf and owed to Mollypop as of March 31, 2015. The per share price of Super Voting Preferred Stock issued was based on the conversion ratio of Super Voting Preferred Stock into 1,000 shares of Common Stock, multiplied by the per share closing price ($0.0018) of Common Stock as of June 19, 2015, the date the issuance was approved by the Board of Directors.

In order to make available additional shares of Common Stock to facilitate the conversion of outstanding debt, during the nine months ended December 31, 2015 the Company issued to Steve Saleen, the Company’s Chief Executive Officer and President, 82,133.875 shares of Super Voting Preferred Stock in exchange for 82,133,875 shares of Common Stock held by Mr. Saleen.

As discussed above, all shares of Super Voting Preferred Stock were automatically cancelled and converted into shares of Common Stock in October 2015.

Omnibus Incentive Plan11, 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: