The following discussion summarizes the significant factors affecting the operating results, financial condition and liquidity and cash flows of
Saleen Automotive, Inc.and subsidiaries for the three months ended June 30, 2014and 2013. The discussion and analysis that follows should be read together with the financial statements of Saleen Automotive, Inc.and subsidiaries and the notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Except for historical information, the matters discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations are forward looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond our control. Such forward-looking statements include any expectation of earnings, revenues or other financial items; any statements regarding the use of working capital, anticipated growth strategies and the development of and applications for new technology; factors that may affect our operating results; statements concerning our customers and expansion of our customer base; statements concerning new products; statements related to future economic conditions or performance; and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. These statements are often identified by the use of words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "will," or "plan," and similar expressions or variations. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Actual events or results may differ materially from our expectations. Important factors that could cause actual results to differ materially from those stated or implied by our forward-looking statements include, but are not limited to, our ability to successfully achieve profitability and positive cash flows from operations, our ability to raise additional funds required to continue our operations and meet our planned business objectives, the dilutive impact of the sale of equity securities to obtain needed additional financing, the potential issuance of shares or securities convertible into or exchangeable for shares that would result in a change of control of our company in connection with a financing transaction, the impact of changes in demand for our products, our success with new product development, our success with current dealers and our ability to expand our dealer base, our ability to maintain or grow our market share, our ability to obtain Ford Mustang, Chevrolet Camaro and Dodge Challenger platform vehicles, our effectiveness in managing development and manufacturing processes, and the other risks as set forth under "Part I, Item 1A - Risk Factors" which are included in our Report on Form 10-K for the year ended March 31, 2014as filed on June 30, 2014. These forward-looking statements represent our judgment as of the date hereof. We disclaim any intent or obligation to update these forward-looking statements. New factors emerge from time to time, and their emergence is impossible for us to predict. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. General Overview We design, develop, manufacture and sell high performance cars built from base chassis' of Ford Mustangs, Chevrolet Camaros, and Dodge Challengers, as well as exotic sports cars. We are a low volume specialist vehicle design, engineering and manufacturing company focusing on the mass customization (the process of customizing automobiles that are mass produced by manufacturers (Ford, Chevrolet and Dodge)) of OEM American Sports Cars and the production of high performance USA-engineered sports and racing cars. Saleen-branded products include a complete line of upgraded muscle cars, high performance cars, automotive aftermarket specialty parts and lifestyle accessories. A high performance car is an automobile that is designed and constructed specifically for speed. The design and construction of a high performance car involves not only providing a capable power train but also providing the handling and braking systems to support it. Muscle cars are any of a group of American-made 2-door sports coupes with powerful engines designed for high performance driving. We are also planning to develop an American supercar along with hybrid and zero-emission vehicles for commercial applications and consumer markets. The term supercar describes an expensive (approximately $250,000or more), limited production, fast or powerful (capable of reaching speeds in excess of 180 miles per hour) sports car with a centrally located engine. In January 2013, we announced that we will produce for the first time, a Saleen Tesla Model S sports car. The Saleen Tesla design will be our first effort in enhancing an existing electric vehicle. Our customers worldwide include muscle and high performance car enthusiasts, collectors, automotive dealers, exotic car retail dealers, television and motion picture production, and consumers in the luxury supercar and motorsports market. We plan to develop a network of company-owned branded stores to complement our existing retail dealer locations. 3 We utilize automobile manufacturers Ford, Chevrolet and Dodge platform vehicles for our muscle and performance vehicle production. All aftermarket parts and accessory products are engineered and manufactured exclusively by us. Our current retail outlets for our products are authorized Ford, Chevrolet and Dodge dealers and we also retail our products with exotic car dealers. We plan to operate as a global high performance automotive brand and expand our production, sales and marketing operations extensively within the markets of the USAand into multiple international markets. In March 2014, we entered into an agreement to distribute the full collection of Saleen automobiles in China. We also plan to open our own retail outlets, market our expertise in specialist engineering and design services to third party clients, develop our own motorsport program and introduce our next generation American supercar. Merger On May 23, 2013, we entered into an Agreement and Plan of Merger ("Merger Agreement") with Saleen California Merger Corporation, our wholly-owned subsidiary, Saleen Florida Merger Corporation, our wholly-owned subsidiary, Saleen Automotive, Inc.(" Saleen Automotive"), SMS Signature Cars ("SMS" and together with Saleen Automotive, the "Saleen Entities") and Steve Saleen("Saleen" and together with the Saleen Entities, the "Saleen Parties"). The closing (the "Closing") of the transactions (the "Merger") occurred on June 26, 2013. At the Closing (a) Saleen California Merger Corporationwas merged with and into SMS with SMS surviving as one of our wholly-owned subsidiaries; (b) Saleen Florida Merger Corporationwas merged with and into Saleen Automotivewith Saleen Automotivesurviving as one of our wholly-owned subsidiaries; (c) holders of the then outstanding capital stock of Saleen Automotivereceived an aggregate of 554,057 shares of our Super Voting Preferred Stock, which was subsequently converted into 69,257,125 shares of our common stock and holders of the outstanding capital stock of SMS received no consideration for their shares; and (d) approximately 93% of the beneficial ownership of our common stock (on a fully-diluted basis) was owned, collectively, by Saleen Parties (including 341,943 shares of our Super Voting Preferred Stock, which was subsequently converted into 42,742,875 shares of our common stock, issued to Saleen pursuant to an Assignment and License Agreement) and the former holders of the outstanding capital stock of Saleen Automotive. As a result of the Merger we are solely engaged in the Saleen Entities' business, Saleen Automotive'sofficers became our officers and Saleen Automotive'sthree directors became members of our five-member board of directors. On June 17, 2013, we consummated a merger with WSTY Subsidiary Corporation, our wholly-owned subsidiary, pursuant to which we amended our articles of incorporation to change our name to Saleen Automotive, Inc.In October 2013, SMS effected an amendment to its articles of incorporation to change its name to Saleen Signature Cars. In January 2014, we effected an increase in the number of our common shares authorized to 500,000,000 and all the remaining shares of Super Voting Preferred Stock were converted into our common stock and the Super Voting Preferred Stock ceased to be a designated series of our preferred stock. The Merger was accounted for as a reverse merger (recapitalization) with the Saleen Entities deemed to be the accounting acquirers, and our company deemed to be the legal acquirer. Accordingly, the following represents a discussion of the historical operations of the Saleen Entities prior to the Merger and that of the combined company following the Merger. The accompanying condensed consolidated financial statements are prepared as if we will continue as a going concern. Accordingly, the condensed consolidated financial statements do not contain adjustments, including adjustments to recorded assets and liabilities, which might be necessary if we were unable to continue as a going concern.
Critical Accounting Policies
Information with respect to our critical accounting policies which we believe have the most significant effect on our reported results and require subjective or complex judgments of management are contained starting on page 31 in "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended
March 31, 2014as filed on June 30, 2104. 4
Three Months Ended
Our revenue, operating expenses, and net loss from operations for the three months ended
June 30, 2014as compared to the three months ended June 30, 2013were as follows - some balances on the prior period's condensed consolidated financial statements have been reclassified to conform to the current period presentation: For the Three months ended Percentage June 30, Change 2014 2013 Change Inc (Dec)
$ 1,697,377 $ 889,904 $ 807,47391 % Costs of goods sold 1,431,485 826,442 605,043 73 % Gross margin 265,892 63,462 202,430 319 % Operating expenses
Research and development 197,955 122,757 75,198 61 % Sales and marketing 576,919 121,783 455,136 374 % General and administrative 1,048,858 1,713,144 (664,287 ) (39 %) Depreciation and Amortization 45,909 20,171 25,738 128 % Total operating expenses 1,869,641 1,977,855 (108,214 ) (5 %) Loss from operations (1,603,749 ) (1,914,393 ) 310,644 (16 %) Other income (expenses) Interest expense (443,053 ) (73,539 ) (369,514 ) 502 % Costs of reverse merger transaction - (365,547 ) 365,547 (100 %) Gain in extinguishment of derivative liability 2,586,732 - 2,586,732 - Change in fair value of derivative liability 2,446,054 (89,765 ) 2,535,819 (2,825 %) Net Income (Loss)
$ 2,985,984 $ (2,443,244 ) $ 5,429,228(222 %) Revenues: Revenue consists of sales of high performance vehicles, aftermarket retail parts and design services. Our revenue from high performance vehicles generally includes the base chassis (Mustang, Camaro or Challenger), on which we normally obtain a small margin, and production conversion of the base chassis into a Saleen OEM high performance sports car. Parts represent aftermarket retail sales of Saleen lifestyle accessories and Saleen-branded products and automotive aftermarket specialty parts sold to our base of over 25,000 loyal Saleen automotive vehicle enthusiasts in the U.S. and overseas. Additionally, many of these parts and accessories are marketed and sold to the owners of Ford Mustangs, Chevrolet Camaros and Dodge Challengers. Total revenues for the three months ended June 30, 2014were $1,697,377, an increase of $807,473or 91% from $889,904for the three months ended June 30, 2013. The increase reflects sales efforts achieved by our expanded sales force whereby we sold a higher number of vehicles during the three months ended June 30, 2014as compared to the three months ended June 30, 2013. Growth was achieved primarily through expansion with existing dealers as well as the addition of new dealer networks. Cost of Goods Sold: Cost of goods sold consist of five major categories: base chassis, material, overhead, labor and purchased process services. Chassis costs relate to the purchased Ford Mustang, Chevrolet Camaro or Dodge Challenger vehicles. Material cost relates to the purchase of conversion parts used in the production of our high performance vehicles, and procurement of aftermarket parts, which are manufactured by third party suppliers using our proprietary tools and molds developed by us. Overhead costs include costs associated with manufacturing support, shop and warehouse supplies and expenses, small tools and equipment and other related warehouse and production costs. Our labor costs include the cost of personnel related to the production of our high performance vehicles and logistics of warehousing and shipping our aftermarket parts. Purchased process services related to the subcontracting of specific manufacturing processes to outside contractors. Total costs of goods sold for the three months ended June 30, 2014were $1,431,485, an increase of $605,043or 73% from $826,442of costs of goods sold for the three months ended June 30, 2013. The increase was primarily attributable to increased vehicle and parts sales during the three months ended June 30, 2014as compared to the same period in the prior year. Gross Margin: Gross Margin from the sale of vehicles and parts increased $202,430to $265,892, or 319%, for a gross margin of 16% for the three months ended June 30, 2014from a gross margin of $63,462, or 7%, for the three months ended June 30, 2013. The improvement in gross margin reflects both the increase in sales net of an increase in costs of goods sold as a percentage of sales during the three months ended June 30, 2014as compared to the same period
in the prior year. 5 Research and Development Expenses: Research and development expenses are expensed as incurred and represent engineering salaries and benefits and costs incurred in the development of new products and processes, including significant improvements and refinements to existing products and processes. Research and development expenses increased by
$75,198, or 61%, to $197,955during the three months ended June 30, 2014from $122,757for the three months ended June 30, 2013. The increase is primarily due to our expanded engineering team and development of our new Saleen Tesla high performance electric vehicle. Sales and Marketing Expense: Sales and marketing expenses relate to sales and marketing salaries and benefits, including our regional sales representatives, and costs incurred to promote our existing and new products, such as attending car shows and promotion through other media outlets, along with new car sales expenses such as commissions and incentives, and costs related to investor relations. Sales and marketing expenses increased by $455,136, or 374%, to $576,919for the three months ended June 30, 2014from $121,783for the three months ended June 30, 2013. The increase was primarily comprised of increased marketing efforts to promote existing and new products, including our increased participation at various car shows; higher new car sales commissions related to increased revenues from sales of high performance vehicles; and investor and public relation costs incurred to promote our company. General and Administrative Expense: General and administrative expenses include expenses for administrative salaries, including executive, finance/accounting, information personnel and administrative support staff and benefits. Other general and administrative costs also include occupancy costs of our facilities, travel and entertainment, auto, insurance, stock compensation, other office support costs and professional fees, including outside accounting/audit, legal, and investor fund raising advisory services. General and administrative expenses decreased by $664,287, or 39%, to $1,048,858for the three months ended June 30, 2014from $1,713,144for the three months ended June 30, 2013. The decrease is primarily comprised of $208,830of lower professional fees related to merger activity during the three months ended June 30, 2013that was not incurred during the three months ended June 30, 2014as we did not have a comparable expense of this type; $504,481of lower stock based employee compensation, as we did not incur any stock based employee compensation during the three months ended June 30, 2014; $144,693of lower one time settlements of previous claims, as we incurred a gain on settlements of $75,469during the three months ended June 30, 2014as compared to a loss of $69,224for the three months ended June 30, 2013; and $65,284decrease in other general and administrative expenses. The decrease was partially offset by $152,664of higher administrative salaries expense resulting from our expansion of personnel to support the increased sales volume; and $106,337of higher auto and travel and entertainment costs related primarily to our increased participation in car shows during the three months ended June 30, 2014as compared to the same period in the prior year. Depreciation and Amortization Expense: Depreciation and amortization expense relates to our depreciating and amortizing costs incurred for leasehold improvements, equipment and tooling. Depreciation and amortization expense increased by $25,738, or 128%, to $45,909for the three months ended June 30, 2014from $20,171for the three months ended June 30, 2013. Interest Expense: Interest expense increased by $369,514or 502% to $443,053for the three months ended June 30, 2014from $73,539for the three months ended June 30, 2013. The increase is primarily attributable to $353,826of non-cash interest expense during the three months ended June 30, 2014as compared to $4,550of non-cash interest expense during the three months ended June 30, 2013. Non-cash interest relates to the amortization of the convertible debt discount on our $2,509,245of senior secured convertible notes issued on June 26, 2013and $2,500,000of unsecured convertible notes issued in March and April 2014. Expenses of Reverse Merger Transaction: During the three months ended June 30, 2013, we incurred $365,547of expenses related to the reverse merger transaction. This includes $39,547of liabilities assumed, $46,000in legal fees, and dividends of $280,000paid to our existing stockholders prior to the Merger. We did not have a comparable expense of this type during the three months ended June 30, 2014. Gain on Extinguishment of Derivative Liability: On June 17, 2014we entered into a First Amendment to Saleen Automotive, Inc.3.0% Secured Convertible Note whereby in exchange for the issuance of 389,923 shares of our common stock, the Note holders agreed to remove all specified adjustments to the conversion price of these Notes except for standard anti-dilution provisions whereby if we consummate a reorganization transaction that pays dividends or we enter into a stock split of our common shares, the conversion price would adjust proportionally. As a result of this amendment, we recorded a gain of $2,586,732which represented the remaining derivative liability as of June 17, 2014and we no longer record a derivative liability. 6 Change in Fair Value of Derivative Liability: In accordance with the FASB authoritative guidance, the conversion feature of our $3,000,000convertible notes issued on June 26, 2013was separated from the host contract (i.e., the notes) and recognized as a derivative instrument. The conversion feature of the notes was characterized as a derivative liability that was re-measured at the end of every reporting period with the change in value recognized as a gain or loss in our statement of operations. During the three months ended June 30, 2014, we recorded a $2,446,054gain due to the change in the derivative liability from issuance date to June 17, 2014as compared to a loss of $89,765for the three months ended June 30, 2013. As discussed above, on June 17, 2014we entered into an amendment with the holders and no longer recognize a derivative liability related to these notes. Net Income (Loss): Net loss decreased by $5,429,228, or 222%, to a net income of $2,985,984for the three months ended June 30, 2014from a net loss of $2,443,244for the three months ended June 30, 2013. The decrease in net loss to a net income is attributable to $5,032,786of non-cash gain we recorded on the change in the fair value and extinguishment of our derivative liability. Excluding the impact on our net income (loss) of the change in value of derivative liability, our net loss decreased $306,677to a net loss of $2,046,802for the three months ended June 30, 2014from a net loss of $2,353,479for the three months ended June 30, 2013. This decrease in net loss reflects the increase in gross margin, decrease in operating expenses and merger transaction costs, offset partially by higher interest costs discussed above.
Liquidity and Capital Resources
Our working capital deficiency as of
June 30, 2014and March 31, 2014are follows: As of As of June 30, 2014 March 31, 2014 Current Assets $ 623,998 $ 2,230,294Current Liabilities (4,381,046 ) (5,280,580 )
Net Working Capital Deficiency
Summary of cash flow activity for the three months ended
June 30, 2014and June 30, 2013are as follows: Cash Flows Three months Three months Ended Ended June 30, 2014 June 30, 2013
Net cash used in Operating Activities
$ (1,423,194 ) $ (1,584,811 )Net cash used in Investing Activities (210,159 ) (9,100 ) Net cash provided by Financing Activities 160,680
(Decrease) Increase in Cash during the Three months (1,472,673 ) 1,008,221 Cash, Beginning of Period 1,499,889 4,434 Cash, End of Period 27,216 1,012,655
For the three months ended
June 30, 2014and 2013, our principal sources of liquidity have been obtained from cash provided by financing, including through the private issuance of notes and sale of equity securities, along with gross margin achieved from the sales of high performance vehicles and aftermarket parts. Our principal uses of cash have been primarily used to finance operations; expand our staff; develop new products and improve existing products; expand marketing efforts to promote our products and company; and other capital expenditures. We anticipate that significant additional expenditures will be necessary to develop and expand our automotive assets before significant positive operating cash flows will be achieved and funds will be needed in order to continue operations and achieve these objectives. As such, our cash resources are insufficient to meet our current operating expense requirements and planned business objectives without additional financing. As further presented in our condensed consolidated financial statements and related notes, during the three months ended June 30, 2014, we incurred a loss from operations of $1,603,749and utilized $1,423,194of cash in operations. We also had a stockholders' deficit and working capital deficit of $4,530,646and $3,757,048, respectively as of June 30, 2014, and as of that date, we owed $612,716in past unpaid payroll taxes, $352,795of our outstanding notes payable were in default and $583,150of our accounts payable is greater than 90 days past due. These factors raise substantial doubt about our ability to continue as a going concern. 7
Our ability to continue as a going concern is dependent upon our ability to raise additional capital and to ultimately achieve sustainable revenues and profitable operations. At
June 302014, we had cash on hand in the amount of $27,216and we are not generating sufficient funds from operations to cover current operating expenses without obtaining additional financing. During the three months ended June 30, 2014, we raised $250,000through the issuance of convertible notes and we entered into Subscription Agreements with individual accredited investors (the "Subscribers") pursuant to which the Subscribers purchased from us an aggregate of 1,016,667 of restricted common shares at a per share price of $0.15for aggregate proceeds of $152,500. However, additional funding will be needed to continue operations through September 30, 2014. In addition, we will need and are currently seeking additional funds, primarily through the issuance of debt or equity securities for cash to operate our business beyond September 30, 2014. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, such financing may contain undue restrictions and covenants on our operations, in the case of debt financing or cause substantial dilution for our stockholders (including the issuance of securities sufficient to result in a change in control of our company), in the case of equity financing. At June 30, 2014, we had a working capital deficit of $3,757,048compared to a working capital deficit of $3,050,286at March 31, 2014. The increase in working capital deficit primarily relates to the decrease in cash to $27,216as of June 30, 2014from $1,499,889as of March 31, 2014. This was offset partially by the decrease in current liabilities from $4,381,045at June 30, 2014from $5,280,580at March 31, 2014primarily due to the decrease in accounts payable, notes payable and accrued interest offset partially by an increase in deferred vendor consideration related to purchase commitment advances received from BASF and FinishMaster, as discussed further in Note 9 to our condensed consolidated financial statements. Net cash used in operating activities for the three months ended June 30, 2013totaled $1,423,194after net income of $2,985,984was decreased by $4,529,672in non-cash charges and increased by $120,494in net changes to the working capital accounts. This compares to cash used in operating activities for the three months ended June 30, 2013of $1,584,811after the net loss for the period of $2,443,244was decreased by $691,466in non-cash charges and increased by $166,967in changes to the working capital accounts.
Net cash used in investing activities was
Net cash provided by financing activities for the three months ended
June 30, 2014was $160,680. Of this amount, $250,000came through the issuance of our unsecured convertible notes, $160,000came from the issuance of 1,066,667 shares of our common stock and $25,000came from accounts to be settled through the issuance of equity securities. Cash of $274,320was used to pay principal on long term notes. This compares to $2,602,132in cash provided by financing activities during the three months ended June 30, 2013, of which $3,000,000was obtained through the issuance of our secured convertible notes partially offset by $221,303used to pay principal payments on notes from related parties and $176,565was used to pay principal on notes payable. Secured Convertible Notes On June 26, 2013, pursuant to a Securities Purchase Agreement, we issued senior secured convertible notes, having a total principal amount of $3,000,000, to 12 accredited investors. The Notes were issued in a private placement, exempt from the Securities Act registration requirements. The Notes pay 3.0% interest per annum with a maturity of 4 years ( June 25, 2017) and are secured by all of our assets and intellectual property. No cash interest payments are required, except that accrued and unconverted interest shall be due on the maturity date and on each conversion date with respect to the principal amount being converted, provided that such interest may be added to and included with the principal amount being converted. Each Note is convertible at any time into our common stock at a specified conversion price, which currently is $0.075per share. Prior to June 2014, the Note conversion price was subject to specified adjustments for certain changes in the numbers of outstanding shares of our common stock, including conversions or exchanges thereof, and the agreements included an anti-dilution provisions that allowed for the automatic reset of the conversion or exercise price upon any future sale of our common stock instruments at or below the then-current exercise price. On June 17, 2014in exchange for the issuance in aggregate of 389,923 shares of our common stock, we entered into a First Amendment to Saleen Automotive, Inc.3.0% Secured Convertible Note ("3% First Amendment") to remove all specified adjustments to the conversion price except for standard anti-dilution provisions whereby if we consummate a reorganization transaction, pay dividends or enter into a stock split of our common shares the conversion price would adjust proportionally. In addition, if a Fundamental Transaction, as defined, were to occur, the potential liquidated damages was set to a fixed
amount. 8 Unsecured convertible notes
In March and
April 2014, we issued 7% Unsecured Convertible Notes, having a total principal amount of $2,250,000and $250,000, to 5 accredited investors of which $2,000,000was received from 3 investors who participated in the June 26, 2013offering. The notes were issued in a private placement, exempt from the Securities Act registration requirements. The notes pay 7.0% interest per annum with a maturity of 3 three years (March and April 2017). No cash interest payments are required, except that accrued and unconverted interest shall be due on the maturity date and on each conversion date with respect to the principal amount being converted, provided that such interest may be added to and included with the principal amount being converted. Each note is initially convertible at any time into our common stock at a specified conversion price, which currently is $0.07per share. The conversion price is adjustable to the lower of $0.07or the three lowest daily volume weighted average price of our common stock during the twenty consecutive trading days immediately preceding any conversion date. In addition, the conversion price adjusts for standard anti-dilution provisions whereby if we consummate a reorganization, pay dividends or enter into a stock split of our common shares the conversion price would adjust proportionally. In June 2014, in exchange for the issuance in aggregate of 357,143 shares of our common stock we entered into a First Amendment to Saleen Automotive, Inc.7% Convertible Note whereby effective as of June 17, 2014, the conversion price in no event adjusts below $0.03per share. In addition, if a Fundamental Transaction, as defined, were to occur, the potential liquidated damages was set to a fixed amount.
Private Placement Stock Subscriptions
October 2013, our board of directors approved our issuance, pursuant to Subscription Agreements, as amended in January 2014, of up to 11,666,66 restricted shares of our common stock (the "Subscription Shares") for an aggregate purchase price of $1,749,999(the "Subscription Proceeds") to accredited investors in a private placement. In addition, our board of directors approved the issuance to each Subscriber of warrants (the "Warrants" and together with the Subscription Agreements, the "Financing"), to purchase 100% of the Subscription Shares purchased by such Subscriber in the Financing, having a term of five years and a per share exercise price of $0.15. During the three months ended June 30, 2014, Subscribers purchased Subscription Shares of 1,016,667 shares with Subscription Proceeds of $152,500. In addition, we issued Common Stock Purchase Warrants to the Subscribers to purchase 1,016,667 restricted shares of our common stock at an exercise price of $0.15per share. In May 2014, one Subscriber exercised their Common Stock Purchase Warrant to purchase 50,000 shares of our common stock for total proceeds of $7,500. Defaults on Notes Payable As of June 30, 2014, we were in default on $352,795of unsecured notes payable. While we are in discussions with the note holders to arrange extended payment terms, the initiation of collection actions by these note holders may severely affect our ability to execute on our business plan and operations. In addition, Saleen Signature Cars received a Complaint from the bank to which it issued a Senior Secured Note, which was filed on February 6, 2014in California Superior Court, Riverside County. In April 2014, we entered into a settlement arrangement with the bank whereby the bank dismissed this case in exchange for payment of $124,000that was applied towards principal and unpaid fees along with advance loan principal and interest for May, June and July 2014. In accordance with the settlement arrangement, we were required to pay $418,429to this bank in August 2014as full settlement of remaining principal amount owed. In August 2014, the bank agreed to extend this date by 90 days to November 2014in exchange for $30,000to be applied towards principal and interest on the loan.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements