This prospectus relates
to the offer and sale, from time to time, of up to 4,250,000 shares of common stock of ElectraMeccanica Vehicles Corp. (the “Company”,
“we”, “us’ and “our”) by those shareholders named in the section of this prospectus entitled
“Selling Shareholders”. We entered into a Securities Purchase Agreement with the selling shareholders on November 7,
2018 by which the selling shareholders acquired 4,250,000 of our common shares pursuant to a registered direct offering and warrants
to purchase 4,250,000 of our common shares pursuant to a private placement. This prospectus is for the resale of the 4,250,000
common shares that may be acquired upon the exercise of the warrants sold in that November private placement.
We are not selling
any shares of common stock in this offering, and we will not receive any proceeds from the sale of the common shares by the selling
shareholders. We will receive $10,880,000 of proceeds if all of the warrants issued in the November private placement are exercised.
Our
common shares are traded on the Nasdaq Capital Market under the symbol “SOLO”. On January 30, 2019, the last reported
sales price of our common shares on the Nasdaq Capital Market was US$1.35 per share and we had 32,364,343 common shares outstanding.
The
selling shareholders may offer all or part of the common shares for resale from time to time through public or private transactions,
at either prevailing market prices or at privately negotiated prices.
This prospectus provides
a general description of the common shares being offered. You should read this prospectus and the registration statement of which
it forms a part before you invest in our common shares.
PROSPECTUS SUMMARY
The following summary
highlights, and should be read in conjunction with, the more detailed information contained elsewhere in this prospectus. You should
read carefully the entire document, including our historical and pro forma financial statements and related notes incorporated
by reference herein, to understand our business, the common shares and the other considerations that are important to your decision
to invest in our company. You should pay special attention to the “Risk Factors” section beginning on page 1.
All references to “$”
or “dollars” are expressed in Canadian dollars unless otherwise indicated.
Our Company
We are a development-stage
electric vehicle, or “EV”, manufacturing company located in Vancouver, British Columbia, Canada. Our initial product
line targets urban residents seeking to commute in an efficient, cost-effective and environmentally friendly manner.
Our first flagship
EV is the SOLO, a single person car, of which we have built 43 pre-mass production vehicles as of January ,30, 2019. We have used
some of these pre-mass production vehicles as prototypes and for certification purposes, have delivered some to customers and have
used others as test drive models in our showrooms. We believe our schedule to mass produce EVs over the near term, combined with
our almost 60-year history of automotive design, manufacturing and deliveries of motor vehicles to customers, significantly differentiates
us from other early and development stage EV companies. To support our near-term production, we have entered into a manufacturing
agreement with a wholly-owned subsidiary of Zongshen Industrial Group Co. Ltd. (“Zongshen”), an affiliate of Zongshen
Power Machinery Co., Ltd., a large-scale scientific and technical enterprise, which designs, develops, manufactures and sells a
diverse range of motorcycles and motorcycle engines in China, and we have recently received delivery of the first SOLOs under this
arrangement. Zongshen has previously purchased common shares and warrants to purchase common shares from us and beneficially owns
approximately 4.3% of our common shares.
We have two other EV
candidates in an advanced stage of development, the Super SOLO, a sports car model of the SOLO, and the Tofino, an all-electric,
two-seater roadster, and have identified other vehicles that we would like to add to our candidate list such as the Cargo, a fleet
vehicle with ample storage space, and the Twinn, featuring two seats, suitable for urban families, young commuters and empty nesters.
We have devoted substantial
resources to create an affordable EV which brings significant performance and value to our customers. To this end, we envision
the SOLO carrying a manufacturer’s suggested retail price of $19,888 (approximately US$15,888) and being powered by a high
performance electric rear drive motor which enables the SOLO to achieve:
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a top speed of 85 mph and an attainable cruise speed of 68 mph resulting from its lightweight aerospace
composite chassis;
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acceleration from 0 mph to 60 mph in approximately eight seconds; and
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a range of up to 100 miles generated from a lithium ion battery system that requires only three hours
of charging time on a 220-volt charging station (six hours from a 110-volt outlet) that utilizes approximately 8.64 kW/h.
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In addition, the SOLO
contains a number of standard features found in higher price point vehicles including:
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LCD digital instrument cluster;
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AM/FM stereo with Bluetooth/CD/USB;
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remote keyless entry system;
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rear view backup camera;
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285 liters of cargo space; and
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We anticipate that
air conditioning will be available for the SOLO at an additional cost.
We estimate that we
need approximately $12.9 million to carry out our proposed business plan over the next 12 months. Since our operations are not
yet profitable, our auditors have issued a going concern opinion in our audited financial statements.
We were incorporated
on February 16, 2015 under the laws of British Columbia, Canada, and have a December 31st fiscal year end. As of January 30, 2019,
we had 32,364,343 common shares outstanding.
Our principal executive
offices are located at 102 East 1st Avenue, Vancouver, British Columbia, Canada, V5T 1A4. Our telephone number is (604) 428-7656.
Our website address is www.electrameccanica.com. Information on our website does not constitute part of this prospectus. Our registered
and records office is located at Suite 1500, 1055 West Georgia Street, P.O. Box 11117, Vancouver, British Columbia, Canada,
V6E 4N7.
Our executive officers
and directors beneficially owned approximately 43% of our common shares as of January 30, 2019 and would beneficially own 38% if
the warrants representing all of the common shares being offered pursuant to this prospectus were exercised, which percentages
include shares that our executive officers and directors have the right to acquire within the next 60 days pursuant to warrants
and stock options which have vested.
Industry Overview
Investment in clean
technology has been trending upwards for several years as nations, governments and societies overall become more aware of the damaging
effects that pollution and greenhouse gas emissions have on the environment. EVs are a growing segment of this clean technology
movement. An EV is any vehicle that does not solely operate on gas or diesel. Within this alternative vehicle group, there are
sub-categories of alternative vehicles that utilize different innovative technologies, including battery electric vehicles (“BEV”)
and plug-in hybrid electric vehicles (“PHEV”). Our products are BEVs.
Global EV Market
EVs have existed for
over 100 years but have only recently gained widespread adoption and public interest due to open discussions of greenhouse gas
emission levels, government and international policies on climate change and pollution, increased literature on EVs, fluctuating
fuel costs and improved battery management systems and EV range. In addition. the market for EVs has experienced significant growth
in recent years due to consumer demand for vehicles that achieve greater fuel efficiency and lower environmental emissions without
sacrificing performance.
The global stock of
EVs has increased significantly over the past few years. According to the International Energy Agency (the “IEA”),
the global stock of electric cars first crossed the one million vehicle threshold in 2015 and then crossed the two million vehicle
threshold in 2016.
We anticipate that
the trend of increasing EV sales will continue in the near future. The IEA believes that there is a good possibility that the global
electric car stock will range between 9 million and 20 million by 2020 and between 40 million and 70 million by 2025.
North American EV Market
We anticipate that
our primary target market shall initially be North America, with a focus on the West Coast where we have showrooms in Vancouver
and Los Angeles. We are looking to open additional showrooms in San Francisco and Seattle in 2019. Sales of EVs in North America
have mirrored the global increase in sales of EVs. The sale of BEVs in the United States increased by 22% between 2015 and 2016
and by 19% in Canada during the same period.
In 2016, sales of EVs
in six U.S. states and the District of Columbia comprised 1% or more of total auto sales in those jurisdictions. At 3.66% for the
year, California had nearly double the next highest EV purchase rate in any U.S. state.
According to data compiled
by EVAdoption.com, California consumers purchased 12% of autos in the U.S., but bought more than 50% of all EVs in the United States.
In essence, Californians are buying at four times the national rate while Oregon and Washington buy at a bit more than two times
the national rate.
Competitive Advantages & Operational
Strengths
The EV market is evolving
and companies within it must be able to adapt without jeopardizing the timing, quality or quantity of their products. We believe
that our extensive managerial and automotive experience, production capability and unique product offering give us the ability
to successfully operate in the EV market in a way that our competitors cannot. In particular, we believe that our competitive advantages
include:
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extensive in-house development capabilities:
Our recent acquisition of
Intermeccanica International Inc. (“Intermeccanica”) enables us to leverage Intermeccanica’s extensive 60 years
of experience in vehicle design, manufacture, sales and customer support. Intermeccanica’s former owner, Henry Reisner, is
our President and Chief Operating Officer and one of our directors and, together with his family, is the second largest beneficial
owner of our company. We have integrated Intermeccanica’s staff with the research and development team that we had prior
to the acquisition to develop and enhance current and future model offerings;
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in-house production capabilities:
We have the ability to manufacture our
own products on a non-commercial scale. As of January 30, 2019, we have produced 43 SOLOs at our facilities in Vancouver, British Columbia.
We will continue to produce two to four SOLOs per month as needed and to develop prototypes of our other EVs;
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commercial production of the SOLO anticipated to commence in the first quarter of 2019:
We
have an agreement with Zongshen whereby they have agreed to produce 5,000 SOLOs in the first 12 months after the start of production,
20,000 cars in the next 12 months and 50,000 cars in the 12 months after that;
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unique product offering:
Although the proposed retail price of the SOLO,
$19,888 (US$15,888), is far below that of what we deem to be our principal competitors, we believe that the SOLO compares favorably
against them; and
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management expertise:
We have selected our management with an eye towards
providing us with the business and technical expertise needed to be successful. Our Chief Executive Officer, Jerry Kroll,
and our President and Chief Operating Officer, Henry Reisner, used their love of automobiles to devise the concept for the SOLO.
Mr. Kroll has an extensive background working in small businesses and start-ups. We have supplemented their expertise by adding
officers and directors with corporate, accounting, legal and other strengths.
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Strategy
Our near-term goal
is to commence and expand sales of the SOLO while continuing to develop our other EVs. We intend to achieve this goal by:
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beginning commercial production of the SOLO:
We anticipate that Zongshen
will begin producing the SOLO for customer deliveries in the first quarter of 2019 and that we will complete our first sale of
a mass production vehicle shortly thereafter. Zongshen is contracted to make 75,000 SOLOs in the first three years of production;
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increasing orders for our EVs:
To date, we have received deposits for 919
EVs from individuals. As part of our “Match My Deposit” program, we offer customers who have placed deposits for other
electric vehicles a credit of up to $1,000 towards the purchase of a SOLO, which is initially credited towards the buyers’
deposit. 214 of the 919 vehicle deposits that we have received through January 30, 2019 result from the “Match My Deposit”
program. Additionally, we have entered into non-binding letters of interest for approximately 64,158 vehicles from corporate entities.
There is no guaranty that a significant number of these orders, if any, will become binding and result in sales. We have achieved
this order book through online “direct sales to customers and corporate sales” platform as well as a store and show
room at our headquarters in Vancouver. We plan on expanding this model and will be opening similar stores in key urban areas. On
October 9, 2018, we had a soft open of our first U.S. corporate store which is located in Los Angeles;
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having sales and services supported by local corporate dealerships:
We
will monitor all cars in real time via telematics which provides early warning of potential maintenance issues; and
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expanding our product offering:
In parallel with the production and sale
of the SOLO, we aim to continue the development of our other proposed products, including the Tofino, a two seater sports car in
the expected price range of $50,000 to $60,000 with an estimated production date in 2020, and the Cargo, a fleet vehicle
with ample storage space with an estimated production date of 2021.
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Implications of Being a Foreign Private
Issuer
We are considered a
foreign private issuer. In our capacity as a foreign private issuer, we are exempt from certain rules under the U.S. Securities
Exchange Act of 1934, as amended, (the “Exchange Act”), that impose certain disclosure obligations and procedural requirements
for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are
exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules
under the Exchange Act with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic
reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered
under the Exchange Act. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure
of material information.
We may take advantage
of these exemptions until such time as we are no longer a foreign private issuer. We would cease to be a foreign private issuer
at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances
applies: (1) the majority of our executive officers or directors are U.S. citizens or residents, (2) more than 50% of our assets
are located in the United States; or (3) our business is administered principally in the United States.
We have taken advantage
of certain reduced reporting and other requirements in this prospectus. Accordingly, the information contained herein may be different
than the information you receive from other public companies in which you hold equity securities.
Implications of Being an Emerging
Growth Company
We qualify as an “emerging
growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the “JOBS Act”. An emerging
growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public
companies. These provisions include:
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the ability to include only two years of audited financial statements and only two years of related
management’s discussion and analysis of financial condition and results of operations disclosure; and
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an exemption from the auditor attestation requirement in the assessment of our internal control
over financial reporting pursuant to the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”).
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We may take advantage
of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease
to be an emerging growth company if we have more than US$1.07 billion in annual revenue, have more than US$700 million in market
value of our common shares held by non-affiliates or issue more than US$1 billion of non-convertible debt over a three-year period.
Offering Summary
Common Shares Offered by Selling Shareholders
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Up to 4,250,000 common shares underlying the warrants purchased in the November private placement.
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Shares Outstanding Prior to the Offering
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32,364,343.
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Shares Outstanding After the Offering
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36,614,343, assuming the selling shareholders exercise the warrants purchased in the November private placement and no additional shares are issued prior to completion of the offering.
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Offering Price
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The price at which the shares being offered for resale pursuant to this prospectus is outside of our control and will be decided between the selling shareholders and those persons buying the common shares based on market determinations. As of January 30, 2019, the closing price for a common share on the Nasdaq Capital Market was US$1.35.
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Use of Proceeds
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We will not receive any proceeds from the
sale of the common shares offered by the selling stockholders.
If all the warrants sold in the November
private placement are exercised, we will receive proceeds of $10,880,000. We may not receive any such proceeds or only a portion
thereof if the selling shareholders exercise none or a portion of such warrants. We currently intend to use any such proceeds for
Tofino project and general working capital.
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Market for Our Common Shares
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Our common shares are currently listed on the Nasdaq Capital Market under the symbol “SOLO”. Until recently, there was only a limited public trading market for our common shares. As of January 30, 2019 the closing price for a common share on the Nasdaq Capital Market was US$1.35.
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Dividend Policy
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We currently intend to retain future earnings, if any, to fund the development and growth of our business. Therefore, we do not currently anticipate paying cash dividends on our common shares.
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Risk Factors
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See “Risk Factors” and the other information in this prospectus for a discussion of the factors you should consider before deciding to invest in our securities.
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RISK FACTORS
An investment
in our securities carries a significant degree of risk. Before you decide to purchase our common shares, you should carefully consider
the following risks, as well as the other information contained in this prospectus and the risks that are set out in the documents
that are incorporated by reference in this prospectus. Please see the section of this prospectus entitled “Incorporation
by Reference”. Any one of these risks and uncertainties has the potential to cause material adverse effects on our business,
prospects, financial condition and operating results which could cause actual results to differ materially from any forward-looking
statements expressed by us and a significant decrease in the value of our common shares. Refer to “Forward-Looking Statements”.
We may not be
successful in preventing the material adverse effects that any of the following risks and uncertainties may cause. These potential
risks and uncertainties may not be a complete list of the risks and uncertainties facing us. There may be additional risks and
uncertainties that we are presently unaware of, or presently consider immaterial, that may become material in the future and have
a material adverse effect on us. You could lose all or a significant portion of your investment due to any of these risks and uncertainties.
Risks Related to our Business and Industry
We have a limited operating history
and have generated minimal revenues.
Our limited operating
history makes evaluating our business and future prospects difficult. We were formed in February 2015, and we have not yet begun
mass production or the commercial delivery of our first vehicle. To date, we have no revenues from the sale of electric vehicles
as any amounts received from the sale of our pre-mass production electric vehicles were netted off against research and development
costs as cost recovery and minimal revenue from the sale of custom cars. We intend to derive revenues from the sales of our SOLO
vehicle, our Super SOLO vehicle, our Tofino vehicle and other intended electric vehicles. The Tofino is in development and we are
just starting to deliver to our SOLO customers. We do not expect to deliver to Tofino customers until 2020. Our vehicles require
significant investment prior to commercial introduction and may never be successfully developed or commercially successful.
We expect that we will experience
an increase in losses prior to the launch of the SOLO, the Super SOLO or the Tofino.
For the fiscal year
ended December 31, 2017, we generated a net and comprehensive loss of $11,366,372, bringing our accumulated deficit to $21,335,552,
and for the nine-month period ended September 30, 2018, we generated a net and comprehensive loss of $7,910,509, bringing our accumulated
deficit to $29,246,061. We anticipate generating a significant loss for the current fiscal year. The independent auditor’s
report on our audited financial statements includes an explanatory paragraph relating to our ability to continue as a going concern.
We have minimal revenues,
are currently in debt and expect significant increases in costs and expenses to forestall profits for the foreseeable future, even
if we generate revenues in the near term. Even if we are able to successfully develop the SOLO, the Super SOLO or the Tofino, they
might not become commercially successful. If we are to ever achieve profitability, we must have a successful commercial introduction
and acceptance of our vehicles, which may not occur.
We expect the rate at
which we will incur losses to increase significantly in future periods from current levels as we:
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design, develop and manufacture our vehicles and their components;
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develop and equip our manufacturing facility;
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build up inventories of parts and components for the SOLO, the Super SOLO and the Tofino;
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open Electrameccanica stores;
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expand our design, development, maintenance and repair capabilities;
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develop and increase our sales and marketing activities; and
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develop and increase our general and administrative functions to support our growing operations.
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Because we will incur
the costs and expenses from these efforts before we receive any revenues with respect thereto, our losses in future periods will
be significantly greater than the losses we would incur if we developed the business more slowly. In addition, we may find that
these efforts are more expensive than we currently anticipate or that these efforts may not result in profits or even revenues,
which would further increase our losses.
We currently have negative operating
cash flows, and if we are unable to generate positive operating cash flows in the future our viability as an operating business
will be adversely affected.
We have made significant
up-front investments in research and development, sales and marketing, and general and administrative expenses to rapidly develop
and expand our business. We are currently incurring expenditures related to our operations that have generated a negative operating
cash flow. Operating cash flow may decline in certain circumstances, many of which are beyond our control. We might not generate
sufficient revenues in the near future. Because we continue to incur such significant future expenditures for research and development,
sales and marketing and general and administrative expenses, we may continue to experience negative cash flow until we reach a
sufficient level of sales with positive gross margins to cover operating expenses. An inability to generate positive cash flow
until we reach a sufficient level of sales with positive gross margins to cover operating expenses or raise additional capital
on reasonable terms will adversely affect our viability as an operating business.
To carry out our proposed business
plan to develop, manufacture, sell and service electric vehicles, we will require a significant amount of capital.
To carry out our proposed
business plan for the next 12 months, we estimate that we will need approximately $12.9 million. If cash on hand, revenue from
the sale of our cars, if any, and cash received upon the exercise of outstanding warrants, if any are exercised, are not sufficient
to cover our cash requirements, we will need to raise additional funds through the sale of our equity securities, in either private
placements or additional registered offerings, and shareholder loans. If we are unsuccessful in raising enough funds through such
capital-raising efforts, we may review other financing possibilities such as bank loans. Financing might not be available to us
or, if available, only on terms that are not acceptable to us.
Our ability to obtain
the necessary financing to carry out our business plan is subject to a number of factors, including general market conditions and
investor acceptance of our business plan. These factors may make the timing, amount, terms and conditions of such financing unattractive
or unavailable to us. If we are unable to raise sufficient funds, we will have to significantly reduce our spending, delay or cancel
our planned activities or substantially change our current corporate structure. We might not be able to obtain any funding, and
we might not have sufficient resources to conduct our business as projected, both of which could mean that we would be forced to
curtail or discontinue our operations.
Terms of subsequent financings may
adversely impact your investment.
We may have to engage
in common equity, debt or preferred stock financing in the future. Your rights and the value of your investment in our securities
could be reduced. Interest on debt securities could increase costs and negatively impacts operating results. Preferred stock could
be issued in series from time to time with such designation, rights, preferences, and limitations as needed to raise capital. The
terms of preferred stock could be more advantageous to those investors than to the holders of common shares. In addition, if we
need to raise more equity capital from the sale of common shares, institutional or other investors may negotiate terms at least
as, and possibly more, favorable than the terms of your investment. Common shares which we sell could be sold into any market which
develops, which could adversely affect the market price.
Our future growth depends upon consumers’
willingness to adopt three-wheeled single passenger electric vehicles.
Our growth highly depends
upon the adoption by consumers of, and we are subject to an elevated risk of any reduced demand for, alternative fuel vehicles
in general and electric vehicles in particular. If the market for three-wheeled single passenger electric vehicles does not develop
as we expect, or develops more slowly than we expect, our business, prospects, financial condition and operating results will be
negatively impacted. The market for alternative fuel vehicles is relatively new, rapidly evolving, characterized by rapidly changing
technologies, price competition, additional competitors, evolving government regulation and industry standards, frequent new vehicle
announcements and changing consumer demands and behaviors. Factors that may influence the adoption of alternative fuel vehicles,
and specifically electric vehicles, include:
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perceptions about electric vehicle quality, safety (in particular with respect to lithium-ion battery
packs), design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety
of electric vehicles;
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perceptions about vehicle safety in general and, in particular, safety issues that may be attributed
to the use of advanced technology, including vehicle electronics and braking systems;
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the limited range over which electric vehicles may be driven on a single battery charge;
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the decline of an electric vehicle’s range resulting from deterioration over time in the
battery’s ability to hold a charge;
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concerns about electric grid capacity and reliability, which could derail our efforts to promote
electric vehicles as a practical solution to vehicles which require gasoline;
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the availability of alternative fuel vehicles, including plug-in hybrid electric vehicles;
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improvements in the fuel economy of the internal combustion engine;
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the availability of service for electric vehicles;
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the environmental consciousness of consumers;
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volatility in the cost of oil and gasoline;
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government regulations and economic incentives promoting fuel efficiency and alternate forms of
energy;
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access to charging stations, standardization of electric vehicle charging systems and consumers’
perceptions about convenience and cost to charge an electric vehicle;
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the availability of tax and other governmental incentives to purchase and operate electric vehicles
or future regulation requiring increased use of nonpolluting vehicles; and
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perceptions about and the actual cost of alternative fuel.
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The influence of any
of the factors described above may cause current or potential customers not to purchase our electric vehicles, which would materially
adversely affect our business, operating results, financial condition and prospects.
The range of our electric vehicles
on a single charge declines over time which may negatively influence potential customers’ decisions whether to purchase our
vehicles.
The range of our electric
vehicles on a single charge declines principally as a function of usage, time and charging patterns. For example, a customer’s
use of their vehicle as well as the frequency with which they charge the battery of their vehicle can result in additional deterioration
of the battery’s ability to hold a charge. We currently expect that our battery pack will retain approximately 85% of its
ability to hold its initial charge after approximately 3,000 charge cycles and 8 years, which will result in a decrease to the
vehicle’s initial range. Such battery deterioration and the related decrease in range may negatively influence potential
customer decisions whether to purchase our vehicles, which may harm our ability to market and sell our vehicles.
Developments in alternative technologies
or improvements in the internal combustion engine may materially adversely affect the demand for our electric vehicles.
Significant developments
in alternative technologies, such as advanced diesel, ethanol, fuel cells or compressed natural gas, or improvements in the fuel
economy of the internal combustion engine, may materially and adversely affect our business and prospects in ways we do not currently
anticipate. For example, fuel which is abundant and relatively inexpensive in North America, such as compressed natural gas, may
emerge as consumers’ preferred alternative to petroleum-based propulsion. Any failure by us to develop new or enhanced technologies
or processes, or to react to changes in existing technologies, could materially delay our development and introduction of new and
enhanced electric vehicles, which could result in the loss of competitiveness of our vehicles, decreased revenue and a loss of
market share to competitors.
If we are unable to keep up with
advances in electric vehicle technology, we may suffer a decline in our competitive position.
We may be unable to
keep up with changes in electric vehicle technology and, as a result, may suffer a decline in our competitive position. Any failure
to keep up with advances in electric vehicle technology would result in a decline in our competitive position which would materially
and adversely affect our business, prospects, operating results and financial condition. Our research and development efforts may
not be sufficient to adapt to changes in electric vehicle technology. As technologies change, we plan to upgrade or adapt our vehicles
and introduce new models to continue to provide vehicles with the latest technology, in particular battery cell technology. However,
our vehicles may not compete effectively with alternative vehicles if we are not able to source and integrate the latest technology
into our vehicles. For example, we do not manufacture battery cells which makes us depend upon other suppliers of battery cell
technology for our battery packs.
If we are unable to design, develop,
market and sell new electric vehicles and services that address additional market opportunities, our business, prospects and operating
results will suffer.
We may not be able to
successfully develop new electric vehicles and services, address new market segments or develop a significantly broader customer
base. To date, we have focused our business on the sale of the SOLO, a three-wheeled single passenger electric vehicle and have
targeted mainly urban residents of modest means. We will need to address additional markets and expand our customer demographic
to further grow our business. Our failure to address additional market opportunities would harm our business, financial condition,
operating results and prospects.
Demand in the vehicle industry is
highly volatile.
Volatility of demand
in the vehicle industry may materially and adversely affect our business, prospects, operating results and financial condition.
The markets in which we will be competing have been subject to considerable volatility in demand in recent periods. Demand for
automobile sales depends to a large extent on general, economic, political and social conditions in a given market and the introduction
of new vehicles and technologies. As a new start-up manufacturer, we will have fewer financial resources than more established
vehicle manufacturers to withstand changes in the market and disruptions in demand.
We depend on a third-party for our
near-term manufacturing needs.
In October 2017, we
entered into a manufacturing agreement with Zongshen, a company located in the People’s Republic of China, to produce 75,000
SOLO vehicles in the three full years from the commencement of production. The delivery of SOLO vehicles to our future customers
and the revenue derived therefrom depends on Zongshen’s ability to fulfill its obligations under that manufacturing agreement.
Zongshen’s ability to fulfill its obligations is outside of our control and depends on a variety of factors including Zongshen’s
operations, Zongshen’s financial condition and geopolitical and economic risks that could affect China. If Zongshen is unable
to fulfill its obligations or is only able to partially fulfill its obligations, we will not be able to sell our SOLO vehicle in
the volumes anticipated on the timetable that we anticipate, if at all.
We do not currently have arrangements
in place that will allow us to fully execute our business plan.
To sell our vehicles
as envisioned, we will need to enter into agreements and arrangements that are not currently in place. These include entering into
agreements with dealerships, arranging for the transportation of SOLOs delivered pursuant to our manufacturing agreement with Zongshen,
obtaining battery and other essential supplies in the quantities that we require, entering into manufacturing agreements for the
Super SOLO and the Tofino and acquiring additional manufacturing capability. If we are unable to enter into such agreements or
are only able to do so on terms that are unfavorable to us, we may not be able to fully carry out our business plans.
We depend on certain key personnel,
and our success will depend on our continued ability to retain and attract such qualified personnel.
Our success depends
on the efforts, abilities and continued service of Jerry Kroll, our Chief Executive Officer, Henry Reisner, our President and Chief
Operating Officer, Bal Bhullar, our Chief Financial Officer, Isaac Moss, our Chief Administrative Officer, and Ed Theobald, our
General Manager. A number of these key employees and consultants have significant experience in the automobile manufacturing industry.
A loss of service from any one of these individuals may adversely affect our operations, and we may have difficulty or may not
be able to locate and hire a suitable replacement. We have not obtained any “key person” insurance on certain key personnel.
Since we have little experience in
mass-producing electric vehicles, any delays or difficulties in transitioning from producing custom vehicles to mass-producing
vehicles may have a material adverse effect on our business, prospects and operating results.
Our management team
has experience in producing custom designed vehicles and is now switching focus to mass producing electric vehicles in a rapidly
evolving and competitive market. If we are unable to implement our business plans in the timeframe estimated by management and
successfully transition into a mass-producing electric vehicle manufacturing business, then our business, prospects, operating
results and financial condition will be negatively impacted and our ability to grow our business will be harmed.
We are subject to numerous environmental
and health and safety laws and any breach of such laws may have a material adverse effect on our business and operating results.
We are subject to numerous
environmental and health and safety laws, including statutes, regulations, bylaws and other legal requirements. These laws relate
to the generation, use, handling, storage, transportation and disposal of regulated substances, including hazardous substances
(such as batteries), dangerous goods and waste, emissions or discharges into soil, water and air, including noise and odors (which
could result in remediation obligations), and occupational health and safety matters, including indoor air quality. These legal
requirements vary by location and can arise under federal, provincial, state or municipal laws. Any breach of such laws and/or
requirements would have a material adverse effect on our company and its operating results.
Our vehicles are subject to motor
vehicle standards and the failure to satisfy such mandated safety standards would have a material adverse effect on our business
and operating results.
All vehicles sold must
comply with federal, state and provincial motor vehicle safety standards. In both Canada and the United States vehicles that meet
or exceed all federally mandated safety standards are certified under the federal regulations. In this regard, Canadian and U.S.
motor vehicle safety standards are substantially the same. Rigorous testing and the use of approved materials and equipment are
among the requirements for achieving federal certification. Failure by us to have the SOLO, the Super SOLO, the Tofino or any future
model electric vehicle satisfy motor vehicle standards would have a material adverse effect on our business and operating results.
If we are unable to reduce and adequately
control the costs associated with operating our business, including our costs of manufacturing, sales and materials, our business,
financial condition, operating results and prospects will suffer.
If we are unable to
reduce and/or maintain a sufficiently low level of costs for designing, manufacturing, marketing, selling and distributing and
servicing our electric vehicles relative to their selling prices, our operating results, gross margins, business and prospects
could be materially and adversely impacted.
If our vehicles fail to perform as
expected, our ability to develop, market and sell our electric vehicles could be harmed.
Our vehicles may contain
defects in design and manufacture that may cause them not to perform as expected or that may require repair. For example, our vehicles
use a substantial amount of software code to operate. Software products are inherently complex and often contain defects and errors
when first introduced. While we have performed extensive internal testing, we currently have a very limited frame of reference
by which to evaluate the performance of our SOLO in the hands of our customers and currently have no frame of reference by which
to evaluate the performance of our vehicles after several years of customer driving. A similar evaluation of the Super SOLO and
the Tofino is further behind.
We have very limited experience servicing
our vehicles. If we are unable to address the service requirements of our future customers our business will be materially and
adversely affected.
If we are unable to
successfully address the service requirements of our future customers our business and prospects will be materially and adversely
affected. In addition, we anticipate the level and quality of the service we will provide our customers will have a direct impact
on the success of our future vehicles. If we are unable to satisfactorily service our customers, our ability to generate customer
loyalty, grow our business and sell additional vehicles could be impaired.
We have very limited
experience servicing our vehicles. We plan for mass production to begin for SOLO vehicles for deliveries in the first quarter of
2019 and for the Tofino in 2020. The total number of SOLOs that we have produced as of January 30, 2019 is 43. Throughout its history,
Intermeccanica has produced approximately 2,500 cars, which includes, providing after sales support and servicing. We do not have
any experience servicing the SOLO or the Tofino as a limited number of SOLOS have been produced and the Tofino has not yet been
produced. Servicing electric vehicles is different than servicing vehicles with internal combustion engines and requires specialized
skills, including high voltage training and servicing techniques.
We may not succeed in establishing,
maintaining and strengthening the Electrameccanica brand, which would materially and adversely affect customer acceptance of our
vehicles and components and our business, revenues and prospects.
Our business and prospects
heavily depend on our ability to develop, maintain and strengthen the Electrameccanica brand. Any failure to develop, maintain
and strengthen our brand may materially and adversely affect our ability to sell our planned electric vehicles. If we are not able
to establish, maintain and strengthen our brand, we may lose the opportunity to build a critical mass of customers. Promoting and
positioning our brand will likely depend significantly on our ability to provide high quality electric cars and maintenance and
repair services, and we have very limited experience in these areas. In addition, we expect that our ability to develop, maintain
and strengthen the Electrameccanica brand will also depend heavily on the success of our marketing efforts. To date, we have limited
experience with marketing activities as we have relied primarily on the internet, word of mouth and attendance at industry trade
shows to promote our brand. To further promote our brand, we may be required to change our marketing practices, which could result
in substantially increased advertising expenses, including the need to use traditional media such as television, radio and print.
The automobile industry is intensely competitive, and we may not be successful in building, maintaining and strengthening our brand.
Many of our current and potential competitors, particularly automobile manufacturers headquartered in Detroit, Japan and the European Union,
have greater name recognition, broader customer relationships and substantially greater marketing resources than we do. If we do
not develop and maintain a strong brand, our business, prospects, financial condition and operating results will be materially
and adversely impacted.
Increases in costs, disruption of
supply or shortage of raw materials, in particular lithium-ion cells, could harm our business.
We may experience increases
in the cost or a sustained interruption in the supply or shortage of raw materials. Any such increase or supply interruption could
materially negatively impact our business, prospects, financial condition and operating results. We use various raw materials in
our business including aluminum, steel, carbon fiber, non-ferrous metals such as copper and cobalt. The prices for these raw materials
fluctuate depending on market conditions and global demand for these materials and could adversely affect our business and operating
results. For instance, we are exposed to multiple risks relating to price fluctuations for lithium-ion cells. These risks include:
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the inability or unwillingness of current battery manufacturers to build or operate battery cell
manufacturing plants to supply the numbers of lithium-ion cells required to support the growth of the electric or plug-in hybrid
vehicle industry as demand for such cells increases;
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disruption in the supply of cells due to quality issues or recalls by the battery cell manufacturers;
and
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an increase in the cost of raw materials, such as cobalt, used in lithium-ion cells.
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Our business depends
on the continued supply of battery cells for our vehicles. We do not currently have any agreements for the supply of batteries
and depend upon the open market for their procurement. Any disruption in the supply of battery cells from our supplier could temporarily
disrupt the planned production of our vehicles until such time as a different supplier is fully qualified. Moreover, battery cell
manufacturers may choose to refuse to supply electric vehicle manufacturers to the extent they determine that the vehicles are
not sufficiently safe. Furthermore, current fluctuations or shortages in petroleum and other economic conditions may cause us to
experience significant increases in freight charges and raw material costs. Substantial increases in the prices for our raw materials
would increase our operating costs, and could reduce our margins if we cannot recoup the increased costs through increased electric
vehicle prices. We might not be able to recoup increasing costs of raw materials by increasing vehicle prices. We have also already
announced an estimated price for the base model of our planned SOLO, Super SOLO and Tofino. However, any attempts to increase the
announced or expected prices in response to increased raw material costs could be viewed negatively by our potential customers,
result in cancellations of SOLO, Super SOLO and Tofino reservations and could materially adversely affect our brand, image, business,
prospects and operating results.
The unavailability, reduction or
elimination of government and economic incentives could have a material adverse effect on our business, financial condition, operating
results and prospects.
Any reduction, elimination
or discriminatory application of government subsidies and economic incentives because of policy changes, the reduced need for such
subsidies and incentives due to the perceived success of the electric vehicle, fiscal tightening or other reasons may result in
the diminished competitiveness of the alternative fuel vehicle industry generally or our electric vehicles in particular. This
could materially and adversely affect the growth of the alternative fuel automobile markets and our business, prospects, financial
condition and operating results.
If we fail to manage future growth
effectively, we may not be able to market and sell our vehicles successfully.
Any failure to manage
our growth effectively could materially and adversely affect our business, prospects, operating results and financial condition.
We plan to expand our operations in the near future in connection with the planned production of our vehicles. Our future operating
results depend to a large extent on our ability to manage this expansion and growth successfully. Risks that we face in undertaking
this expansion include:
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training new personnel;
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forecasting production and revenue;
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controlling expenses and investments in anticipation of expanded operations;
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establishing or expanding design, manufacturing, sales and service facilities;
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implementing and enhancing administrative infrastructure, systems and processes;
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addressing new markets; and
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establishing international operations.
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We intend to continue
to hire a number of additional personnel, including design and manufacturing personnel and service technicians, for our electric
vehicles. Competition for individuals with experience designing, manufacturing and servicing electric vehicles is intense, and
we may not be able to attract, assimilate, train or retain additional highly qualified personnel in the future. The failure to
attract, integrate, train, motivate and retain these additional employees could seriously harm our business and prospects.
Our business may be adversely affected
by labor and union activities.
Although none of our
employees are currently represented by a labor union, it is common throughout the automobile industry generally for many employees
at automobile companies to belong to a union, which can result in higher employee costs and increased risk of work stoppages. We
have a manufacturing agreement with Zongshen to produce 75,000 SOLO vehicles in the three full years from the commencement
of production. Zongshen’s workforce is not currently unionized, though they may become so in the future or industrial stoppages
could occur in the absence of a union. We also directly and indirectly depend upon other companies with unionized work forces,
such as parts suppliers and trucking and freight companies, and work stoppages or strikes organized by such unions could have a
material adverse impact on our business, financial condition or operating results. If a work stoppage occurs within our business,
that of Zongshen or that of our key suppliers, it could delay the manufacture and sale of our electric vehicles and have a material
adverse effect on our business, prospects, operating results or financial condition. Additionally, if we expand our business to
include full in-house manufacturing of our vehicles, our employees might join or form a labor union and we may be required to become
a union signatory.
We may become subject to product
liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against
such claims.
We may become subject
to product liability claims, which could harm our business, prospects, operating results and financial condition. The automobile
industry experiences significant product liability claims and we face inherent risk of exposure to claims in the event our vehicles
do not perform as expected or malfunction resulting in personal injury or death. Our risks in this area are particularly pronounced
given we have limited field experience of our vehicles. A successful product liability claim against us could require us to pay
a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about our vehicles
and business and inhibit or prevent commercialization of other future vehicle candidates which would have material adverse effect
on our brand, business, prospects and operating results. We plan to maintain product liability insurance for all our vehicles with
annual limits of approximately $5 million on a claims-made basis, but any such insurance might not be sufficient to cover all potential
product liability claims. Any lawsuit seeking significant monetary damages either in excess of our coverage, or outside of our
coverage, may have a material adverse effect on our reputation, business and financial condition. We may not be able to secure
additional product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly
if we do face liability for our products and are forced to make a claim under our policy.
Our patent applications may not result
in issued patents, which may have a material adverse effect on our ability to prevent others from interfering with our commercialization
of our products.
The registration and
enforcement of patents involves complex legal and factual questions and the breadth and effectiveness of patented claims is uncertain.
We cannot be certain that we are the first to file patent applications on these inventions, nor can we be certain that our pending
patent applications will result in issued patents or that any of our issued patents will afford sufficient protection against someone
creating competing products, or as a defensive portfolio against a competitor who claims that we are infringing its patents. In
addition, patent applications filed in foreign countries are subject to laws, rules and procedures that differ from those of the
United States, and thus we cannot be certain that foreign patent applications, if any, will result in issued patents in those foreign
jurisdictions or that such patents can be effectively enforced, even if they relate to patents issued in the U.S.
We may need to defend ourselves against
patent or trademark infringement claims, which may be time-consuming and would cause us to incur substantial costs.
Companies, organizations
or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent,
limit or interfere with our ability to make, use, develop, sell or market our vehicles or components, which could make it more
difficult for us to operate our business. From time to time, we may receive communications from third parties that allege our products
are covered by their patents or trademarks or other intellectual property rights. Companies holding patents or other intellectual
property rights may bring suits alleging infringement of such rights or otherwise assert their rights. If we are determined to
have infringed upon a third party’s intellectual property rights, we may be required to do things that include one or more
of the following:
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cease making, using, selling or offering to sell processes, goods or services that incorporate
or use the third-party intellectual property;
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pay substantial damages;
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seek a license from the holder of the infringed intellectual property right, which license may
not be available on reasonable terms or at all;
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redesign our vehicles or other goods or services to avoid infringing the third-party intellectual
property; or
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establish and maintain alternative branding for our products and services.
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In the event of a successful
claim of infringement against us and our failure or inability to obtain a license to the infringed technology or other intellectual
property right, our business, prospects, operating results and financial condition could be materially adversely affected. In addition,
any litigation or claims, whether or not valid, could result in substantial costs, negative publicity and diversion of resources
and management attention.
You may face difficulties in protecting
your interests, and your ability to protect your rights through the U.S. federal courts may be limited because we are incorporated
under the laws of the Province of British Columbia, a substantial portion of our assets are in Canada and all of our executive
officers and most of our directors reside outside the United States
We are organized pursuant
to the laws of the Province of British Columbia under the Business Corporations Act (British Columbia) (the “Business
Corporation Act”) and our executive offices are located outside of the United States in Vancouver, British Columbia.
All of our officers, our auditor and all but two of our directors reside outside the United States. In addition, a substantial
portion of their assets and our assets are located outside of the United States. As a result, you may have difficulty serving legal
process within the United States upon us or any of these persons. You may also have difficulty enforcing, both in and outside of
the United States, judgments you may obtain in U.S. courts against us or these persons in any action, including actions based upon
the civil liability provisions of U.S. Federal or state securities laws. Furthermore, there is substantial doubt as to the enforceability
in Canada against us or against any of our directors, officers and the expert named in this prospectus who are not residents of
the United States, in original actions or in actions for enforcement of judgments of U.S. courts, of liabilities based solely upon
the civil liability provisions of the U.S. federal securities laws. In addition, shareholders in British Columbia companies may
not have standing to initiate a shareholder derivative action in U.S. federal courts.
As a result, our public
shareholders may have more difficulty in protecting their interests through actions against us, our management, our directors or
our major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.
Global economic conditions could
materially adversely impact demand for our products and services.
Our operations and performance
depend significantly on economic conditions. Uncertainty about global economic conditions could result in customers postponing
purchases of our products and services in response to tighter credit, unemployment, negative financial news and/or declines in
income or asset values and other macroeconomic factors, which could have a material negative effect on demand for our products
and services and, accordingly, on our business, results of operations or financial condition.
We are vulnerable to a growing trade
dispute between the United States and China
A growing trade dispute
between the United States and China could increase the proposed sales price of our products or decrease our profits, if any. Recently,
the current U.S. administration has imposed tariffs on $34 billion of Chinese exports, including a 25% duty on cars built
in China and shipped to the United States. Following the imposition of these tariffs, China has imposed additional tariffs on U.S.
goods manufactured in the United States and exported to China. Subsequently, the U.S. administration indicated that it may impose
tariffs on up to US$500 billion of goods manufactured in China and imported into the United States. These tariffs may escalate
a nascent trade war between China and the United States. This trade conflict could affect our business because we intend to mass
produce the SOLO in China and our intended principal market is the West Coast of North America. If a trade war were to escalate
or if tariffs were imposed on any of our products, we could be forced to increase the proposed sales price of such products or
reduce the margins, if any, on such products.
Risks Related to Our Common Shares and
this Offering
Our executive officers and directors
will beneficially own 38% of our common shares immediately after the offering.
Our executive officers
and directors would beneficially own, in the aggregate, 38% of our common shares immediately after the offering, which includes
shares that our executive officers and directors have the right to acquire pursuant to warrants and stock options which have vested
and which assumes the exercise of all of the warrants represented by the shares offered by this prospectus. As a result, they will
be able to exercise a significant level of control over all matters requiring shareholder approval, including the election of directors,
amendments to our Articles and approval of significant corporate transactions. This control could have the effect of delaying or
preventing a change of control of our company or changes in management and will make the approval of certain transactions difficult
or impossible without the support of these shareholders.
The continued sale of our equity
securities will dilute the ownership percentage of our existing shareholders and may decrease the market price for our common shares.
Our Notice of Articles
authorize the issuance of an unlimited number of common shares and the issuance of preferred shares. The Board of Directors has
the authority to issue additional shares of our capital stock to provide additional financing in the future and designate the rights
of the preferred shares, which may include voting, dividend, distribution or other rights that are preferential to those held by
the common shareholders. The issuance of any such common or preferred shares may result in a reduction of the book value or market
price, if one exists at the time, of the outstanding common shares. Given our lack of revenues, we will likely have to issue additional
equity securities to obtain working capital we require for the next 12 months. Our efforts to fund our intended business plans
will therefore result in dilution to our existing shareholders. If we do issue any such additional common shares, such issuance
also will cause a reduction in the proportionate ownership and voting power of all other shareholders. As a result of such dilution,
if you acquire common shares, your proportionate ownership interest and voting power could be decreased. Further, any such issuances
could result in a change of control or a reduction in the market price for our common shares.
Additionally, we had
3,567,952 vested options and 22,369,718 warrants outstanding as of January 30, 2019. The exercise price of some of these options
and warrants is below our current market price, and you could purchase shares in this offering at a price in excess of the exercise
price of outstanding warrants or options. If the holders of these options and warrants elect to exercise them, your ownership position
will be diluted and the per share value of the shares in this offering could be diluted as well. As a result, the market value
of our shares could significantly decrease as well.
Issuances of our preferred stock
may adversely affect the rights of the holders of our common shares and reduce the value of our common shares.
Our Notice of Articles
authorize the issuance of an unlimited number of shares of preferred stock. Our Board of Directors has the authority to create
one or more series of preferred stock and, without shareholder approval, issue shares of preferred stock with rights superior to
the rights of the holders of common shares. As a result, shares of preferred stock could be issued quickly and easily, adversely
affecting the rights of holder of common shares and could be issued with terms calculated to delay or prevent a change in control
or make removal of management more difficult. Although we currently have no plans to create any series of preferred stock and have
no present plans to issue any shares of preferred stock, any creation and issuance of preferred stock in the future could adversely
affect the rights of the holders of common shares and reduce the value of our common shares.
The market price of our common shares
may be volatile and may fluctuate in a way that is disproportionate to our operating performance.
Our common shares began
trading on the Nasdaq Capital Market in August 2018, and before that it had been trading on the OTCQB since September 2017. The
historical volume of trading has been low, and the share price has fluctuated significantly. The share price for our common shares
could decline due to the impact of any of the following factors:
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sales or potential sales of substantial amounts of our common shares;
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announcements about us or about our competitors;
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litigation and other developments relating to our patents or other proprietary rights or those
of our competitors;
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conditions in the automobile industry;
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governmental regulation and legislation;
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variations in our anticipated or actual operating results;
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change in securities analysts’ estimates of our performance, or our failure to meet analysts’
expectations;
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change in general economic trends; and
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investor perception of our industry or our prospects.
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Many of these factors
are beyond our control. The stock markets in general, and the market for automobile companies in particular, have historically
experienced extreme price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating
performance of these companies. These broad market and industry factors could reduce the market price of our common shares regardless
of our actual operating performance.
We do not intend to pay dividends
and there will thus be fewer ways in which you are able to make a gain on your investment.
We have never paid any
cash or stock dividends and we do not intend to pay any dividends for the foreseeable future. To the extent that we require additional
funding currently not provided for in our financing plan, our funding sources may prohibit the payment of any dividends. Because
we do not intend to declare dividends, any gain on your investment will need to result from an appreciation in the price of our
common shares. There will therefore be fewer ways in which you are able to make a gain on your investment.
FINRA sales practice requirements
may limit your ability to buy and sell our common shares, which could depress the price of our shares.
FINRA rules require
broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that
investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers
must make reasonable efforts to obtain information about the customer’s financial status, tax status and investment objectives,
among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced
securities will not be suitable for at least some customers. Thus, FINRA requirements may make it more difficult for broker-dealers
to recommend that their customers buy our common shares, which may limit your ability to buy and sell our shares, have an adverse
effect on the market for our shares and, thereby, depress their market prices.
You may face significant restrictions
on the resale of your shares due to state “blue sky” laws.
Each state has its own
securities laws, often called “blue sky” laws, which: (1) limit sales of securities to a state’s residents unless
the securities are registered in that state or qualify for an exemption from registration; and (2) govern the reporting requirements
for broker-dealers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration
in place to cover the transaction, or it must be exempt from registration. The applicable broker must also be registered in that
state.
We do not know whether
our securities will be registered or exempt from registration under the laws of any state. A determination regarding registration
will be made by the broker-dealers, if any, who agree to serve as market makers for our common shares. There may be significant
state blue sky law restrictions on the ability of investors to sell, and on purchasers to buy, our securities. You should therefore
consider the resale market for our common shares to be limited, as you may be unable to resell your shares without the significant
expense of state registration or qualification.
Our common shares have been thinly
traded, and you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise
desire to liquidate your shares.
From October 2017 until
August 2018, our common shares were quoted on the OTCQB where they were “thinly-traded”, meaning that the number of
persons interested in purchasing our common shares at or near bid prices at any given time was relatively small or non-existent.
Since we listed on the Nasdaq Capital Market in August 2018, the volume of our shares traded has increased, but that volume could
decrease until we are thinly-traded again. That could occur due to a number of factors, including that we are relatively unknown
to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales
volume, and that even if we came to the attention of such persons, they tend to be risk-averse and might be reluctant to follow
an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned.
As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent,
as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous
sales without an adverse effect on share price. Broad or active public trading market for our common shares may not develop or
be sustained.
Volatility in our common shares or
warrant price may subject us to securities litigation.
The market for our common
shares may have, when compared to seasoned issuers, significant price volatility, and we expect that our share or warrant prices
may continue to be more volatile than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated
securities class action litigation against a company following periods of volatility in the market price of its securities. We
may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities
and could divert management’s attention and resources.
We have broad discretion in the use
of the net proceeds from the exercise of the warrants representing the shares and may not use them effectively.
We will not receive
proceeds from this offering, but we would receive gross proceeds of $10,880,000 if all of the warrants representing the shares
offered by this prospectus are exercised. Our management will have broad discretion in the application of the proceeds from the
exercise of the warrants pursuant to which the shares in this offering will be issued. Because of the number and variability of
factors that will determine our use of the proceeds from this offering, their ultimate use may vary substantially from their currently
intended use. The failure by our management to apply these funds effectively could harm our business.
We are a foreign private issuer within
the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States
domestic public companies.
We are a foreign private
issuer within the meaning of the rules under the Exchange Act. As such, we are exempt from certain provisions applicable to United
States domestic public companies. For example:
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we are not required to provide as many Exchange Act reports, or as frequently, as a domestic public
company;
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for interim reporting, we are permitted to comply solely with our home country requirements, which
are less rigorous than the rules that apply to domestic public companies;
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we are not required to provide the same level of disclosure on certain issues, such as executive
compensation;
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we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective
disclosures of material information;
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we are not required to comply with the sections of the Exchange Act regulating the solicitation
of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and
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we are not required to comply with Section 16 of the Exchange Act requiring insiders to file public
reports of their share ownership and trading activities and establishing insider liability for profits realized from any “short-swing”
trading transaction.
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Our shareholders may
not have access to certain information they may deem important and are accustomed to receive from U.S. reporting companies.
As an “emerging growth company”
under applicable law, we will be subject to lessened disclosure requirements. Such reduced disclosure may make our common shares
less attractive to investors.
For as long as we remain
an “emerging growth company”, as defined in the JOBS Act, we will elect to take advantage of certain exemptions from
various reporting requirements that are applicable to other public companies that are not “emerging growth companies”,
including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act, reduced disclosure obligations regarding executive compensation in our periodic reports, and exemptions from the requirements
of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not
previously approved. Because of these lessened regulatory requirements, our shareholders would be left without information or rights
available to shareholders of more mature companies. If some investors find our common shares less attractive as a result, there
may be a less active trading market for such securities and their market prices may be more volatile.
We incur significant costs as a result
of being a public company, which costs will grow after we cease to qualify as an “emerging growth company.”
We incur significant
legal, accounting and other expenses as a public company that we did not incur as a private company. The Sarbanes-Oxley Act, as
well as rules subsequently implemented by the SEC and Nasdaq Capital Market, impose various requirements on the corporate governance
practices of public companies. We are an “emerging growth company,” as defined in the JOBS Act and will remain an emerging
growth company until the earlier of : (1) the last day of the fiscal year (a) following May 23, 2022, (b) in which we have
total annual gross revenue of at least US$1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means
the market value of our common shares that is held by non-affiliates exceeds US$700 million as of the prior June 30
th
;
and (2) the date on which we have issued more than US$1.0 billion in non-convertible debt during the prior three-year period. An
emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable
generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 in
the assessment of the emerging growth company’s internal control over financial reporting and permission to delay adopting
new or revised accounting standards until such time as those standards apply to private companies.
Compliance with these
rules and regulations increases our legal and financial compliance costs and makes some corporate activities more time-consuming
and costlier. After we are no longer an emerging growth company, we expect to incur significant expenses and devote substantial
management effort toward ensuring compliance with the requirements of Section 404 and the other rules and regulations of the SEC.
For example, as a public company, we have been required to increase the number of independent directors and adopt policies regarding
internal controls and disclosure controls and procedures. We have incurred additional costs in obtaining director and officer liability
insurance. In addition, we incur additional costs associated with our public company reporting requirements. It may also be more
difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating
and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty
the amount of additional costs we may incur or the timing of such costs.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus contains
statements that constitute “forward-looking statements”. Any statements that are not statements of historical facts
may be deemed to be forward-looking statements. These statements appear in a number of different places in this prospectus and,
in some cases, can be identified by words such as “anticipates”, “estimates”, “projects”, “expects”,
“contemplates”, “intends”, “believes”, “plans”, “may”, “will”,
or their negatives or other comparable words, although not all forward-looking statements contain these identifying words. Forward-looking
statements in this prospectus may include, but are not limited to, statements and/or information related to: strategy, future operations,
the size and value of the order book and the number of orders, the number and timing of building pre-mass production vehicles,
the projection of timing and delivery of SOLOs, Super SOLOs or Tofinos in the future, projected costs, expected production capacity,
expectations regarding demand and acceptance of our products, estimated costs of machinery to equip a new production facility,
and trends in the market in which we operate, plans and objectives of management.
Forward-looking statements
are based on the reasonable assumptions, estimates, analysis and opinions made in light of our experience and our perception of
trends, current conditions and expected developments, as well as other factors that we believe to be relevant and reasonable in
the circumstances at the date that such statements are made, but which may prove to be incorrect. Management believes that the
assumption and expectations reflected in such forward-looking statements are reasonable. Assumptions have been made regarding,
among other things: our ability to build pre-mass production vehicles and to begin production deliveries within certain timelines;
our expected production capacity; prices for machinery to equip a new production facility, labor costs and material costs, remaining
consistent with our current expectations; production of SOLOs, Super SOLOs and Tofinos meeting expectations and being consistent
with estimates; equipment operating as anticipated; there being no material variations in the current regulatory environment; and
our ability to obtain financing as and when required and on reasonable terms. Readers are cautioned that the foregoing list is
not exhaustive of all factors and assumptions which may have been used.
The
forward-looking statements, including the statements contained in the sections entitled “Risk Factors” and
“Business Overview” and elsewhere in this prospectus, are subject to known and unknown risks, uncertainties and
other factors that may cause actual results to be materially different from those expressed or implied by such
forward-looking statements. Such risks, uncertainties and other factors include but are not limited to:
|
•
|
general economic and business conditions, including changes in interest rates;
|
|
•
|
prices of other electric vehicles, costs associated with manufacturing electric vehicles and other economic conditions;
|
|
•
|
actions by government authorities, including changes in government regulation;
|
|
•
|
uncertainties associated with legal proceedings;
|
|
•
|
changes in the electric vehicle market;
|
|
•
|
future decisions by management in response to changing conditions;
|
|
•
|
our ability to execute prospective business plans;
|
|
•
|
misjudgments in the course of preparing forward-looking statements;
|
|
•
|
our ability to raise sufficient funds to carry out our proposed business plan;
|
|
•
|
consumers’ willingness to adopt three-wheeled single passenger electric vehicles;
|
|
•
|
declines in the range of our electric vehicles on a single charge over time may negatively influence potential customers’
decisions to purchase such vehicles;
|
|
•
|
developments in alternative technologies or improvements in the internal combustion engine;
|
|
•
|
inability to keep up with advances in electric vehicle technology;
|
|
•
|
inability to design, develop, market and sell new electric vehicles and services that address additional market opportunities;
|
|
•
|
dependency on certain key personnel and any inability to retain and attract qualified personnel;
|
|
•
|
inexperience in mass-producing electric vehicles;
|
|
•
|
inability to reduce and adequately control operating costs;
|
|
•
|
failure of our vehicles to perform as expected;
|
|
•
|
inexperience in servicing electric vehicles;
|
|
•
|
inability to succeed in establishing, maintaining and strengthening the Electrameccanica brand;
|
|
•
|
disruption of supply or shortage of raw materials;
|
|
•
|
the unavailability, reduction or elimination of government and economic incentives;
|
|
•
|
failure to manage future growth effectively; and
|
|
•
|
labor and employment risks.
|
Although management
has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking
statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Forward-looking statements
might not prove to be accurate, as actual results and future events could differ materially from those anticipated in such forward-looking
statements. Accordingly, readers should not place undue reliance on forward-looking statements. We wish to advise you that these
cautionary remarks expressly qualify, in their entirety, all forward-looking statements attributable to our company or persons
acting on our company’s behalf. We do not undertake to update any forward-looking statements to reflect actual results, changes
in assumptions or changes in other factors affecting such statements, except as, and to the extent required by, applicable securities
laws. You should carefully review the cautionary statements and risk factors contained in this prospectus and other documents that
we may file from time to time with the securities regulators.
USE OF PROCEEDS
We will not receive
any proceeds from the sale of the common shares being offered by the selling stockholders. If all of the warrants are exercised
into the common shares offered by the selling shareholders, we will receive gross proceeds of $10,880,000. We may not receive any
such proceeds, or only a portion thereof, if the selling shareholders exercise none or a portion of those warrants. We cannot currently
specify with certainty the particular uses for the proceeds we may receive. Accordingly, we will retain broad discretion
over the use of these proceeds, if any. We currently intend to use any such proceeds for our Tofino project and for general
working capital and corporate purposes.
CAPITALIZATION
AND INDEBTEDNESS
The
selling shareholders might never obtain the shares being offered hereby as they might never exercise the warrants for which those
shares can be obtained. As these shares may never be issued, we have not presented our capitalization information on an as-adjusted basis to
give effect to the issuance and sale of 4,250,000 shares issuable upon exercise of the warrants issued to the selling
shareholders in the November 2018 private placement.
DETERMINATION OF OFFERING PRICE
The
selling shareholders will offer common stock at the prevailing market prices or privately negotiated price. The offering price
of our common stock does not necessarily bear any relationship to our book value, assets, past operating results, financial condition
or any other established criteria of value. Our common stock might not trade at market prices in excess of the offering price as
prices for common stock in any public market will be determined in the marketplace and may be influenced by many factors, including
the depth and liquidity.
DIVIDEND POLICY
To date we have not
paid any dividends on our outstanding common shares. The future payment of dividends will depend upon our financial requirements
to fund further growth, our financial condition and other factors which our Board of Directors may consider in the circumstances.
We do not contemplate paying any dividends in the immediate or foreseeable futures.
CURRENCY AND EXCHANGE RATES
All dollar amounts in
this prospectus are expressed in Canadian dollars unless otherwise indicated. Our accounts are maintained in Canadian dollars,
and our financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board. All reference to “U.S. dollars”, “USD”, or to “US$” are to United
States dollars.
The following table
sets forth, for each period indicated, the high and low exchange rate for U.S. dollars expressed in Canadian dollars, and
the average exchange rate for the periods indicated. Averages for year-end periods are calculated by using the exchange rates on
the last day of each full month during the relevant period. These rates are based on the noon-buying rate certified for custom
purposes by the U.S. Federal Reserve Bank of New York set forth in the H.10 statistical release of the Federal Reserve Board. These
rates are provided solely for your convenience and are not necessarily the exchange rates that we used in preparation of our consolidated
financial statements and pro forma financial statements incorporated by reference herein or elsewhere in this prospectus or will
use in the preparation of our periodic reports or any other information to be provided to you. We make no representation that any
Canadian dollar or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or
Canadian dollars, as the case may be, at any particular rate or at all.
|
|
Period
End
|
|
|
Period
Average
Rate
|
|
|
High
Rate
|
|
|
Low
Rate
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
$
|
1.2517
|
|
|
$
|
1.2963
|
|
|
$
|
1.3745
|
|
|
$
|
1.2131
|
|
December 31, 2018
|
|
$
|
1.3644
|
|
|
$
|
1.2957
|
|
|
$
|
1.3650
|
|
|
$
|
1.2280
|
|
Last Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2018
|
|
$
|
1.3072
|
|
|
$
|
1.3042
|
|
|
$
|
1.3155
|
|
|
$
|
1.2925
|
|
September 2018
|
|
$
|
1.2922
|
|
|
$
|
1.3034
|
|
|
$
|
1.3155
|
|
|
$
|
1.2912
|
|
October 2018
|
|
$
|
1.3129
|
|
|
$
|
1.3004
|
|
|
$
|
1.2912
|
|
|
$
|
1.3212
|
|
November 2018
|
|
$
|
1.3282
|
|
|
$
|
1.3205
|
|
|
$
|
1.3328
|
|
|
$
|
1.3098
|
|
December 2018
|
|
$
|
1.3644
|
|
|
$
|
1.3426
|
|
|
$
|
1.3650
|
|
|
$
|
1.3190
|
|
January 2019
|
|
$
|
1.3140
|
|
|
$
|
1.3300
|
|
|
$
|
1.3591
|
|
|
$
|
1.3140
|
|
SELLING SHAREHOLDERS
The shares
of common stock being offered by the selling shareholders are those issuable to the selling shareholders upon exercise of
warrants issued in a November 2018 private placement. We are registering the shares of common stock in order to permit the
selling shareholders to offer the shares for resale from time to time. None of the selling shareholders has had a material
relationship with us within the past three years except for the entry into the Securities Purchase Agreement.
The table below
lists the selling shareholders and other information regarding the beneficial ownership (as determined under Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder) of the common shares held by the selling
shareholders.
Name
and address of
Selling Shareholder
|
|
Number of
Common Shares
Beneficially Owned
Prior to Offering
|
|
|
Maximum Number of
Common Shares to be
Sold Pursuant to this
Prospectus
|
|
|
Number of Common
Shares Which May Be
Sold in This Offering
As A Percentage of
Currently Outstanding
Shares (1)
|
|
|
Number of Common
Shares Beneficially
Owned After Offering
|
|
|
Percentage of
Common Shares
Beneficially Owned
After the Offering (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alta Partners LLC
(3)
|
|
|
527,906
|
|
|
|
300,000
|
|
|
|
*
|
|
|
|
227,906
|
|
|
|
*
|
|
Nineteen77 Global Fundamental Market
Neutral Long Short Master Limited
(4)
|
|
|
18,443
|
|
|
|
5,788
|
|
|
|
*
|
|
|
|
12,655
|
|
|
|
*
|
|
Nineteen77 Global Multi-Strategy Alpha
Master Limited
(5)
|
|
|
769,960
|
|
|
|
244,212
|
|
|
|
*
|
|
|
|
525,748
|
|
|
|
1.4
|
%
|
CVI Investments, Inc.
(6)
|
|
|
375,300
|
|
|
|
150,000
|
|
|
|
*
|
|
|
|
225,300
|
|
|
|
*
|
|
Verition Multi-Strategy Fund Ltd.
(7)
|
|
|
600,000
|
|
|
|
250,000
|
|
|
|
*
|
|
|
|
350,000
|
|
|
|
*
|
|
Bigger Capital Fund, LP
(8)
|
|
|
125,000
|
|
|
|
125,000
|
|
|
|
*
|
|
|
|
0
|
|
|
|
0
|
%
|
Brio Capital Master Fund Ltd.
(9)
|
|
|
282,000
|
|
|
|
100,000
|
|
|
|
*
|
|
|
|
182,000
|
|
|
|
*
|
|
Clayton A. Struve
(10)
|
|
|
144,000
|
|
|
|
48,000
|
|
|
|
*
|
|
|
|
96,000
|
|
|
|
*
|
|
David S Nagelberg 2003 Revocable Trust
(11)
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
*
|
|
|
|
0
|
|
|
|
0
|
%
|
District 2 Capital Fund LP
(12)
|
|
|
143,038
|
|
|
|
125,000
|
|
|
|
*
|
|
|
|
18,038
|
|
|
|
*
|
|
Richard Dyke Rogers
(13)
|
|
|
315,000
|
|
|
|
15,000
|
|
|
|
*
|
|
|
|
300,000
|
|
|
|
*
|
|
Empery Asset Master, LTD
(14)
|
|
|
656,357
|
|
|
|
538,929
|
|
|
|
1.67
|
%
|
|
|
117,428
|
|
|
|
*
|
|
Empery Tax Efficient II, LP
(15)
|
|
|
733,241
|
|
|
|
665,127
|
|
|
|
2.06
|
%
|
|
|
68,114
|
|
|
|
*
|
|
Empery Tax Efficient, LP
(16)
|
|
|
90,402
|
|
|
|
75,944
|
|
|
|
*
|
|
|
|
14,458
|
|
|
|
*
|
|
Hudson Bay Master Fund Ltd
(17)
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
*
|
|
|
|
0
|
|
|
|
0
|
%
|
Intracoastal Capital, LLC
(18)
|
|
|
221,800
|
|
|
|
175,000
|
|
|
|
*
|
|
|
|
46,800
|
|
|
|
*
|
|
Ionic Ventures LLC
(19)
|
|
|
1,507,276
|
|
|
|
500,000
|
|
|
|
1.54
|
%
|
|
|
1,007,276
|
|
|
|
2.8
|
%
|
John Bodzick
(20)
|
|
|
27,000
|
|
|
|
10,000
|
|
|
|
*
|
|
|
|
17,000
|
|
|
|
*
|
|
KBB Asset Management
(21)
|
|
|
50,000
|
|
|
|
25,000
|
|
|
|
*
|
|
|
|
25,000
|
|
|
|
*
|
|
KJ Harrison & Partners Inc.
(22)
|
|
|
103,012
|
|
|
|
100,000
|
|
|
|
*
|
|
|
|
3,012
|
|
|
|
*
|
|
Orca Capital GmbH
(23)
|
|
|
100,000
|
|
|
|
50,000
|
|
|
|
*
|
|
|
|
50,000
|
|
|
|
*
|
|
S.H.N Financial Investments Ltd.
(24)
|
|
|
254,000
|
|
|
|
127,000
|
|
|
|
*
|
|
|
|
127,000
|
|
|
|
*
|
|
The Feldman Family Trust
(25)
|
|
|
25,000
|
|
|
|
12,500
|
|
|
|
*
|
|
|
|
12,500
|
|
|
|
*
|
|
Warberg WF VI L.P.
(26)
|
|
|
75,100
|
|
|
|
75,000
|
|
|
|
*
|
|
|
|
100
|
|
|
|
*
|
|
Alice Ann Corporation
(27)
|
|
|
75,000
|
|
|
|
25,000
|
|
|
|
*
|
|
|
|
50,000
|
|
|
|
*
|
|
Cody R.J. Allison
(27)
|
|
|
17,500
|
|
|
|
4,500
|
|
|
|
*
|
|
|
|
13,000
|
|
|
|
*
|
|
Kyler R.W. Allison
(27)
|
|
|
8,000
|
|
|
|
2,500
|
|
|
|
*
|
|
|
|
5,500
|
|
|
|
*
|
|
Nancy Hoffman-Allison
(27)
|
|
|
13,000
|
|
|
|
3,000
|
|
|
|
*
|
|
|
|
10,000
|
|
|
|
*
|
|
Robert G. Allison
(27)
|
|
|
164,500
|
|
|
|
52,000
|
|
|
|
*
|
|
|
|
112,500
|
|
|
|
*
|
|
RBC Capital Markets LLC CUST, Robert G. Allison IRA
(27)
|
|
|
18,000
|
|
|
|
6,000
|
|
|
|
*
|
|
|
|
12,000
|
|
|
|
*
|
|
Baxter Family Foundation
(27)
|
|
|
17,000
|
|
|
|
6,000
|
|
|
|
*
|
|
|
|
11,000
|
|
|
|
*
|
|
William H. Baxter TTEE, William H. Baxter Rev Trust, u/a dtd 7/3/1996
(27)
|
|
|
37,000
|
|
|
|
12,500
|
|
|
|
*
|
|
|
|
24,500
|
|
|
|
*
|
|
RBC Capital Markets LLC CUST, William H. Baxter IRA
(27)
|
|
|
24,000
|
|
|
|
8,000
|
|
|
|
*
|
|
|
|
16,000
|
|
|
|
*
|
|
David C Brown & Carole A Brown TTEES, David & Carole Brown REV Trust u/a dtd 10/23/1997
(27)
|
|
|
24,000
|
|
|
|
6,000
|
|
|
|
*
|
|
|
|
18,000
|
|
|
|
*
|
|
Larry S & Sherri L Christofaro, JT TEN/WROS
(27)
|
|
|
12,000
|
|
|
|
3,000
|
|
|
|
*
|
|
|
|
9,000
|
|
|
|
*
|
|
Anne S. Chudnofsky
(27)
|
|
|
35,500
|
|
|
|
9,000
|
|
|
|
*
|
|
|
|
26,500
|
|
|
|
*
|
|
Gary E Clipper & Leslie J Clipper TTEES, Gary and Leslie Clipper Trust, u/a dtd 10/26/2015
(27)
|
|
|
32,000
|
|
|
|
8,000
|
|
|
|
*
|
|
|
|
24,000
|
|
|
|
*
|
|
RBC Capital Markets LLC CUST, Edwin C. Freeman IRA
(27)
|
|
|
9,000
|
|
|
|
4,500
|
|
|
|
*
|
|
|
|
4,500
|
|
|
|
*
|
|
Thomas J. Franta
(27)
|
|
|
11,000
|
|
|
|
4,000
|
|
|
|
*
|
|
|
|
7,000
|
|
|
|
*
|
|
RBC Capital Markets LLC CUST, Ronald N Gaul, Pioneer Mailroom Equipement Inc SEP/IRA
(27)
|
|
|
22,920
|
|
|
|
7,000
|
|
|
|
*
|
|
|
|
15,920
|
|
|
|
*
|
|
RBC Capital Markets LLC CUST, P. Dan Gilbert, Gilbert Mechanical Con SEP-IRA
(27)
|
|
|
12,500
|
|
|
|
5,000
|
|
|
|
*
|
|
|
|
7,500
|
|
|
|
*
|
|
Frances A Gonyea
(27)
|
|
|
57,000
|
|
|
|
15,000
|
|
|
|
*
|
|
|
|
42,000
|
|
|
|
*
|
|
RBC Capital Markets LLC CUST, Catherine F. Herrmann IRA
(27)
|
|
|
12,500
|
|
|
|
4,500
|
|
|
|
*
|
|
|
|
8,000
|
|
|
|
*
|
|
RBC Capital Markets LLC CUST, Jerry Herrmann, Jr. IRA
(27)
|
|
|
11,000
|
|
|
|
4,000
|
|
|
|
*
|
|
|
|
7,000
|
|
|
|
*
|
|
Dorothy J. Hoel
(27)
|
|
|
47,500
|
|
|
|
12,500
|
|
|
|
*
|
|
|
|
35,000
|
|
|
|
*
|
|
Richard A. Hoel
(27)
|
|
|
28,500
|
|
|
|
7,500
|
|
|
|
*
|
|
|
|
21,000
|
|
|
|
*
|
|
RBC Capital Markets LLC CUST, Raymond R Johnson IRA
(27)
|
|
|
12,000
|
|
|
|
4,000
|
|
|
|
*
|
|
|
|
8,000
|
|
|
|
*
|
|
RBC Capital Markets LLC CUST, Elizabeth J Kuehne IRA
(27)
|
|
|
32,000
|
|
|
|
8,000
|
|
|
|
*
|
|
|
|
24,000
|
|
|
|
*
|
|
E Kuehne/J Romundstad TTEES , Kuehne-Romundstad-Kuestad Family Trust, dtd u/a 8/12/2008
(27)
|
|
|
32,000
|
|
|
|
8,000
|
|
|
|
*
|
|
|
|
24,000
|
|
|
|
*
|
|
RBC Capital Markets LLC CUST, Carol Ann Mahoney IRA
(27)
|
|
|
7,500
|
|
|
|
3,000
|
|
|
|
*
|
|
|
|
4,500
|
|
|
|
*
|
|
RBC Capital Markets LLC CUST, James S. Mahoney IRA
(27)
|
|
|
20,000
|
|
|
|
10,000
|
|
|
|
*
|
|
|
|
10,000
|
|
|
|
*
|
|
Laurence R North TTEE, Laurence R. North Revocable TR, DTD 05/26/1999
(27)
|
|
|
15,000
|
|
|
|
5,000
|
|
|
|
*
|
|
|
|
10,000
|
|
|
|
*
|
|
RBC Capital Markets LLC CUST, Ann L. Orchard IRA
(27)
|
|
|
25,500
|
|
|
|
8,500
|
|
|
|
*
|
|
|
|
17,000
|
|
|
|
*
|
|
RBC Capital Markets LLC CUST, Thomas A Ouradnik, Pioneer Mailroom Equipement Inc SEP/IRA
(27)
|
|
|
81,080
|
|
|
|
25,000
|
|
|
|
*
|
|
|
|
56,080
|
|
|
|
*
|
|
Susan E. Palmer
(27)
|
|
|
9,000
|
|
|
|
3,000
|
|
|
|
*
|
|
|
|
6,000
|
|
|
|
*
|
|
Carolyn Salon
(27)
|
|
|
49,000
|
|
|
|
13,000
|
|
|
|
*
|
|
|
|
36,000
|
|
|
|
*
|
|
Joel A. Salon
(27)
|
|
|
33,000
|
|
|
|
10,000
|
|
|
|
*
|
|
|
|
23,000
|
|
|
|
*
|
|
Paul C Seel & Nancy S Seel, JT TEN/WROS
(27)
|
|
|
25,500
|
|
|
|
8,500
|
|
|
|
*
|
|
|
|
17,000
|
|
|
|
*
|
|
Carolyn K. Sorenson TTEE, Carolyn K. Sorenson Living Trust, u/a dtd 12/21/1995
(27)
|
|
|
9,000
|
|
|
|
4,500
|
|
|
|
*
|
|
|
|
4,500
|
|
|
|
*
|
|
RBC Capital Markets LLC CUST, Roger Sorenson IRA
(27)
|
|
|
9,000
|
|
|
|
4,500
|
|
|
|
*
|
|
|
|
4,500
|
|
|
|
*
|
|
RBC Capital Markets LLC CUST, Stephen P Vertin SEP/IRA
(27)
|
|
|
23,500
|
|
|
|
4,500
|
|
|
|
*
|
|
|
|
19,000
|
|
|
|
*
|
|
Stephen P Vertin TTEE, Stephen P. Vertin Rev Living Trust, U/A DTD 09/17/2007 AS AMENDED
(27)
|
|
|
27,000
|
|
|
|
9,000
|
|
|
|
*
|
|
|
|
18,000
|
|
|
|
*
|
|
RBC Capital Markets LLC CUST, Fred D. Wucherpfennig IRA
(27)
|
|
|
9,000
|
|
|
|
3,000
|
|
|
|
*
|
|
|
|
6,000
|
|
|
|
*
|
|
Perkins Capital Management, Inc.
(27)
|
|
|
10,500
|
|
|
|
3,500
|
|
|
|
*
|
|
|
|
7,000
|
|
|
|
*
|
|
RBC Capital Markets LLC CUST, Wynne A Perkins IRA
(27)
|
|
|
8,000
|
|
|
|
4,000
|
|
|
|
*
|
|
|
|
4,000
|
|
|
|
*
|
|
RBC Capital Markets LLC CUST, Lise B Potter IRA
(27)
|
|
|
27,000
|
|
|
|
9,000
|
|
|
|
*
|
|
|
|
18,000
|
|
|
|
*
|
|
Richard W Perkins TTEE, Richard W Perkins Trust, FBO Richard W Perkins, U/A DTD 06/14/1978
(27)
|
|
|
75,000
|
|
|
|
25,000
|
|
|
|
*
|
|
|
|
50,000
|
|
|
|
*
|
|
(1)
|
Based on 32,364,343 common shares issued and outstanding as of January 30, 2019.
|
(2)
|
The total number of shares outstanding after the offering is
based on (i) 32,364,343 common shares issued and outstanding as of January 30, 2019, (ii) the issuance upon exercise of the
applicable warrants of all 4,250,000 common shares being offered by this prospectus and (iii) for each
shareholder and for that shareholder only, the common shares underlying any options, warrants or other
convertible securities that may be acquired within the next 60 days without giving regard to any
limitation on beneficial ownership applicable to such security. Such total number of shares
outstanding after the offering assumes we issue no other common shares (including upon the exercise of
outstanding warrants, options or other convertible securities) prior to the completion of this
offering.
|
(3)
|
Steven Cohen has the voting and investment control over the
securities held by Alta Partners LLC. The address of Alta Partners LLC is 29 Valentines Lane, Old Brookville, NY 11545.
|
(4)
|
Lauren O'Meally has the voting or investment control over securities held by Nineteen77 Global Fundamental Market Neutral Long Short Master Limited. The address of Nineteen77 Global Fundamental Market Neutral Long Short Master Limited is c/o UBS O'Connor LLC, One N. Wacker Drive, 32nd Fl, Chicago, IL 60606.
|
(5)
|
Lauren O'Meally has the voting or investment control over securities held by Nineteen77 Global Multi-Strategy Alpha Master Limited. The address of Nineteen77 Global Multi-Strategy Alpha Master Limited is c/o UBS O'Connor LLC, One N. Wacker Drive, 32nd Fl, Chicago, IL 60606.
|
(6)
|
Martin Kobinger has the voting or investment control over securities held by CVI Investments, Inc. The address of CVI Investments, Inc. is c/o Heights Capital Management, Inc., 101 California Street, Suite 3250, San Francisco, CA 94111.
|
(7)
|
Nicholas Maounis through ownership of the managing member of Verition Fund Management LLC may be deemed
to have voting and investment control with respect to these securities. Verition Multi-Strategy Fund Ltd., its managing member
and Mr. Maounis disclaim beneficial ownership over these securities, except to the extent of their pecuniary interest therein.
The address of Verition Multi-Strategy Fund Ltd. is One American Lane, Greenwich, CT 06831.
|
(8)
|
Michael Bigger has the voting and investment control over the securities held by Bigger Capital Fund, LP. The address of Bigger Capital Fund, LP is 159 Jennings Road, Cold Spring Harbor, NY 11724.
|
(9)
|
Shaye Hirsch has the voting and investment control over the securities held by Brio Capital Master Fund Ltd. The address of Brio Capital Master Fund Ltd. is c/o Brio Capital Management LLC, 100 Merrick Road, Suite 401W, Rockville Centre, NY 11570-4800.
|
(10)
|
The address of Clayton Struve is 175 W. Jackson Blvd, Suite 440 Chicago, IL 60604.
|
(11)
|
David S. Nagelberg has the voting and investment control over David S Nagelberg 2003 Revocable Trust. The address of David S Nagelberg 2003 Revocable Trust is 939 Coast Blvd, Unit 21 DE, La Jolla, CA 92037.
|
(12)
|
Michael Bigger and Eric Schlanger have the voting and investment control over the securities held by District 2 Capital Fund LP. The address of District 2 Capital Fund LP is 175 W Carver, Huntington, NY 11743.
|
(13)
|
The address of Richard Dyke Rogers is 1205 Olive Ave. Dalhart, TX 79022.
|
(14)
|
Empery Asset Management LP, the authorized agent of Empery Asset Master Ltd. (“EAM”), has discretionary authority to vote and dispose of the shares held by EAM and may be deemed to be the beneficial owner of these shares. Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery Asset Management LP, may also be deemed to have investment discretion and voting power over the shares held by EAM. EAM, Mr. Hoe and Mr. Lane each disclaim any beneficial ownership of these shares. The address of Empery Asset Master, LTD is c/o Empery Asset Management, LP, 1 Rockefeller Plaza, Suite 1205, New York, NY 10020.
|
(15)
|
Empery Asset Management LP, the authorized agent of Empery Tax Efficient II, LP (“ETE II”), has discretionary authority to vote and dispose of the shares held by EAM and may be deemed to be the beneficial owner of these shares. Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery Asset Management LP, may also be deemed to have investment discretion and voting power over the shares held by ETE II. ETE II, Mr. Hoe and Mr. Lane each disclaim any beneficial ownership of these shares. The address of Empery Tax Efficient II, LP is c/o Empery Asset Management, LP, 1 Rockefeller Plaza, Suite 1205, New York, NY 10020.
|
(16)
|
Empery Asset Management LP, the authorized agent of Empery Tax Efficient, LP (“ETE”), has discretionary authority to vote and dispose of the shares held by EAM and may be deemed to be the beneficial owner of these shares. Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery Asset Management LP, may also be deemed to have investment discretion and voting power over the shares held by ETE. ETE, Mr. Hoe and Mr. Lane each disclaim any beneficial ownership of these shares. The address of Empery Tax Efficient, LP is c/o Empery Asset Management, LP, 1 Rockefeller Plaza, Suite 1205, New York, NY 10020.
|
(17)
|
Hudson Bay Capital Management LP, the investment manager of Hudson Bay Master Fund Ltd., has voting and investment power over these securities. Sander Gerber is the managing member of Hudson Bay Capital GP LLC, which is the general partner of Hudson Bay Capital Management LP. Sander Gerber disclaims beneficial ownership over these securities. The address of Hudson Bay Master Fund Ltd is c/o Hudson Bay Capital Management, 777 Third Avenue, 30th Floor, New York, NY 10017.
|
(18)
|
Mitchell P. Kopin and Daniel B. Asher, each of whom are managers of Intracoastal Capital, LLC, have shared voting control and investment discretion over the securities reported herein that are held by Intracoastal Capital, LLC. As a result, each of Mr. Kopin and Mr. Asher may be deemed to have beneficial ownership of the securities reported herein that are held by Intracoastal Capital, LLC. The address of Intracoastal Capital, LLC is c/o Intracoastal Capital LLC, 2211A Lakeside Drive, Bannockburn, IL 60015.
|
(19)
|
Keith Coulston and Brendan O'Neil have the voting and investment control over the securities held by Ionic Ventures LLC. The address of Ionic Ventures LLC is 5328 Yacht Haven Grande Box #15, Suite C201, St. Thomas, VI 00802.
|
(20)
|
The address of John Bodzick is 1199 Kirts, Suite F, Troy, MI 48084.
|
(21)
|
Steve Segal has the voting and investment control over the securities held by KBB Asset Management. The address of KBB Asset Management is 12 Harrison Avenue, Enfield, CT 06082.
|
(22)
|
Ashley Kennedy has the voting and investment control over the
securities held by KJ Harrison & Partners Inc. The address of KJ Harrison & Partners Inc. is 60 Bedford Road, Toronto ON, Canada.
|
(23)
|
Jan Schimmer has the voting and investment control over the securities held by Orca Capital GmbH. The address of Orca Capital GmbH is Sperling 2, 85276 Pfaffenhofen, Germany.
|
(24)
|
Nir Shamir and Hadar Shamir have the voting and investment control over the securities held by S.H.N Financial Investments Ltd. The address of S.H.N Financial Investments Ltd. is 8 Abba Even Blvd., Hertzelya, Israel.
|
(25)
|
Andrew A Feldman and Jeri Feldman have the voting and investment control over the securities held by The Feldman Family Trust. The address of The Feldman Family Trust is 753 Colima St., La Jolla, CA 92037.
|
(26)
|
Daniel Warsh and Jonathan Blumberg have the voting and investment control over the securities held by Warberg WF VI L.P. The address of Warberg WF VI L.P. is 716 Oak St., Winnteka, IL 60093.
|
(27)
|
Powers of attorney were provided to
Perkins
Capital Management, Inc. granting
voting and investment authority over the securities held by these individuals and entities.
Richard W. Perkins, Richard C. Perkins and Daniel S. Perkins are the officers and directors of Perkins Capital Management, Inc.
who have the voting and dispositive authority over these securities. The address of Perkins Capital Management, Inc. is 730
East Lake Street, Wayzata, MN 55391. The total number of common shares over which Perkins Capital Management, Inc. has
voting and dispositive authority prior
to the offering is 1,229,000. The maximum number of common shares to be sold pursuant to this
prospectus shares over which Perkins Capital Management, Inc. has voting and dispositive authority is 382,500 which accounts
for approximately 1.2% of the current total outstanding shares. The total number of common shares over which Perkins Capital
Management, Inc. has voting and dispositive authority after the offering is 846,500, which accounts for approximately 2.3%
of the total outstanding shares after the offering.
|
COMPANY INFORMATION
History and Development of the Company
Electrameccanica Vehicles
Corp. is a development-stage electric vehicle (EV) production company incorporated on February 16, 2015 under the laws of British
Columbia, Canada. The concept for our company was developed by Jerry Kroll after years of research and development on advanced
EVs.
Upon returning to Vancouver
in 2011, Mr. Kroll decided that new electric drive systems could revolutionize car assembly and the concept for our company’s
flagship EV called the “SOLO” was born. With the help of long-time automotive expert and friend, Henry Reisner, President
of Intermeccanica, and Intermeccanica’s vast experience in automotive craftsmanship, our company’s first prototype
was finished in January 2015. To solidify our presence and branding in the EV market, we incorporated in February of 2015 under
the name Electrameccanica Vehicles Corp. For the past 10 years, Mr. Kroll has been researching and developing technologies for
autonomous drive systems and dynamic induction charging. We have plans for ongoing refinements to performance, style, value and
efficiency as drive systems, computerization and materials are developed.
We currently have a
modern furnished showroom near the downtown core of Vancouver, British Columbia, and in Los Angeles, California, where interested
consumers may receive more information on the SOLO, review its specs and technical design, and even test-drive a prototype of the
SOLO.
As of January 30, 2019,
we have received deposits for 919 vehicles (including 864 SOLOs and 55 Tofinos) from individuals. As part of our “Match My
Deposit” program, we offer customers who have placed deposits for other electric vehicles a credit of up to $1,000 towards
the purchase of a SOLO, which is initially credited towards the buyers’ deposit. 214 of the 887 vehicle deposits that we
have received through December 20, 2018 result from the “Match My Deposit” program. Additionally, we have entered into non-binding
letters of interest for approximately 64,158 corporate orders (23,106 SOLOs and 41,052 Tofinos) for which we have letters of credit
for $421,864,256 for SOLOs and $2,664,805,000 for Tofinos. These non-binding orders with refundable deposits might not result in
actual sales.
We have been funding
operations to date through equity financings by our founders and through private placements from investors. Our management maintains
substantial control of our company. Prior to the offering, our directors and executive officers beneficially owned 43% of our outstanding
shares, including shares that our executive officers and directors have the right to acquire within the next 60 days pursuant to
warrants and stock options which have vested.
Corporate Headquarters
Our principal executive
offices are located at 102 East 1st Avenue, Vancouver, British Columbia, Canada, V5T 1A4. Our phone number is (604) 428-7656.
Subsidiaries
We have two subsidiaries,
Intermeccanica International Inc. (“Intermeccanica”), a corporation subsisting under the laws of the Province of British
Columbia, Canada, and EMV Automotive USA Inc., a Nevada corporation.
BUSINESS OVERVIEW
General
We are a development-stage
EV company focusing on the market demand for EVs that are efficient, cost-effective and environmentally friendly methods for urban
residents to commute. We believe that our flagship EV called the SOLO is the answer to such market demand. In addition, we have
two other EV candidates in an advanced stage of development, the Super SOLO and the Tofino.
SOLO
We created the SOLO’s
first prototype in January of 2015. Since the completion of the prototype, our engineers and designers have devoted efforts to
provide the SOLO with an appealing design, and have engaged in proprietary research and development leading to a high performance
electric rear drive motor.
The SOLO features a
lightweight aerospace composite chassis to allow for a top speed of 130km/h, an attainable cruise speed of 110km/h and is able
to go from 0 km/h to 100 km/h in approximately eight seconds. Our SOLO features a lithium ion battery system that requires only
three hours of charging time on a 220-volt charging station or six hours from a 110-volt outlet. The lithium battery system utilizes
approximately 8.64 kW/h for up to 160 km in range. We also offer a comprehensive warranty package for two years of unlimited mileage
which is included in the price of the SOLO. Standard equipment in the SOLO includes, but is not limited to the following:
|
•
|
LCD Digital Instrument Cluster;
|
|
•
|
AM/FM stereo with Bluetooth/CD/USB;
|
|
•
|
Remote keyless entry system;
|
|
•
|
Rear view backup camera; and
|
Optional equipment will include air conditioning
at an additional cost.
The purchase price for our SOLO is $19,888
(approximately US$15,888).
Our production department
has completed production of 43 SOLOs as of January 30, 2019. Producing the pre-mass production SOLOs allows us to determine and
assess the entire production process. Currently, we have increased our production space, organized a production line, ordered components
and are in the process of fine tuning the production process through the pre-mass production SOLOs. We have entered into a manufacturing
agreement with Zongshen and expect to begin mass production of the SOLO for customer deliveries in first quarter of 2019. We anticipate
our production costs to be $15,000 per SOLO, providing a gross margin of 25% based on a sale price of $19,888.
Super Solo
We also plan on launching
the Super SOLO, which is a sports car model within our EV product line. The Super SOLO is intended to boast a longer range and
a higher top speed, sleek, aerodynamic design and features that will rival existing super sports cars.
Refundable deposits
have been accepted for the planned Super SOLO and such deposits are able to be returned at any time. Mechanical development on
the Super SOLO has begun and progress will determine when this and any other variants can be launched. No set date has been declared
at this time. The Super SOLO is intended to be a high-performance version of the SOLO.
The Tofino
We announced on March
28, 2017, at the Vancouver International Auto Show, that we intend to build the Tofino, an all-electric, two-seater roadster representing
an evolution of the Intermeccanica Roadster. We are designing the Tofino to be equipped with a high-performance, all-electric motor
with a top speed of 200 kph (125 mph) and a 0-100 kph (0-60 mph) in less than seven seconds. The chassis and body are expected
to be made of a lightweight aerospace-grade composite with the car expected to be capable of up to 400 km (250 miles) of range
on a full charge. We are accepting a refundable deposit of $1,000 to reserve the Tofino.
Future EV candidates
We have identified other
vehicles that we would like to add to our candidate list such as the “Cargo” and the “Twinn”, although
no timeline has been set for their development and production. We have plans in the future to release the “Cargo,”
a larger vehicle than the SOLO that is designed for use as a fleet vehicle with ample storage space which would be best suited
for delivery companies such as FedEx, the United States Postal Service and Canada Post. We expect that the Cargo will offer
the appropriate compartment space for fleet vehicle uses such as delivery, while offering long range capability and cleaner technology.
We envision the Twinn featuring two seats, suitable for urban families, young commuters, empty nesters and environmentally-conscious
consumers.
Sources and Availability of Raw Materials
We continue to source
duplicate suppliers for all of our components and, in particular, we are currently sourcing our lithium batteries from Panasonic,
Samsung and LT Chem. Lithium is subject to commodity price volatility which is not under our control and could have a significant
impact on the price of lithium batteries.
At present, we are subject
to the supply of our chassis from one supplier for the production of the SOLO. We are exploring additional suppliers of the chassis
to mitigate the risk of depending on only one supplier.
Patents and Licenses
We have filed patent
and design applications for inventions and designs that our legal counsel deems necessary to protect our products. We do not rely
on any licenses from third-party vendors at this time.
Our success depends,
at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination
of patent and design applications and registrations, trade secrets, including know-how, employee and third-party non-disclosure
agreements, copyright, trademarks and other contractual rights to establish and protect our proprietary rights in our technology
and other intellectual property. As at January 30, 2019, we have six issued design registrations, six pending design applications
and three pending patent applications internationally and in specific countries which we consider core to our business in a broad
range of areas related to the design of the SOLO and its powertrain. We intend to continue to file additional patent and design
applications with respect to our technology and designs. Examination is proceeding with our pending patent applications, but it
is not yet clear whether these applications will result in the issuance of patents or whether the examination process will require
us to narrow our claims such that even if patents are granted, they might not provide us with adequate protection.
Trademarks
We primarily operate
under the trademark “ELECTRA MECCANICA SOLO”, which is registered in China, the European Union and Japan and is the
subject of pending applications in Canada, the United States and China. We have also registered the trademark “ELECTRA MECCANICA
TOFINO” in Japan and the European Union and applied to register the trademark in Canada, the United States and China.
We have additional trademark
registrations and pending applications for trademarks (other than those noted above) in Canada, China, Japan, the United States
and the European Union. As of January 30, 2019, there are six pending applications in Canada, 35 pending application in China and
six pending applications in the United States. There are also three pending applications in each of the European Union and Japan.
There is also an additional registration in each of the European Union and Japan for the trademark “MONSTERRA.” We
also own three registrations in each of the European Union and Japan and we own 10 registrations in China.
This prospectus contains
references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and
trade names referred to in this prospectus may appear without the ® or TM symbols, but such references are not intended to
indicate, in any way, that we will not assert, to the fullest extent possible under applicable law, our rights or the rights of
the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade
names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
Industry Overview
Investment in clean
technology has been trending upwards for several years as nations, governments, and societies overall become more aware of the
damaging effects that pollution and greenhouse gas emissions have on the environment. In an attempt to prevent and/or slow-down
these damaging effects and create a more sustainable environment, consumers have taken to exploring and purchasing clean technology
while nations and government agencies have undertaken programs to reduce greenhouse gas emissions, contribute funding into research
and development in clean technology, and offer incentives/rebates for clean technology investments by businesses and consumers.
EVs are a growing segment of this clean technology movement.
EV is a broad term for
vehicles that do not solely operate on gas or diesel. Within this alternative vehicle group, there are sub-categories of alternative
vehicles that utilize different innovative technologies such as: (i) battery electric vehicles (“BEV”); (ii) fuel-cell
electric vehicles (“FCV”); and (iii) plug-in hybrid electric vehicles (“PHEV”).
BEVs draw on power from
battery management systems to power electric motors instead of from an internal combustion engine, a fuel cell or a fuel tank.
The Nissan Leaf, Tesla Model S and our vehicles are BEVs.
FCVs typically utilize
a hydrogen fuel cell that, along with oxygen from the air, converts chemical energy into electricity which powers the vehicle’s
motor. Emissions from FCVs are water and heat, hence making FCVs true zero-emission vehicles. The Honda Clarity, Hyundai Tucson
and Toyota Mirai are examples of FCVs.
PHEVs are the hybrid
vehicles that have both an electric motor and an internal combustion engine. A PHEV can alternate between using electricity while
in its all-electric range and relying on its gas-powered engine. The Chevrolet Volt and the Toyota Prius are examples of PHEVs.
The popularity of EVs
have also been met with difficulties in charging convenience. There are far more gas stations available than public EV charging
stations. The convenience and availability of public EV charging stations may prove to be an obstacle of mass adoption of EVs.
Consumers may be afraid
that their EVs may run out of charge while they are out on the road and this fear is recognized by the public and has been popularized
with the term “range anxiety”. Despite this fear, the distance travelled by most urban commuters is a lot lower than
the typical range of an EV. Data from Statistics Canada’s National Household Survey in 2011 reported the average Canadian
takes 25 minutes to commute to work.
There currently exists
different categories of charging stations depending on the voltage they provide. EV owners can often charge at home on a regular
110-volt outlet which may take between 10 hours to 20 hours depending on the model and make of the EV. This type of outlet
and charging is termed level 1 charging. Level 2 charging means the voltage at the charging station is typically around 240 volts
and this type of outlet is usually available at public charging stations, shopping malls and big box retailer parking lots, and
even located in certain residential hi-rises. Charging at a level 2 station typically cuts down the level 1 charge time in half
and may require a small fee for the service which may vary depending on the provider and the location. The following table shows
approximate charge information of Level 1 and Level 2 charging stations:
|
|
|
Level 1 Charging
|
|
|
Level 2 Charging
|
|
Electric and Power Specifications
|
|
|
120 Volt, 20 Amp circuit
1.4 kW
|
|
|
208 – 240 Volt, 40 Amp circuit*
6.2 – 7.6 kW**
|
|
Time to Fully Charge an EV with a 100-mile Battery
|
|
|
17 – 25 hours
|
|
|
4 – 5 hours
|
|
Drivers Served per Station per Day
|
|
|
1
|
|
|
3 – 4 or more
|
|
Global EV Market
EVs have been around
for over 100 years but have only recently gained widespread adoption and public interest due to open discussions of greenhouse
gas emission levels, government and international policies on climate change and pollution, increased literature on EVs, fluctuating
fuel costs and improved battery management systems and EV range. In addition, the market for electric vehicles has experienced
significant growth in recent years due to consumer demand for vehicles that achieve greater fuel efficiency and lower environmental
emissions without sacrificing performance.
Traditional automotive
manufacturers have entered into the EV market to capitalize on its growth. The majority of growth in the EV market has been led
by the following EV models: the Nissan Leaf, the Chevrolet Volt (PHEV), the Toyota Prius (PHEV), the Tesla Model S and the Mitsubishi
Outlander (PHEV). Four of the five models above are made by traditional automotive manufacturers, and the fifth is made by Tesla
Motors, one of several manufacturers that are solely devoted to the manufacturing of EVs.
The global stock of
EVs has increased significantly over the past few years. According to the IEA, the global stock of electric cars first crossed
the one million vehicle threshold in 2015 and then crossed the two million vehicle threshold in 2016.
Likewise, the IEA has
reported that the global stock of BEVs, the type of vehicles we will be mass producing, increased on a worldwide basis from about
746,000 in 2015 to approximately 1,209,000 in 2016, an increase of approximately 62.1%.
We anticipate that the
trend of increasing EV sales will continue in the near future. The IEA believes that there is a good possibility that the global
electric car stock will range between 9 million and 20 million by 2020 and between 40 million and 70 million by 2025.
North American EV Market
We anticipate that our
primary target market shall initially be North America, with a focus on the West Coast. Sales of EVs in North America have
mirrored the global increase in sales of EVs. According to the IEA, the sale of BEVs in the United States increased by 22% between
2015 and 2016 and by 19% in Canada during the same period.
According to data compiled
by EVAdoption.com, in 2016 sales of EVs in six U.S. states and the District of Columbia comprised 1% or more of total auto sales
in those jurisdictions. At 3.66% for the year, California had nearly double the next highest EV purchase rate in any U.S. state.
Further according to
data compiled by EVAdoption.com, California consumers purchased 12% of autos in the United States, but bought more than 50% of
all EVs in the United States. In essence, Californians are buying at four times the national rate while Oregon and Washington buy
at a bit more than two times the national rate. The amount BEVs sold in California as a percentage of all EVs sold there has steadily
increased from 1.3% in 2013 to 2.7% in the first quarter of 2017.
The following table
sets out data on PHEV and BEV sales in the United States in 2016 as broken out for select states.
PHEV and BEV Sales January – December, 2016 US by State
|
|
State
|
|
EV Sales
#
|
|
|
EV
Sales
% of US
|
|
|
Sales
%
W/O
Calif.
|
|
|
EVs % of
State Sales
|
|
|
% of New
US
Cars
Registered
|
|
|
Relative to
Actual
Sales
|
|
California
|
|
|
73,854
|
|
|
|
50.7
|
%
|
|
|
N/A
|
|
|
|
3.66
|
%
|
|
|
12
|
%
|
|
|
422.79
|
%
|
Oregon
|
|
|
3,486
|
|
|
|
2.4
|
%
|
|
|
4.9
|
%
|
|
|
1.93
|
%
|
|
|
1.1
|
%
|
|
|
217.70
|
%
|
Washington
|
|
|
5,363
|
|
|
|
3.7
|
%
|
|
|
7.5
|
%
|
|
|
1.81
|
%
|
|
|
1.70
|
%
|
|
|
216.71
|
%
|
Hawaii
|
|
|
1,224
|
|
|
|
0.8
|
%
|
|
|
1.7
|
%
|
|
|
1.39
|
%
|
|
|
0.50
|
%
|
|
|
168.17
|
%
|
Vermont
|
|
|
514
|
|
|
|
0.4
|
%
|
|
|
0.7
|
%
|
|
|
1.32
|
%
|
|
|
0.20
|
%
|
|
|
176.55
|
%
|
District of Columbia
|
|
|
405
|
|
|
|
0.3
|
%
|
|
|
0.6
|
%
|
|
|
1.05
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Colorado
|
|
|
2,711
|
|
|
|
1.9
|
%
|
|
|
3.8
|
%
|
|
|
1.00
|
%
|
|
|
1.60
|
%
|
|
|
116.40
|
%
|
Connecticut
|
|
|
1,511
|
|
|
|
1.0
|
%
|
|
|
2.1
|
%
|
|
|
0.85
|
%
|
|
|
1.00
|
%
|
|
|
103.80
|
%
|
Massachusetts
|
|
|
2,905
|
|
|
|
2.0
|
%
|
|
|
4.1
|
%
|
|
|
0.80
|
%
|
|
|
2.10
|
%
|
|
|
95.03
|
%
|
New Jersey
|
|
|
3,980
|
|
|
|
2.7
|
%
|
|
|
5.5
|
%
|
|
|
0.67
|
%
|
|
|
3.50
|
%
|
|
|
78.12
|
%
|
New York
|
|
|
6,043
|
|
|
|
4.2
|
%
|
|
|
8.4
|
%
|
|
|
0.58
|
%
|
|
|
6.00
|
%
|
|
|
69.19
|
%
|
Florida
|
|
|
6,255
|
|
|
|
4.3
|
%
|
|
|
8.7
|
%
|
|
|
0.47
|
%
|
|
|
7.80
|
%
|
|
|
55.09
|
%
|
Georgia
|
|
|
2,435
|
|
|
|
1.7
|
%
|
|
|
3.4
|
%
|
|
|
0.47
|
%
|
|
|
3.00
|
%
|
|
|
55.76
|
%
|
Illinois
|
|
|
2,688
|
|
|
|
1.8
|
%
|
|
|
3.7
|
%
|
|
|
0.41
|
%
|
|
|
3.90
|
%
|
|
|
47.35
|
%
|
Michigan
|
|
|
2,482
|
|
|
|
1.7
|
%
|
|
|
3.5
|
%
|
|
|
0.41
|
%
|
|
|
3.70
|
%
|
|
|
46.08
|
%
|
Texas
|
|
|
4,510
|
|
|
|
3.1
|
%
|
|
|
6.3
|
%
|
|
|
0.29
|
%
|
|
|
8.90
|
%
|
|
|
34.81
|
%
|
All Other States
|
|
|
25,204
|
|
|
|
17.3
|
%
|
|
|
35.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
All States
|
|
|
145,570
|
|
|
|
100.0
|
%
|
|
|
71,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data Sources: Alliance of Automobile Manufacturers;
National Automobile Dealers Association; Chart: EVAdoption.com
Commuter market
We designed the SOLO
with a view to attracting commuters who use a personal vehicle by cutting their commuting costs and reducing their environmental
footprint. We believe that a substantial number of commuters will find the capacity of our EVs attractive in comparison to cars
designed to carry more people. As cars designed to carry between four and eight people generally weigh substantially more than
those that carry one or two people, they require more fuel or energy to operate. This significant mismatch between capacity and
utilization leads to a significant excess of traffic and pollution and higher operating costs.
Although consumers may
be afraid that their EVs may run out of charge while they are out on the road, the average U.S. commute was only 26.4 minutes in
2015. The 100-mile range of our SOLO on a full charge would more than cover such a round-trip commute.
Government Support
There has been a growing
trend for governments as a matter of public policy to favor EVs. This has taken the form of initiatives aimed at improving transit,
financial incentives for the purchase of EVs and financial incentives for the manufacture of EVs.
Initiatives to Improve Transit
Many localities try
to reduce or regulate traffic, particularly in places where there is high population density, chronic congestion, narrow roads
and limited urban space. While these initiatives might be onerous to owners of traditional internal combustion engine vehicles,
they often exempt or partially exclude EVs. These initiatives include various forms of congestion charging (which often exempt
or provide discounts for EVs), priority lanes for high-occupancy vehicles and EVs, restrictions on new registrations of vehicles
(excluding EVs) and subsidies for the installation of public charging stations for EVs.
Going further than restrictions
on cars fueled by petrol or diesel, several European countries and cities are formulating programs that would actually ban them.
Norway’s Minister for the Environment expects to implement a ban on the sale of cars that are not EVs by 2025. President
Macron of France has vowed to eliminate the sale of cars with internal combustion engines in France by 2040, and city hall in Paris
has called for a ban on all cars with traditional combustion engines from its streets by 2030. In the United Kingdom, the government
has announced a strategy that calls for sales of new gas and diesel cars and vans to end by 2040.
Purchaser Incentives
To promote the purchase
of EVs, many state and local governments offer financial incentives to purchasers. These incentives can take the form of rebates,
tax credits or the elimination or reduction of sales tax. Financial incentives available in selected North American jurisdictions
for the purchase of EVs are set out in the following table:
|
|
U.S.
Federal
|
|
|
California
|
|
|
New
York
|
|
|
British
Columbia
|
|
|
Ontario
|
|
|
Quebec
|
|
Tax credit
|
|
US$
|
7,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Rebate
|
|
|
—
|
|
|
US$
|
2,500
|
|
|
US$
|
2,000
|
|
|
$
|
5,000
|
|
|
$
|
14,000
|
|
|
$
|
8,000
|
|
Although these financial
incentives may not continue at this level or at all, we believe that our EVs would currently qualify for these tax credits and
rebates.
Several jurisdictions
offer similar financial incentives for the purchase and installation of home charging stations for EVs.
Manufacturing Incentives
To promote the manufacture
and development of EVs, many federal, state and local governments provide financial incentives to EV companies. These incentives
can take the form of tax credits or grants. In 2017, we received $193,534 in government grants related to Canada’s Industrial
Research Assistance Program administered by the National Research Council and $111,380 in a Scientific Research and Experimental
Development grant. We will continue to apply for grants where we believe warranted.
Competitive Advantages & Operational
Strengths
The EV market is evolving
and companies within it must be able to adapt without jeopardizing the timing, quality or quantity of their products. Other manufacturers
have entered the electric vehicle market and we expect additional competitors to enter this market within the next several years.
As they do, we expect that we will experience significant competition. With respect to the SOLO, we also face strong competition
from established automobile manufacturers, including manufacturers of EVs such as the Tesla Model S, the Chevrolet Volt and the
Nissan Leaf.
We believe the primary competitive factors
in our market include but are not limited to:
|
•
|
technological innovation;
|
|
•
|
product quality and safety;
|
|
•
|
manufacturing efficiency.
|
Most of our current
and potential competitors have significantly greater financial, technical, manufacturing, marketing and other resources than we
do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support
of their products. Virtually all of our competitors have more extensive customer bases and broader customer and industry relationships
than we do. In addition, almost all of these companies have longer operating histories and greater name recognition than we do.
Our competitors may be in a stronger position to respond quickly to new technologies and may be able to design, develop, market
and sell their products more effectively.
Furthermore, certain
large manufacturers offer financing and leasing options on their vehicles and also have the ability to market vehicles at a substantial
discount, provided that the vehicles are financed through their affiliated financing company. We do not currently offer any form
of direct financing on our vehicles. The lack of our direct financing options and the absence of customary vehicle discounts could
put us at a competitive disadvantage.
We expect competition
in our industry to intensify in the future in light of increased demand for alternative fuel vehicles, continuing globalization
and consolidation in the worldwide automotive industry. Our ability to successfully compete in our industry will be fundamental
to our future success in the EV market and our market share. We might not be able to compete successfully in our market. If our
competitors introduce new cars or services that compete with or surpass the quality, price or performance of our vehicles or services,
we may be unable to satisfy existing customers or attract new customers at the prices and levels that would allow us to generate
attractive rates of return on our investment. Increased competition could result in price reductions and revenue shortfalls, loss
of customers and loss of market share, which could harm our business, prospects, financial condition and operating results.
We believe that our
experience, production capability, product offering and management give us the ability to successfully operate in the EV market
in a way that our competitors cannot. In particular, we believe that we have a number of competitive advantages:
|
•
|
extensive in-house development capabilities:
Our recent acquisition of
Intermeccanica enables us to leverage Intermeccanica’s extensive 60 years of experience in vehicle design, manufacture, sales
and customer support. Intermeccanica’s former owner is our Chief Operating Officer and one of our directors and, together
with his family, is the second largest shareholder in our company. We have integrated Intermeccanica’s staff with the research
and development team that we had prior to the acquisition to develop and enhance current and future model offerings;
|
|
•
|
in-house production capabilities:
We have the ability to manufacture our
own products on a non-commercial scale. As of January 30, 2019, we have produced 43 SOLOs at our facilities in Vancouver, British Columbia.
We will continue to produce two to four SOLOs per month as needed and to develop prototypes of our other EVs;
|
|
•
|
commercial production of the SOLO is anticipated to commence in the first quarter of 2019:
We
have an agreement with Zongshen whereby they have agreed to produce 5,000 SOLOs in the first 12 months after the start of production,
20,000 cars in the next twelve months and 50,000 cars in the twelve months after that; and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ElectraMeccanica
SOLO
|
|
|
Smart Electric
|
|
|
Tesla Model 3
|
|
|
Chevrolet Volt
|
|
|
Nissan Leaf
|
Price
|
|
|
US$15,888
|
|
|
US$28,750
|
|
|
Up to US$56,500
|
|
|
US$33,220+
|
|
|
US$29,990
|
Electric only miles
|
|
|
Up to 100 miles
|
|
|
Up to 76 miles
|
|
|
Up to 310 miles
|
|
|
Up to 53 miles
|
|
|
Up to 150 miles
|
Price per Mile
|
|
|
US$155/mile
|
|
|
US$378/mile
|
|
|
US$182/mile
|
|
|
US$627/mile
|
|
|
US$199/mile
|
Top Speed
|
|
|
85/mph
|
|
|
83/mph
|
|
|
130/mph
|
|
|
100/mph
|
|
|
93/mph
|
Full charge Time
|
|
|
3 hours on a 240 volt outlet
|
|
|
6 hours on a 240 volt outlet
|
|
|
13.85 hours on a 240 volt outlet
|
|
|
4.5 hours on a 240 volt outlet
|
|
|
4 hours on a 7kW charging point
|
Vehicle Class
|
|
|
Micro
|
|
|
Sub-compact
|
|
|
Compact
|
|
|
Compact
|
|
|
Compact
|
|
•
|
management expertise:
We have selected our management with an eye towards
providing us with the business and technical expertise needed to be successful. Our Chief Executive Officer, Jerry Kroll,
and our President and Chief Operating Officer, Henry Reisner, used their love of automobiles to devise the concept for the SOLO.
Mr. Kroll has an extensive background working in small businesses and start-ups. We have supplemented their expertise by adding
officers and directors with corporate, accounting, legal and other strengths.
|
Strategy
Our near-term goal is
to commence and expand sales of the SOLO while continuing to develop our other EVs. We intend to achieve this goal by:
|
•
|
beginning commercial production of the SOLO:
We anticipate that Zongshen
will begin producing the SOLO for deliveries to customers in first quarter of 2019. Zongshen is contracted to make 75,000 SOLOs
in the first three years of production;
|
|
•
|
increasing orders for our EVs:
As of January 30, 2019, we have received
deposits for 919 vehicles (including 864 SOLOs and 55 Tofinos) from individuals. As part of our “Match My Deposit”
program, we offer customers who have placed deposits for other electric vehicles a credit of up to $1,000 towards the purchase
of a SOLO, which is initially credited towards the buyers’ deposit. 214 of the 919 vehicle deposits that we have received
through January 30, 2019 result from the “Match My Deposit” program. Additionally, we have entered into non-binding
letters of interest for approximately 64,158 corporate orders (22,242 SOLOs and 40,997 Tofinos) for which we have letters of credit
for $442,343,896 for SOLOs and $2,664,805,000 for Tofinos. We cannot guarantee that a significant number of these orders, if any,
will become binding or result in sales. We have achieved this order book through online “direct sales to customers and corporate
sales” platform as well as a store and show room at our headquarters in Vancouver. We plan on expanding this model and will
be opening similar stores in key urban areas. We are currently negotiating our first U.S. corporate store located in Los Angeles;
|
|
•
|
having sales and services supported by local corporate dealerships:
We
will monitor all cars in real time via telematics which provides early warning of potential maintenance issues; and
|
|
•
|
expanding our product offering:
In parallel with the production and sale
of the SOLO, we aim to continue the development of our other proposed products, including the Tofino, a two seater sports car in
the expected price range of $50,000 to $60,000 with an estimated production date of 2020, the Cargo, a fleet vehicle with
ample storage space with an estimated production date commencing in 2021 and the eRoadster, a two seat sportscar for which we have
an existing prototype.
|
Our showroom in Vancouver, British Columbia.
Manufacturing Plan
As of January 30, 2019,
we have built 43 pre-mass production SOLOs. We have used some of these vehicles as prototypes, have delivered 14 to customers upon
payment of the purchase price and have used others as test drive models in our showrooms. At our facilities located in British
Colombia, we can manufacture approximately two to four vehicles per month. Our ability to build EVs at our own facilities has been
enhanced by our recent acquisition of Intermeccanica which has almost 60 years of custom car manufacturing expertise. Intermeccanica
commenced operations during 1959 in Turin, Italy, selling speed equipment kits. This led to the production of a Formula Junior
racer and eventually to the first unique bodied, hand assembled road car called the InterMeccanica Puch or IMP (21). The car competed
at the Nurburgring, a 13.75 mile race circuit in Germany, where it won its 500 cc class. The success of the IMP led Intermeccanica
to build the Apollo (101), Griffith (14), Italia (500) and Indra (125) during the period 1959 to 1975. Thereafter, Intermeccanica
moved to North America where it started to construct the Porsche 356 Speedster replica and later Intermeccanica moved to Vancouver,
Canada, where it developed the tooling to produce the Roadster RS based on the 1959 Porsche 356 D, Intermeccanica incorporated
its own tubular chassis in 1986 and offered various powertrains from the original VW air-cooled engine to a six-cylinder engine
from a Porsche 911. Intermeccanica, throughout its operating history, has built approximately 2,500 vehicles.
To enable us to mass
produce our EVs, we have entered into a manufacturing agreement with Zongshen located in Chongqing, China. Under the agreement,
Zongshen has begun the process of establishing tooling and has contracted to produce 75,000 SOLO vehicles. Zongshen is the wholly-owned
subsidiary of Zongshen Industrial Group Co. Ltd., an affiliate of Zongshen Power Machinery Co., Ltd. (“Zongshen Power”),
which is a large-scale scientific and technical enterprise capable of researching, developing, manufacturing and selling a diverse
range of motorcycles and motorcycle engines in China. Its products include over 130 models of two-wheeled motorcycles, electric
motorcycles, three-wheeled motorcycles, cross-country vehicles and ATVs with motors ranging from 35CC to 500CC. Zongshen Power
has been an industry leader for many successive years with a stated production of over four million motorcycle engines annually.
Zongshen has purchased $1,017,532 of our common shares and warrants to purchase common shares from us and beneficially owns approximately
4.33% of our common shares. We anticipate that Zongshen will produce up to 5,000 SOLOs in the first full year of production, 20,000
of our cars in the second full year of production and 50,000 of our cars in the third full year of production.
Marketing Plan
We recognize that marketing
efforts must be focused on customer education and establishing brand presence and visibility which is expected to allow our vehicles
to gain traction and subsequently gain increases in orders. Marketing and promotional efforts must emphasize the SOLO’s image
as an efficient, clean, and affordable EV for the masses to commute on a daily basis. If we can successfully promote the SOLO on
these points, we expect growth in sales and customer base to occur rapidly.
A key point to the marketing
plan is to target metropolitan cities with high population density, expensive real estate, high commuter traffic load, and pollution
levels which are becoming an enormous concern. Accordingly, we have opened showrooms in Vancouver and Los Angeles, and our management
has identified additional cities in Canada and the United States that fit the aforementioned criteria and have plans to seek out
suitable locations in the following cities for additional showrooms in Toronto; Seattle; San Francisco; and Manhattan.
Key aspects of our marketing
plan are highlighted below. We plan to develop a marketing strategy that will generate interest and media buzz based on the SOLO’s
selling points:
|
•
|
Organic engagement on social media with engaging posts aimed to educate the public about EVs and
develop interest in our SOLO, which to date has had positive traction;
|
|
•
|
Earned media — we have already received press coverage from several traditional
media sources and expect these features and news stories to continue as we embark on our commercial launch;
|
|
•
|
Investor Relations/Press Releases — our in-house investor relations team will
provide media releases/kits for updates and news on our progress;
|
|
•
|
Industry shows and events — we displayed the SOLO at the Vancouver International
Autoshow in March 2017, the Consumer Electronics Show in Las Vegas in January 2018 and the Vancouver International Autoshow in
March 2018. Promotional merchandise giveaways will enhance and further solidify our branding in consumer minds. Computer stations
and payment processing software will be readily on hand at to accept SOLO reservations; and
|
|
•
|
First-hand experience — Test-drives and public viewings are available at our
existing showrooms in the Vancouver downtown core and in Los Angeles.
|
We anticipate that our
marketing strategy and tactics will evolve over time as our SOLO gains momentum and we identify appropriate channels and media
that align with our long-term objectives. In all of our efforts we plan to focus on the features that differentiate our SOLO from
the existing EVs on the market.
Reservation System
We have an online reservation
system which allows a potential customer to reserve a SOLO by paying a refundable $250 deposit, a Super SOLO by paying a refundable
$1,000 deposit and a Tofino by paying a refundable $1,000 deposit. Once reserved, the potential customer is allocated a reservation
number and the reservation will be fulfilled as the respective vehicles are produced. As of January 30, 2019, we have received
deposits for 864 SOLOs and 55 Tofinos. In addition, we have received non-binding letters of intent for 64,158 vehicles from corporate
entities that are not required to make a deposit. There is no guaranty that a significant number of these orders, if any, will
become binding and result in sales. We have achieved this order book through online “direct sales to customers and corporate
sales” platform as well as a store and show room at our headquarters in Vancouver. We plan on expanding this model and will
be opening similar stores in key urban areas.
We will earn revenue
once a vehicle has been delivered to the customer who has pre-ordered their vehicle. Each order is placed in line as received and
fulfilled once the vehicle becomes available. The customer may, at any time, for any reason, cancel their order and have their
deposit returned. We do not consider any order as being secured until the vehicle has been delivered and full receipt of the remaining
balance of the vehicle purchase price has been received.
Sales and Service Model
Sales Model
We sell our vehicles
online via our website (www.electrameccanica.com), while we develop our planned corporate owned dealerships in key markets and
franchise dealer network in other market areas. As each franchise dealer is established, any vehicles sold within such dealers
designated territory will be delivered to such dealer to fulfill online orders as well as such franchise dealer’s orders.
We are unable to identify
where we hope to establish franchise dealers as opposed to corporate owned dealerships. The establishment of franchise dealers
will depend on regional demand, available candidates and local regulations. We are currently accepting expressions of interest
and applications for franchised dealerships from individuals, and do not have any franchise or dealer agreements. Our vehicles
will initially be available directly from Electrameccanica.
We plan to only establish
and operate corporate owned dealerships in those states in the U.S. that do not restrict or prohibit certain retail sales models
by vehicle manufacturers. In all other instances, we plan to establish franchise dealerships to comply with local regulations.
Service Model
We plan to have our vehicles serviced through
our corporate and franchised dealerships.
Government Regulation
As a vehicle manufacturer
established in Canada, we are required to ensure that all vehicle production meets applicable safety and environmental standards.
Issuance of the National Safety Mark (the “NSM”) by the Minister of Transport for Canada will be our authorization
to manufacture vehicles in Canada. Receipt of the NSM is contingent on us demonstrating that our vehicles are designed and manufactured
to meet or exceed the applicable sections of the Canadian Motor Vehicle Safety Act (C.R.C. Chapter 1038) and that
appropriate records are maintained. Unique to Canada, the SOLO and the Super SOLO are under the three-wheeled vehicle
category and are subject to the safety standards listed in Schedule III of the Canadian Motor Vehicle Safety Regulations
(“CMVSR”), which can be found at (http://laws-lois.justice.gc.ca/eng/regulations/C.R.C.,c.1038/section-sched3.html).
For sale into the United States, we and our vehicles must meet the applicable parts of the U.S. Code of Federal Regulations
(“CFR”) Title 49 — Transportation. This includes providing Manufacture Identification information
(49 CFR Part 566), VIN-deciphering information (49 CFR Part 565), and certifying that our vehicles meet or exceeds the applicable
sections of the Federal Motor Vehicle Safety Standards (40 CFR Part 571) and Environmental Protection Agency noise emission standards
(40 CFR 205). Since the U.S. regulations do not have a specific class for three-wheeled ‘autocycles’, the SOLO and
the Super SOLO fall under the definition of a motorcycle pursuant to Sec. 571.3 of 49 CFR Part 571.
We obtained U.S. compliance
certification for the SOLO in the first quarter of 2018 at a testing facility in Quebec, Canada. Compliance certification of the
SOLO for Canada began in 2018, and we estimate, depending on the weather and results, that it will be complete in mid-2019.
Within the three-wheel
vehicle classification in Canada, CMVSR Standard 305 sets out the regulation for prevention of injury to the occupant during and
after a crash as related to the vehicle’s batteries. Under this standard, the security and integrity of electric drive system
components and their isolation from the occupant are evaluated in the course of a frontal barrier crash test in accordance with
Technical Standard Document No. 305. There is no such regulation applicable to the motorcycle category under the U.S. regulations.
Although the SOLO and
the Super SOLO fall under the definition of a motorcycle under U.S. regulations, a motorcycle license is not required to drive
them in all but Arkansas, New York, Maine and Massachusetts where motorcycle helmets must be worn while operating.
Research and Development
We have allocated substantial
resources in developing our first vehicles. We expended $4,430,386 during the fiscal year ended December 31, 2017, $2,778,295 during
the fiscal year ended December 31, 2016 and $4,184,587 during the nine months ended September 30, 2018 on research and development
costs which include labor and materials.
Employees
As of January 30, 2019,
we employed a total of 63 full-time and five part-time people. None of our employees are covered by a collective bargaining agreement.
The breakdown of full-time
employees by main category of activity is as follows:
Activity
|
|
Number of
Full-Time
Employees
|
|
Engineering/R&D
|
|
|
39
|
|
Sales & Marketing
|
|
|
6
|
|
General & Administration
|
|
|
12
|
|
Executives
|
|
|
6
|
|
Property, Plants and Equipment
Our principal office
is located at 102 East 1st Avenue, Vancouver, British Columbia, Canada, V5T 1A4. On July 25, 2015, we, together with Intermeccanica,
as tenants entered into a light industrial lease agreement with Cressey (Quebec Street) Development LLP (the “Landlord”)
for the premises located at 102 East 1st Avenue, Vancouver, British Columbia. The lease agreement is for a term
of five years which commenced on November 1, 2015, with a monthly minimum rent of $3,918.86 plus additional rent, which
includes operating costs, property taxes, utilities and a management fee of 4% of the minimum rent for the particular lease year.
The leased premises is 7,235 sq. ft. in size and we are not allowed to assign the lease or grant a sublease of the whole or any
part of the leased premises without the written consent of the Landlord.
Currently, our development
and manufacturing facility is located at 47 Braid Street, New Westminster, British Columbia, Canada, and is capable of producing
two to four SOLOs per month. Our existing production facilities are being used to build SOLOs and for the development of the Super
SOLO, and they are adequate for production of the low volume required for the Super SOLO. We, together with Intermeccanica, as
tenants entered into a lease agreement with Astron Realty Group Inc. for Unit 47, which commenced on August 1, 2016 and expires
on July 31, 2020. Unit 47 is approximately 7,270 sq. ft. and the minimum rent per month is $3,938 until July 31, 2017 and $4,089
from August 1, 2017 to July 31, 2020, and we are responsible for all associated lease costs such as strata fees, property taxes,
utility fees and other charges associated with the occupancy of such premises.
Intermeccanica Business
In October 2017, we
acquired Intermeccanica. In addition to the manufacturing and design experience that the acquisition provided us, we acquired a
business of custom car manufacturing. Intermeccanica, throughout its operating history, has built approximately 2,500 vehicles,
and in the year ended December 31, 2017, Intermeccanica sold eight vehicles. We intend to continue the legacy business of
Intermeccanica, but we do not envision that it will be central to our operations, represent a material portion of our revenue if
we develop our business as planned or account for a material portion of our expenses.
Legal Proceedings
We are not involved
in, or aware of, any legal or administrative proceedings contemplated or threatened by any governmental authority or any other
party that is likely to have a material adverse effect on our business. As of the date of this prospectus, no director, officer
or affiliate is a party adverse to us in any legal proceeding or has an adverse interest to us in any legal proceeding.
MARKET FOR OUR SECURITIES
Our common shares have
been listed on the Nasdaq Capital Market under the symbol “SOLO” since August 9, 2018. Our common shares were traded
previously on the OTC Market Group Inc.’s Venture Market (the “OTCQB”) under the symbol “ECCTF” from
September 2017 to August 2018.
The following tables sets forth, for the
periods indicated, the high and low trading prices of the common shares as reported on the Nasdaq Capital Market and OTCQB in the
periods set out below.
|
|
OTCQB
(U.S. Dollars)
|
|
|
NASDAQ
(U.S. Dollars)
|
|
Period
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
Quarter Ended
|
September 30, 2017
|
|
US$
|
8.00
|
|
|
US$
|
1.50
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
US$
|
15.00
|
|
|
US$
|
10.00
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
US$
|
10.70
|
|
|
US$
|
9.00
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
US$
|
9.88
|
|
|
US$
|
4.25
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
US$
|
6.55
|
|
|
US$
|
5.51
|
|
|
US$
|
6.75
|
|
|
US$
|
2.27
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
US$
|
7.48
|
|
|
US$
|
0.95
|
|
March 31, 2019 (until February 27, 2019)
|
|
|
|
|
|
|
|
|
|
US$
|
6.74
|
|
|
US$
|
1.05
|
|
Last twelve months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2018
|
|
US$
|
10.00
|
|
|
US$
|
9.12
|
|
|
|
|
|
|
|
|
|
March 2018
|
|
US$
|
10.00
|
|
|
US$
|
9.00
|
|
|
|
|
|
|
|
|
|
April 2018
|
|
US$
|
9.88
|
|
|
US$
|
8.40
|
|
|
|
|
|
|
|
|
|
May 2018
|
|
US$
|
9.00
|
|
|
US$
|
6.18
|
|
|
|
|
|
|
|
|
|
June 2018
|
|
US$
|
8.20
|
|
|
US$
|
4.25
|
|
|
|
|
|
|
|
|
|
July 2018
|
|
US$
|
6.55
|
|
|
US$
|
5.51
|
|
|
|
|
|
|
|
|
|
August 2018
|
|
|
|
|
|
|
|
|
|
US$
|
6.75
|
|
|
US$
|
2.27
|
|
September 2018
|
|
|
|
|
|
|
|
|
|
US$
|
3.60
|
|
|
US$
|
2.37
|
|
October 2018
|
|
|
|
|
|
|
|
|
|
US$
|
7.48
|
|
|
US$
|
2.20
|
|
November 2018
|
|
|
|
|
|
|
|
|
|
US$
|
4.05
|
|
|
US$
|
1.29
|
|
December 2018
|
|
|
|
|
|
|
|
|
|
US$
|
3.75
|
|
|
US$
|
0.95
|
|
January 2019
|
|
|
|
|
|
|
|
|
|
US$
|
1.65
|
|
|
US$
|
1.05
|
|
NOTICE OF ARTICLES AND ARTICLES OF OUR
COMPANY
As discussed above under
the heading “Company Information”, our company was incorporated under the laws of the Province of British Columbia,
Canada, on February 16, 2015.
Remuneration of Directors
Our directors are entitled
to the remuneration, if any, for acting as directors as the directors may from time to time determine. If the directors so decide,
the remuneration of the directors will be determined by the shareholders. That remuneration may be in addition to any salary or
other remuneration paid to a director in such director’s capacity as an officer or employee of ours.
Number of Directors
According to Article
11.1 of our Articles, the number of directors, excluding additional directors appointed under Article 12.7 is set at:
|
(a)
|
subject to paragraphs (b) and (c), the number of directors that is equal to the number of our first
directors;
|
|
(b)
|
if we are a public company, the greater of three and the number most recently elected by ordinary
resolution (whether or not previous notice of the resolution was given); and
|
|
(c)
|
if we are not a public company, the number most recently elected by ordinary resolution (whether
or not previous notice of the resolution was given).
|
Directors
Our directors are elected
annually at each annual meeting of our company’s shareholders. Our Articles provide that the Board may, between annual meetings,
appoint one or more additional directors to serve until the next annual meeting, but the number of additional directors must not
at any time exceed:
|
(a)
|
one-third of the number of first directors, if, at the time of the appointments, one or more of
the first directors have not yet completed their first term of office; or
|
|
(b)
|
in any other case, one-third of the number of the current directors who were elected or appointed
as directors at the expiration of the last annual meeting of our company’s shareholders.
|
Our Articles provide
that our directors may from time to time on behalf of our company, without shareholder approval:
|
•
|
create one or more classes or series of shares or, if none of the shares of a class or series of
shares are allotted or issued, eliminate that class or series of shares;
|
|
•
|
increase, reduce or eliminate the maximum number of shares that we are authorized to issue out
of any class or series of shares or establish a maximum number of shares that we are authorized to issue out of any class or series
of shares for which no maximum is established;
|
|
•
|
if we are authorized to issue shares of a class of shares with par value;
|
|
•
|
decrease the par value of those shares;
|
|
•
|
if none of the shares of that class of shares are allotted or issued, increase the par value of
those shares;
|
|
•
|
subdivide all or any of its unissued or fully paid issued shares with par value into shares of
smaller par value; or
|
|
•
|
consolidate all or any of its unissued or fully paid issued shares with par value into share of
larger par value;
|
|
•
|
subdivide all or any of its unissued or fully paid issued shares without par value;
|
|
•
|
change all or any of its unissued or fully paid issued shares with par value into shares without
par value or all or any of its unissued shares without par value into shares with par value;
|
|
•
|
alter the identifying name of any of its shares;
|
|
•
|
consolidate all or any of its unissued or fully paid issued shares without par value;
|
|
•
|
otherwise alter it shares or authorized share structure when required or permitted to do so by
the Business Corporations Act;
|
|
•
|
borrow money in the manner and amount, on the security, from the sources and on the terms and conditions
that they consider appropriate;
|
|
•
|
issue bonds, debentures and other debt obligations either outright or as security for any liability
or obligation of the Company or any other person, and at any discount or premium and on such terms as they consider appropriate;
|
|
•
|
guarantee the repayment of money by any other person or the performance of any obligation of any
other person; or
|
|
•
|
mortgage or charge, whether by way of specific or floating charge, or give other security on the
whole or any part of the present and future assets and undertaking of the Company.
|
Our Articles also
provide that, we may by resolution of the directors authorize an alteration to our Notice of Articles to change our name or adopt
or change any translation of that name.
Our Articles provide
that the directors may meet together for the conduct of business, adjourn and otherwise regulate their meetings as they think fit,
and meetings of the Board held at regular intervals may be held at the place and at the time that the Board may by resolution from
time to time determine. Questions arising at any meeting of directors are to be decided by a majority of votes and, in the case
of an equality of votes, the chair of the meeting does not have a second or casting vote. A director may participate in a meeting
of the directors or of any committee of the directors in person, or by telephone or other communications medium, if all directors
participating in the meeting are able to communicate with each other. A director may participate in a meeting of the directors
or of any committee of the directors by a communication medium other than telephone if all directors participating in the meeting,
whether in person or by telephone or other communications medium, are able to communicate with each other and if all directors
who wish to participate in the meeting agree to such participation. A director who participates in a meeting in a manner contemplated
by such provisions of our Articles is deemed for all purposes of the Business Corporations Act and our Articles to be
present at the meeting and to have agreed to participate in that manner.
Our Articles provide
that the quorum necessary for the transaction of the business of the directors may be set by the directors and, if not so set,
is a majority of the directors.
Our Articles do not
restrict: (i) a director’s power to vote on a proposal, arrangement or contract in which the director is materially interested
(although the Business Corporations Act generally requires a director who is materially interested in a material contract
or material transaction to disclose his or her interest to the Board, and to abstain from voting on any resolution to approve the
contract or transaction, failing which the British Columbia Supreme Court may, on application of our company or any of our shareholders,
set aside the material contract or material transaction on any terms that it thinks fit, or require the director to account to
us for any profit or gain realized on it, or both); or (ii) our directors’ power, in the absence of an independent quorum,
to vote compensation to themselves or any members of their body.
Our Articles do not
set out a mandatory retirement age for our directors. Our directors are not required to own securities of our company to serve
as directors.
Authorized Capital
Our Notice of Articles
provide that our authorized capital consists of an unlimited number of common shares, without par value, and an unlimited number
of preferred shares, without par value, which have special rights or restrictions.
Rights, Preferences and Restrictions
Attaching to Our Shares
The Business Corporations
Act provides the following rights, privileges, restrictions and conditions attaching to our common shares:
|
•
|
to vote at meetings of shareholders, except meetings at which only holders of a specified class
of shares are entitled to vote;
|
|
•
|
subject to the rights, privileges, restrictions and conditions attaching to any other class of
shares of our company, to share equally in the remaining property of our company on liquidation, dissolution or winding-up of our
company; and
|
|
•
|
subject to the rights of the preferred shares, the common shares are entitled to receive dividends
if, as, and when declared by the Board.
|
Our preferred shares
may include one or more series and, subject to the Business Corporations Act, the directors may, by resolution, if none of
the shares of that particular series are issued, alter our Articles and authorize the alteration of our Notice of Articles, as
the case may be, to do one or more of the following:
|
(a)
|
determine the maximum number of shares of that series that we are authorized to issue, determine
that there is no such maximum number, or alter any such determination;
|
|
(b)
|
create an identifying name for the shares of that series, or alter any such identifying name; and
|
|
(c)
|
attach special rights or restrictions to the shares of that series, or alter any such special rights
or restrictions.
|
The provisions in our
Articles attaching to our common shares and our preferred shares may be altered, amended, repealed, suspended or changed by the
affirmative vote of the holders of not less than two-thirds of the outstanding common shares and two-thirds of the preferred shares,
as applicable.
With the exception of
special resolutions (i.e., resolutions in respect of fundamental changes to our company, including the sale of all or substantially
all of our assets, a merger or other arrangement or an alteration to our authorized capital that is not allowed by resolution of
the directors) that require the approval of holders of two-thirds of the outstanding common shares entitled to vote at a meeting,
either in person or by proxy, resolutions to approve matters brought before a meeting of our shareholders require approval by a
simple majority of the votes cast by shareholders entitled to vote at a meeting, either in person or by proxy.
Shareholder Meetings
The Business Corporations
Act provides that: (i) a general meetings of shareholders must be held in British Columbia, or may be held at a location outside
British Columbia since our Articles do not restrict our company from approving a location outside of British Columbia for the holding
of the general meeting and the location for the meeting is approved by ordinary resolution, or the location for the meeting is
approving in writing by the British Columbia Registrar of Companies before the meeting is held; (ii) directors must call an
annual meeting of shareholders not later than 15 months after the last preceding annual meeting; (iii) for the purpose of determining
shareholders entitled to receive notice of or vote at meetings of shareholders, the directors may fix in advance a date as the
record date for that determination, provided that such date shall not precede by more than two months or by less than 21 days the
date on which the meeting is to be held; (iv) the holders of not less than 5% of the issued shares entitled to vote at a meeting
may requisition the directors to call a meeting of shareholders for the purposes stated in the requisition; (v) only shareholders
entitled to vote at the meeting, our directors and our auditor are entitled to be present at a meeting of shareholders; and (vi)
upon the application of a director or shareholder entitled to vote at the meeting, the British Columbia Supreme Court may order
a meeting to be called, held and conducted in a manner that the Court directs.
Pursuant to Article
8.20 of our Articles, a shareholder or proxy holder who is entitled to participate in a meeting of shareholders may do so in person,
or by telephone or other communications medium, if all shareholders and proxy holders participating in the meeting are able to
communicate with each other; provided, however, that nothing in Article 8.20 of our Articles shall obligate us to take any action
or provide any facility to permit or facilitate the use of any communications medium at a meeting of shareholders. If one or more
shareholders or proxy holders participate in a meeting of shareholders in a matter contemplated by Article 8.20 of our Articles:
|
(a)
|
each such shareholder or proxy holder shall be deemed to be present at the meeting; and
|
|
(b)
|
the meeting shall be deemed to be help at the location specified in the notice of the meeting.
|
Pursuant to our Articles,
the quorum for the transaction of business at a meeting of our shareholders is one or more persons, present in person or by proxy.
LIMITATIONS ON RIGHTS OF NON-CANADIANS
Electrameccanica is
incorporated pursuant to the laws of the Province of British Columbia, Canada. There is no law or governmental decree or regulation
in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest or other payments to
a non-resident holder of common shares, other than withholding tax requirements. Any such remittances to United States residents
are generally subject to withholding tax, however no such remittances are likely in the foreseeable future. See “Canadian
Federal Income Tax Considerations For United States Residents,” below.
There is no limitation
imposed by Canadian law or by the charter or other constituent documents of our company on the right of a non-resident to hold
or vote common shares of our company. However, the Investment Canada Act (Canada) (the “Investment Act”)
has rules regarding certain acquisitions of shares by non-residents, along with other requirements under that legislation.
The following discussion
summarizes the principal features of the Investment Act for a non-resident who proposes to acquire common shares of our company.
The discussion is general only; it is not a substitute for independent legal advice from an investor’s own advisor; and it
does not anticipate statutory or regulatory amendments.
The Investment Act is
a federal statute of broad application regulating the establishment and acquisition of Canadian businesses by non-Canadians, including
individuals, governments or agencies thereof, corporations, partnerships, trusts or joint ventures (each an “entity”).
Investments by non-Canadians to acquire control over existing Canadian businesses or to establish new ones are either reviewable
or notifiable under the Investment Act. If an investment by a non-Canadian to acquire control over an existing Canadian business
is reviewable under the Investment Act, the Investment Act generally prohibits implementation of the investment unless, after review,
the Minister of Industry, is satisfied that the investment is likely to be of net benefit to Canada.
A non-Canadian would
acquire control of our company for the purposes of the Investment Act through the acquisition of common shares if the non-Canadian
acquired a majority of the common shares of our company.
Further, the acquisition
of less than a majority but one-third or more of the common shares of our company would be presumed to be an acquisition of control
of our company unless it could be established that, on the acquisition, our company was not controlled in fact by the acquirer
through the ownership of common shares.
For a direct acquisition
that would result in an acquisition of control of our company, subject to the exception for “WTO-investors” that are
controlled by persons who are resident in World Trade Organization (“WTO”) member nations, a proposed investment would
be reviewable where the value of the acquired assets is $5 million or more, or if an order for review was made by the federal cabinet
on the grounds that the investment related to Canada’s cultural heritage or national identity, where the value of the acquired
assets is less than $5 million.
For a proposed indirect
acquisition that by an investor other than a so-called WTO investor that would result in an acquisition of control of our company
through the acquisition of a non-Canadian parent entity, the investment would be reviewable where the value of the assets of the
entity carrying on the Canadian business, and of all other entities in Canada, the control of which is acquired, directly or indirectly
is $50 million or more. The threshold is reduced to $5 million or more for a direct acquisition of control of the company by a
non-WTO investor.
In the case of a direct
acquisition by or from a “WTO investor”, the threshold is significantly higher. An investment in common shares of our
company by a WTO investor would be reviewable only if it was an investment to acquire control of the company and the enterprise
value of the assets of the company was equal to or greater than a specified amount, which is published by the Minister after its
determination for any particular year. This amount is currently $1 billion (unless the WTO member is party to one of a list of
certain free trade agreements, in which case the amount is currently $1.5 billion); beginning January 1, 2019, both thresholds
will be adjusted annually by a GDP (Gross Domestic Product) based index.
The higher WTO threshold
for direct investments and the exemption for indirect investments do not apply where the relevant Canadian business is carrying
on a “cultural business”. The acquisition of a Canadian business that is a “cultural business” is subject
to lower review thresholds under the Investment Act because of the perceived sensitivity of the cultural sector.
In 2009, amendments
were enacted to the Investment Act concerning investments that may be considered injurious to national security. If the Minister
of Industry has reasonable grounds to believe that an investment by a non-Canadian “could be injurious to national security,”
the Minister of Industry may send the non-Canadian a notice indicating that an order for review of the investment may be made.
The review of an investment on the grounds of national security may occur whether or not an investment is otherwise subject to
review on the basis of net benefit to Canada or otherwise subject to notification under the Investment Act. To date, there is neither
legislation nor guidelines published, or anticipated to be published, on the meaning of “injurious to national security.”
Discussions with government officials suggest that very few investment proposals will cause a review under these new sections.
Certain transactions,
except those to which the national security provisions of the Investment Act may apply, relating to common shares of our company
are exempt from the Investment Act, including
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(a)
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the acquisition of our common shares by a person in the ordinary course of that person’s
business as a trader or dealer in securities,
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(b)
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the acquisition of control of our company in connection with the realization of security granted
for a loan or other financial assistance and not for a purpose related to the provisions on the Investment Act, and
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(c)
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the acquisition of control of our company by reason of an amalgamation, merger, consolidation or
corporate reorganization following which the ultimate direct or indirect control in fact of our company, through the ownership
of common shares, remained unchanged.
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MATERIAL INCOME TAX INFORMATION
Certain Canadian Federal Income Tax Considerations For United
States Residents
The following is a summary
of certain Canadian federal income tax considerations generally applicable to the holding and disposition of our securities acquired
by a holder who, at all relevant times, (a) for the purposes of the Income Tax Act (Canada) (the “Tax Act”)
(i) is not resident, or deemed to be resident, in Canada, (ii) deals at arm’s length with us and underwriters that we have
recently used, and is not affiliated with us or the underwriters that we have recently used, (iii) holds our common shares as capital
property, (iv) does not use or hold the common shares in the course of carrying on, or otherwise in connection with, a business
carried on or deemed to be carried on in Canada and (v) is not a “registered non-resident insurer” or “authorized
foreign bank” (each as defined in the Tax Act), or other holder of special status, and (b) for the purposes of the Canada-U.S.
Tax Convention (the “Tax Treaty”), is a resident of the United States, has never been a resident of Canada, does not
have and has not had, at any time, a permanent establishment or fixed base in Canada, and who otherwise qualifies for the full
benefits of the Tax Treaty. Holders who meet all the criteria in clauses (a) and (b) above are referred to herein as “U.S.
Holders”, and this summary only addresses such U.S. Holders.
This summary does not
deal with special situations, such as the particular circumstances of traders or dealers, tax exempt entities, insurers or financial
institutions, or other holders of special status or in special circumstances. Such holders, and all other holders who do not meet
the criteria in clauses (a) and (b) above, should consult their own tax advisors.
This summary is based
on the current provisions of the Tax Act, the regulations thereunder in force at the date hereof (“Regulations”),
the current provisions of the Tax Treaty, and our understanding of the administrative and assessing practices of the Canada Revenue
Agency published in writing prior to the date hereof. This summary takes into account all specific proposals to amend the Tax Act
and Regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Proposed
Amendments”) and assumes that such Proposed Amendments will be enacted in the form proposed. However, such Proposed Amendments
might not be enacted in the form proposed, or at all. This summary does not otherwise take into account or anticipate any changes
in law or administrative or assessing practices, whether by legislative, governmental or judicial decision or action, nor does
it take into account tax laws of any province or territory of Canada or of any other jurisdiction outside Canada, which may differ
significantly from those discussed in this summary.
For the purposes of
the Tax Act, all amounts relating to the acquisition, holding or disposition of our securities must generally be expressed in Canadian
dollars. Amounts denominated in United States currency generally must be converted into Canadian dollars using the rate of exchange
that is acceptable to the Canada Revenue Agency.
This summary is of a
general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular U.S. Holder,
and no representation with respect to the Canadian federal income tax consequences to any particular U.S. Holder or prospective
U.S. Holder is made. This summary is not exhaustive of all Canadian federal income tax considerations. Accordingly, all prospective
purchasers (including U.S. Holders as defined above) should consult with their own tax advisors for advice with respect to their
own particular circumstances.
Withholding Tax on Dividends
Amounts paid or credited
or deemed to be paid or credited as, on account or in lieu of payment of, or in satisfaction of, dividends on our common shares
to a U.S. Holder will be subject to Canadian withholding tax. Under the Tax Treaty, the rate of Canadian withholding tax on dividends
paid or credited by us to a U.S. Holder that beneficially owns such dividends and substantiates eligibility for the benefits of
the Tax Treaty is generally 15% (unless the beneficial owner is a company that owns at least 10% of our voting stock at that time,
in which case the rate of Canadian withholding tax is generally reduced to 5%)
Dispositions
A U.S. Holder will not
be subject to tax under the Tax Act on a capital gain realized on a disposition or deemed disposition of a security, unless the
security is “taxable Canadian property” to the U.S. Holder for purposes of the Tax Act and the U.S. Holder is not entitled
to relief under the Tax Treaty.
Generally, the common
shares will not constitute “taxable Canadian property” to a U.S. Holder at a particular time unless, at any time
during the 60 month period immediately preceding the disposition, more than 50% of the fair market value of such security was derived,
directly or indirectly, from one or any combination of: (i) real or immoveable property situated in Canada, (ii) “Canadian
resource properties” (as defined in the Tax Act), (iii) “timber resource properties” (as defined in the Tax Act),
and (iv) options in respect of, or interests in, or for civil law rights in, property described in any of the foregoing whether
or not the property exists. Notwithstanding the foregoing, in certain other circumstances set out in the Tax Act, common shares
could also be deemed to be “taxable Canadian property”.
If the common shares
become listed on a “designated stock exchange” as defined in the Tax Act and are so listed at the time of disposition,
the common shares generally will not constitute “taxable Canadian property” of a U.S. Holder at that time unless, at
any time during the 60 month period immediately preceding the disposition, the following two conditions are met: (i) the U.S. Holder,
persons with whom the U.S. Holder did not deal at arm’s length, partnerships in which the U.S. Holder or such non-arm’s
length person holds a membership interest (either directly or indirectly through one or more partnerships), or the U.S. Holder
together with all such persons, owned 25% or more of the issued shares of any class or series of shares of our company; and (ii)
more than 50% of the fair market value of the shares of the company was derived directly or indirectly from one or any combination
of real or immovable property situated in Canada, Canadian resource properties (as defined in the Tax Act), timber resource properties
(as defined in the Tax Act) or options in respect of, or interests in, or for civil law rights in, property described in any of
the foregoing whether or not the property exists. Notwithstanding the foregoing, in certain other circumstances set out in the
Tax Act, common shares could also be deemed to be “taxable Canadian property”.
U.S. Holders who may
hold common shares as “taxable Canadian property” should consult their own tax advisors with respect to the application
of Canadian capital gains taxation, any potential relief under the Tax Treaty, and special compliance procedures under the Tax
Act, none of which is described in this summary.
Certain Material United States Federal
Income Tax Considerations
The following is a general
summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from
the acquisition, ownership and disposition of our securities. This summary applies only to U.S. Holders that acquire securities
pursuant to this prospectus and does not apply to any subsequent U.S. Holder of our common shares.
This summary is for
general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income
tax considerations that may apply to a U.S. Holder as a result of the acquisition, ownership and disposition of our common shares.
In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that
may affect the U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under
an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal
income tax advice with respect to any particular U.S. Holder. In addition, this summary does not address the U.S. federal alternative
minimum, net investment income, U.S. federal estate and gift, U.S. Medicare contribution, U.S. state and local, or non-U.S. tax
consequences of the acquisition, ownership or disposition of our common shares. Except as specifically set forth below, this summary
does not discuss applicable tax reporting requirements.
Each U.S. Holder should consult its own tax advisor regarding all
U.S. federal, U.S. state and local and non-U.S. tax consequences of the acquisition, ownership and disposition of our common shares.
No opinion from U.S.
legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding
the U.S. federal income tax consequences of the acquisition, ownership or disposition of our common shares. This summary is not
binding on the IRS, and the IRS is not precluded from taking a position that is different from, or contrary to, any position taken
in this summary. In addition, because the authorities upon which this summary is based are subject to various interpretations,
the IRS and the U.S. courts could disagree with one or more of the positions taken in this summary.
Scope of This Disclosure
Authorities
This summary is based
on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed),
published rulings of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States
of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”),
and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date hereof. Any of the authorities
on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied
on a retroactive or prospective basis, which could affect the U.S. federal income tax considerations described in this summary.
This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted,
could be applied on a retroactive or prospective basis.
U.S. Holders
For purposes of this
summary, the term “U.S. Holder” means a beneficial owner of our common shares that is for U.S. federal income tax purposes:
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an individual who is a citizen or resident of the U.S.;
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a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created
or organized in or under the laws of the U.S., any state thereof or the District of Columbia;
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an estate, the income of which is subject to U.S. federal income taxation regardless of its source;
or
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a trust that (a) is subject to the primary supervision of a court within the U.S. and the control
of one or more U.S. persons for all substantial decisions or (b) has a valid election in effect under applicable Treasury Regulations
to be treated as a U.S. person.
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Transactions Not Addressed
This summary does not
address the tax consequences of transactions effected prior or subsequent to, or concurrently with, any purchase of common shares
pursuant to this prospectus (whether or not any such transactions are undertaken in connection with the purchase of common shares
pursuant to this prospectus).
U.S. Holders Subject to Special U.S.
Federal Income Tax Rules Not Addressed
This summary does not
address the U.S. federal income tax considerations of the acquisition, ownership or disposition of our securities by U.S. Holders
that are subject to special provisions under the Code, including, but not limited to, the following: (a) tax-exempt organizations,
qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) financial institutions, underwriters,
insurance companies, real estate investment trusts, or regulated investment companies; (c) broker-dealers, dealers, or traders
in securities or currencies that elect to apply a “mark-to-market” accounting method; (d) U.S. Holders that have
a “functional currency” other than the U.S. dollar; (e) U.S. Holders that own our securities as part of a straddle,
hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) U.S.
Holders that acquire our securities in connection with the exercise of employee stock options or otherwise as compensation for
services; (g) U.S. Holders that hold our securities other than as a capital asset within the meaning of Section 1221 of the Code
(generally, property held for investment purposes); and (h) U.S. Holders that own directly, indirectly, or by attribution, 10%
or more, by voting power, of our outstanding stock. This summary also does not address the U.S. federal income tax considerations
applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons that have been,
are, or will be a resident or deemed to be a resident in Canada for purposes of the Income Tax Act (Canada); (c) persons that use
or hold, will use or hold, or that are or will be deemed to use or hold our securities in connection with carrying on a business
in Canada; (d) persons whose securities in our company constitute “taxable Canadian property” under the Income Tax
Act (Canada); or (e) persons that have a permanent establishment in Canada for purposes of the Canada-U.S. Tax Convention. U.S.
Holders that are subject to special provisions under the Code, including U.S. Holders described immediately above, should consult
their own tax advisors regarding all U.S. federal, U.S. state and local, and non-U.S. tax consequences (including the potential
application and operation of any income tax treaties) relating to the acquisition, ownership or disposition of our common shares.
If an entity or arrangement
that is classified as a partnership (or other “pass-through” entity) for U.S. federal income tax purposes holds
our common shares, the U.S. federal income tax consequences to such partnership and the partners (or other owners) of such partnership
of the acquisition, ownership or disposition of our common shares generally will depend on the activities of the partnership and
the status of such partners (or other owners). This summary does not address the U.S. federal income tax considerations for
any such partner or partnership (or other “pass-through” entity or its owners). Owners of entities and arrangements
that are classified as partnerships (or other “pass-through” entities) for U.S. federal income tax purposes should
consult their own tax advisors regarding the U.S. federal income tax consequences of the acquisition, ownership or disposition
of our common shares.
Acquisition of Our Securities
A U.S. Holder generally
will not recognize gain or loss upon the acquisition of our securities for cash pursuant to this prospectus. A U.S. Holder’s
holding period for such common shares will begin on the day after the acquisition.
Ownership and Disposition of Our Common
Shares
Distributions on Our Common Shares
Subject to the “passive
foreign investment company” (“PFIC”) rules discussed below (see “Tax Consequences if the Company is a PFIC”),
a U.S. Holder that receives a distribution, including a constructive distribution, with respect to our common shares will be required
to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld
from such distribution) to the extent of the current or accumulated “earnings and profits” of the Company, as computed
for U.S. federal income tax purposes. To the extent that a distribution exceeds the current and accumulated “earnings and
profits” of the Company, such distribution will be treated first as a tax-free return of capital to the extent of a U.S.
Holder’s tax basis in our common shares and thereafter as gain from the sale or exchange of such common shares (see “Sale
or Other Taxable Disposition of Our Common Shares” below). However, the Company may not maintain calculations of earnings
and profits in accordance with U.S. federal income tax principles, and each U.S. Holder should therefore assume that any distribution
by the Company with respect to our common shares will constitute a dividend. Dividends received on our common shares generally
will not be eligible for the “dividends received deduction” available to U.S. corporate shareholders receiving dividends
from U.S. corporations. If the Company is eligible for the benefits of the Canada-U.S. Tax Convention or our common shares is readily
tradable on an established securities market in the U.S., dividends paid by the Company to non-corporate U.S. Holders generally
will be eligible for the preferential tax rates applicable to long-term capital gains, provided certain holding period and other
conditions are satisfied, including that the Company not be classified as a PFIC in the tax year of distribution or in the preceding
tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application
of such rules.
Sale or Other Taxable Disposition
of Our Common Shares
Subject to the PFIC
rules discussed below, upon the sale or other taxable disposition of our common shares, a U.S. Holder generally will recognize
capital gain or loss in an amount equal to the difference between the amount of cash plus the fair market value of any property
received and such U.S. Holder’s tax basis in the common shares sold or otherwise disposed of. Such capital gain or loss
will be long-term capital gain or loss if, at the time of the sale or other taxable disposition, the U.S. Holder’s holding
period for such security is more than one year. Preferential tax rates apply to long-term capital gains of non-corporate U.S. Holders.
There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation. Deductions for
capital losses are subject to significant limitations under the Code.
PFIC Status of the Company
If the Company is or
becomes a PFIC, the preceding sections of this summary may not describe the U.S. federal income tax consequences to U.S. Holders
of the ownership and disposition of our common shares. The U.S. federal income tax consequences of owning and disposing of our
common shares if the Company is or becomes a PFIC are described below under the heading “Tax Consequences if the Company
is a PFIC.”
A non-U.S. corporation
is a PFIC for each tax year in which (i) 75% or more of its gross income is passive income (as defined for U.S. federal income
tax purposes) (the “income test”) or (ii) on average for such tax year, 50% or more (by value) of its assets either
produces or is held for the production of passive income (the “asset test”). For purposes of the PFIC provisions, “gross
income” generally includes sales revenues less cost of goods sold, plus income from investments and from incidental or outside
operations or sources, and “passive income” generally includes dividends, interest, certain rents and royalties, and
certain gains from commodities or securities transactions. In determining whether or not it is a PFIC, a non-U.S. corporation is
required to take into account its pro rata portion of the income and assets of each corporation in which it owns, directly or indirectly,
at least a 25% interest (by value). If certain conditions are met, a start-up non-U.S. corporation is not a PFIC in the first year
that it has gross income, but could be a PFIC in one or more earlier years in which it has no gross income but satisfies the asset
test.
Under certain attribution
and indirect ownership rules, if the Company is a PFIC, U.S. Holders will generally be deemed to own their proportionate shares
of the Company’s direct or indirect equity interest in any company that is also a PFIC (a “Subsidiary PFIC”).
The Company does not
know if it currently is a PFIC or was a PFIC in a prior year and, based on current business plans and financial projections, does
not know if it will be a PFIC in subsequent tax years. The determination of PFIC status is inherently factual, is subject to a
number of uncertainties, and can be determined only annually after the close of the tax year in question. Additionally, the analysis
depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations.
We might be determined to be a PFIC for the current tax year or any prior or future tax year, and no opinion of legal counsel or
ruling from the IRS concerning the status of the Company as a PFIC has been obtained or will be requested. U.S. Holders should
consult their own U.S. tax advisors regarding the PFIC status of the Company.
Tax Consequences if the Company is
a PFIC
If the Company is a
PFIC for any tax year during which a U.S. Holder owns our common shares, special rules may increase such U.S. Holder’s U.S.
federal income tax liability with respect to the ownership and disposition of such common shares. If the Company meets the income
test or the asset test for any tax year during which a U.S. Holder owns our common shares or warrants Company will be treated as
a PFIC with respect to such U.S. Holder for that tax year and for all subsequent tax years, regardless of whether the Company meets
the income test or the asset test for such subsequent tax years, unless the U.S. Holder elects to recognize any unrealized gain
in such common shares or makes a timely and effective QEF Election or, if applicable, Mark-to-Market Election.
Under the default PFIC rules:
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any gain realized on the sale or other disposition (including dispositions and certain other events
that would not otherwise be treated as taxable events) of our common shares (including an indirect disposition of the stock of
any Subsidiary PFIC) and any “excess distribution” (defined as a distribution to the extent it, together with all other
distributions received in the relevant tax year, exceeds 125% of the average annual distribution received during the preceding
three years) received on our common shares or with respect to the stock of a Subsidiary PFIC will be allocated ratably to each
day of such U.S. Holder’s holding period for our common shares;
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the amount allocated to the current tax year and any year prior to the first year in which the
Company was a PFIC will be taxed as ordinary income in the current year;
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the amount allocated to each of the other tax years (the “Prior PFIC Years”) will be
subject to tax at the highest ordinary income tax rate in effect for the applicable class of taxpayer for that year;
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an interest charge will be imposed with respect to the resulting tax attributable to each Prior
PFIC Year, which interest charge is not deductible by non-corporate U.S. Holders; and
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any loss realized on the disposition of our common shares generally will not be recognized.
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A U.S. Holder that makes
a timely and effective “mark-to-market” election under Section 1296 of the Code (a “Mark-to-Market Election”)
or a timely and effective election to treat the Company and each Subsidiary PFIC as a “qualified electing fund” (a
“QEF”) under Section 1295 of the Code (a “QEF Election”) may generally mitigate or avoid the PFIC consequences
described above with respect to our common shares.
If a U.S. Holder makes
a timely and effective QEF Election, the U.S. Holder must include currently in gross income each year its pro rata share of the
Company’s ordinary income and net capital gains, regardless of whether such income and gains are actually distributed. Thus,
a U.S. Holder could have a tax liability with respect to such ordinary income or gains without a corresponding receipt of cash
from the Company. If the Company is a QEF with respect to a U.S. Holder, the U.S. Holder’s basis in our common shares will
be increased to reflect the amount of the taxed but undistributed income. Distributions of income that had previously been taxed
will result in a corresponding reduction of basis in our common shares and will not be taxed again as a distribution to a U.S.
Holder. Taxable gains on the disposition of our common shares by a U.S. Holder that has made a timely and effective QEF Election
are generally capital gains. A U.S. Holder must make a QEF Election for the Company and each Subsidiary PFIC if it wishes to have
this treatment. To make a QEF Election, a U.S. Holder will need to have an annual information statement from the Company setting
forth the ordinary income and net capital gains for the year. U.S. Holders should be aware that we might not satisfy the recordkeeping
requirements that apply to a QEF or supply U.S. Holders with information such U.S. Holders require to report under the QEF rules
in the event that the Company is a PFIC for any tax year.
In general, a U.S. Holder
must make a QEF Election on or before the due date for filing its income tax return for the first year to which the QEF Election
applies. Under applicable Treasury Regulations, a U.S. Holder will be permitted to make retroactive elections in particular
circumstances, including if it had a reasonable belief that the Company was not a PFIC and filed a protective election. If a U.S.
Holder owns PFIC stock indirectly through another PFIC, separate QEF Elections must be made for the PFIC in which the U.S. Holder
is a direct shareholder and the Subsidiary PFIC for the QEF rules to apply to both PFICs. Each U.S. Holder should consult its own
tax advisor regarding the availability and desirability of, and procedure for, making a timely and effective QEF Election for the
Company and any Subsidiary PFIC.
A Mark-to-Market Election
may be made with respect to stock in a PFIC if such stock is “regularly traded” on a “qualified exchange or other
market” (within the meaning of the Code and the applicable Treasury Regulations). A class of stock that is traded on one
or more qualified exchanges or other markets is considered to be “regularly traded” for any calendar year during which
such class of stock is traded in other than de minimis quantities on at least 15 days during each calendar quarter. If our common
shares are considered to be “regularly traded” within this meaning, then a U.S. Holder generally will be eligible to
make a Mark-to-Market Election with respect to such security but not with respect to a Subsidiary PFIC. Our common shares are listed
or posted for trading on a stock quotation system and therefore considered to be “regularly traded” for this purpose.
When these securities
become “regularly traded,” a U.S. Holder that makes a timely and effective Mark-to-Market Election with respect to
such securities generally will be required to recognize as ordinary income in each tax year in which the Company is a PFIC an amount
equal to the excess, if any, of the fair market value of such stock as of the close of such taxable year over the U.S. Holder’s
adjusted tax basis in such stock as of the close of such taxable year. A U.S. Holder’s adjusted tax basis in our securities
generally will be increased by the amount of ordinary income recognized with respect to such stock. If the U.S. Holder’s
adjusted tax basis in our securities as of the close of a tax year exceeds the fair market value of such stock as of the close
of such taxable year, the U.S. Holder generally will recognize an ordinary loss, but only to the extent of net mark-to-market income
recognized with respect to such stock for all prior taxable years. A U.S. Holder’s adjusted tax basis in our securities generally
will be decreased by the amount of ordinary loss recognized with respect to such stock. Any gain recognized upon a disposition
of our common shares generally will be treated as ordinary income, and any loss recognized upon a disposition generally will be
treated as ordinary loss to the extent of the net mark-to-market income recognized for all prior taxable years. Any loss recognized
in excess thereof will be taxed as a capital loss. Capital losses are subject to significant limitations under the Code. Each U.S.
Holder should consult its own tax advisor regarding the availability and desirability of, and procedure for, making a timely and
effective Mark-to-Market Election with respect to our common shares.
Foreign Tax Credit
A U.S. Holder that pays
(whether directly or through withholding) Canadian income tax in connection with the ownership or disposition of our common shares
may be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid.
Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a
deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year
basis and applies to all creditable foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.
Complex limitations
apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S.
Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income
bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of
income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.”
Generally, dividends paid by a non-U.S. corporation should be treated as foreign source for this purpose, and gains recognized
on the sale of securities of a non-U.S. corporation by a U.S. Holder should be treated as U.S. source for this purpose, except
as otherwise provided in an applicable income tax treaty, and if an election is properly made under the Code. However, the amount
of a distribution with respect to our common shares that is treated as a “dividend” may be lower for U.S. federal income
tax purposes than it is for Canadian federal income tax purposes, resulting in a reduced foreign tax credit allowance to a U.S.
Holder. In addition, this limitation is calculated separately with respect to specific categories of income. The foreign tax credit
rules are complex, and each U.S. Holder should consult its own U.S. tax advisor regarding the foreign tax credit rules.
Special rules apply
to the amount of foreign tax credit that a U.S. Holder may claim on a distribution, including a constructive distribution, from
a PFIC. Subject to such special rules, non-U.S. taxes paid with respect to any distribution in respect of stock in a PFIC are generally
eligible for the foreign tax credit. The rules relating to distributions by a PFIC and their eligibility for the foreign tax credit
are complicated, and a U.S. Holder should consult its own tax advisor regarding their application to the U.S. Holder.
Receipt of Foreign Currency
The amount of any distribution
or proceeds paid in Canadian dollars to a U.S. Holder in connection with the ownership, sale or other taxable disposition of our
common shares, will be included in the gross income of a U.S. Holder as translated into U.S. dollars calculated by reference to
the exchange rate prevailing on the date of actual or constructive receipt of the payment, regardless of whether the Canadian dollars
are converted into U.S. dollars at that time. If the Canadian dollars received are not converted into U.S. dollars on the date
of receipt, a U.S. Holder will have a basis in the Canadian dollars equal to their U.S. dollar value on the date of receipt. Any
U.S. Holder who receives payment in Canadian dollars and engages in a subsequent conversion or other disposition of the Canadian
dollars may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will
be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method
with respect to foreign currency. Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax
consequences of receiving, owning, and disposing of Canadian dollars.
Information Reporting; Backup Withholding
Under U.S. federal income
tax law, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in,
a non-U.S. corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who
are U.S. Holders that hold certain specified foreign financial assets in excess of certain threshold amounts. The definition of
“specified foreign financial assets” includes not only financial accounts maintained in non-U.S. financial institutions,
but also, if held for investment and not in an account maintained by certain financial institutions, any stock or security issued
by a non-U.S. person, any financial instrument or contract that has an issuer or counterparty other than a U.S. person and any
interest in a non-U.S. entity. A U.S. Holder may be subject to these reporting requirements unless such U.S. Holder’s shares
of our common shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information
returns are substantial. U.S. Holders should consult with their own tax advisors regarding the requirements of filing information
returns on IRS Form 8938 for specified foreign financial assets, filing obligations relating to the PFIC rules including possible
reporting on IRS Form 8621, and any other applicable reporting requirements.
Payments made within
the U.S. or by a U.S. payor or U.S. middleman of (a) distributions on our common shares, and (b) proceeds arising from
the sale or other taxable disposition of our common shares generally will be subject to information reporting. In addition, backup
withholding, currently at a rate of 24%, may apply to such payments if a U.S. Holder (a) fails to furnish such U.S. Holder’s
correct U.S. taxpayer identification number (“TIN”) (generally on Form W-9), (b) furnishes an incorrect U.S. TIN, (c)
is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding, or (d)
fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. TIN and that the IRS has not notified
such U.S. Holder that it is subject to backup withholding. Certain exempt persons generally are excluded from these information
reporting and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup
withholding rules are allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded,
if such U.S. Holder furnishes required information to the IRS in a timely manner. The information reporting and backup withholding
rules may apply even if, under the Canada-U.S. Tax Convention, payments are exempt from dividend withholding tax or otherwise eligible
for a reduced withholding rate.
The discussion of reporting
requirements set forth above is not intended to constitute an exhaustive description of all reporting requirements that may apply
to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which
the IRS can assess a tax, and, under certain circumstances, such an extension may apply to assessments of amounts unrelated to
any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisor regarding the information reporting
and backup withholding rules.
Certain Reporting Requirements
A U.S. Holder that acquires
common shares generally will be required to file Form 926 with the IRS if (1) immediately after the acquisition such U.S. Holder,
directly or indirectly, owns at least 10% of the common shares, or (2) the amount of cash transferred in exchange for common shares
during the 12-month period ending on the date of the acquisition exceeds US$100,000. Significant penalties may apply for failing
to satisfy these filing requirements. U.S. Holders are urged to contact their tax advisors regarding these filing requirements.
THE ABOVE SUMMARY IS NOT INTENDED TO
CONSTITUTE A COMPLETE ANALYSIS OF ALL U.S. TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE ACQUISITION, OWNERSHIP
OR DISPOSITION OF OUR COMMON SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE
TO THEM IN THEIR PARTICULAR CIRCUMSTANCES.
PLAN OF DISTRIBUTION
The common stock held
by the selling stockholders may be sold or distributed from time to time by the selling stockholders directly to one or more purchasers
or through brokers, dealers, or underwriters who may act solely as agents at market prices prevailing at the time of sale, at prices
related to the prevailing market prices, at negotiated prices, or at fixed prices, which may be changed on any stock exchange,
market or trading facility on which the shares are traded or in private transactions. The sale of the selling stockholders’
common stock offered by this prospectus may be affected in one or more of the following methods:
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ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
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transactions involving cross or block trades;
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a purchase by a broker-dealer as principal and resale by the broker-dealer for its account;
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an exchange distribution in accordance with the rules of the applicable exchange;
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in privately negotiated transactions;
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broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;
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“at the market” into an existing market for the common stock;
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through the writing of options on the shares;
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a combination of any such methods of sale; and
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any other method permitted pursuant to applicable law.
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In order to comply
with the securities laws of certain states, if applicable, the shares of the selling stockholders may be sold only through registered
or licensed brokers or dealers. In addition, in certain states, such shares may not be sold unless they have been registered or
qualified for sale in the state or an exemption from the registration or qualification requirement is available and complied with.
The selling stockholders may also sell shares
of common stock under Rule 144 promulgated under the Securities Act, if available, or any other exemption available under the Securities
Act rather than under this prospectus. In addition, the selling stockholders may transfer the shares of common stock by other means
not described in this prospectus.
The selling
stockholders may also sell the shares directly to market makers acting as principals and/or broker-dealers acting as agents
for themselves or their customers. Such broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the selling stockholders and/or the purchasers of shares for whom such broker-dealers may act as agents or
to whom they sell as principal or both, which compensation as to a particular broker-dealer might be in excess of customary
commissions. Market makers and block purchasers purchasing the shares will do so for their own account and at their own risk.
It is possible that the selling stockholders will attempt to sell shares of common stock in block transactions to market
makers or other purchasers at a price per share which may be below the then market price. None of the selling stockholders
can assure that all or any of the shares offered in this prospectus will be issued to, or sold by, it.
Brokers, dealers or
agents participating in the distribution of the shares held by a selling stockholder as agents may receive compensation in the
form of commissions, discounts, or concessions from the selling stockholder and/or purchasers of the common stock for whom the
broker-dealers may act as agent. Such selling stockholder may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.
Each selling
stockholder acquired or will acquire the securities offered hereby in the ordinary course of business and has advised us
that it has not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers
regarding the sale of their shares of common stock, nor is there an underwriter or coordinating broker acting in
connection with a proposed sale of shares of common stock by such selling stockholder. If we are notified by a selling
stockholder that any material arrangement has been entered into with a broker-dealer for the sale of shares of common stock,
if required, we will file a supplement to this prospectus.
We may suspend the
sale of shares by a selling stockholder pursuant to this prospectus for certain periods of time for certain reasons, including
if the prospectus is required to be supplemented or amended to include additional material information.
EXPENSES RELATING TO THIS OFFERING
Set forth below is an
itemization of the total expenses, excluding placement discounts and commissions, that we expect to incur in connection with this
offering. With the exception of the SEC registration fee, all amounts are estimates.
Securities and Exchange Commission Registration Fee
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US$
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1,319
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Legal Fees and Expenses
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US$
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30,000
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Accounting Fees and Expenses
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US$
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10,000
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Printing and Engraving Expenses
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US$
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1,000
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Miscellaneous Expenses
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US$
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2,000
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Total Expenses
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US$
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44,319
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INCORPORATION BY REFERENCE
The SEC allows us to
“incorporate by reference” into this prospectus the documents we file with, or furnish to, it, which means that we
can disclose important information to you by referring you to these documents. The information that we incorporate by reference
into this prospectus forms a part of this prospectus, and information that we file later with the SEC automatically updates and
supersedes any information in this prospectus. We incorporate by reference into this prospectus the documents listed below:
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our Annual Report on Form 20-F for the fiscal year ended December 31, 2017, including any
amendments, initially filed with the SEC on April 19, 2018;
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our Report on Form 6-K, furnished to the SEC on May 1, 2018, with respect to notice of our annual
general meeting;
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our Report on Form 6-K, furnished to the SEC on May 23, 2018, with respect to certain press releases;
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our Report on Form 6-K, furnished to the SEC on May 30, 2018, with respect to certain press release;
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our Report on Form 6-K, furnished to the SEC on June 4, 2018, with respect to our Interim Consolidated
Financial Statements for the three months ended March 31, 2018 and 2017, related Management’s Discussion and Analysis,
and certain press releases;
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our Report on Form 6-K, furnished to the SEC on August 9, 2018, with respect to entry into a material
definitive agreement and certain press release;
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our Report on Form 6-K, furnished to the SEC on August 15, 2018, with respect to certain press
release;
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our Report on Form 6-K, furnished to the SEC on August 15, 2018, with respect to our Interim Consolidated
Financial Statements for the three and six months ended June 30, 2018 and 2017 and related Management’s Discussion and
Analysis;
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our Report on Form 6-K, furnished to the SEC on September 28, 2018, with respect to certain press
releases and roadshow presentations;
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our Report on Form 6-K, furnished to the SEC on October 11, 2018, with respect to a change in our
independent registered public accounting firm; and
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our Report on Form 6-K, furnished to the SEC on November 16, 2018, with respect to our Interim
Consolidated Financial Statements for the three and nine months ended September 30, 2018 and 2017 and related Management’s
Discussion and Analysis.
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All documents filed
by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this prospectus and prior
to the termination of the offering of the securities offered by this prospectus are incorporated by reference into this prospectus
and form part of this prospectus from the date of filing or furnishing of these documents. Any documents that we furnish to the
SEC on Form 6-K subsequent to the date of this prospectus will be incorporated by reference into this prospectus only to the extent
specifically set forth in the Form 6-K.
Any statement contained
in a document that is incorporated by reference into this prospectus will be deemed to be modified or superseded for the purposes
of this prospectus to the extent that a statement contained in this prospectus, or in any other subsequently filed document which
also is or is deemed to be incorporated by reference into this prospectus, modifies or supersedes that statement. The modifying
or superseding statement does not need to state that it has modified or superseded a prior statement or include any other information
set forth in the document that it modifies or supersedes.
Upon request, we will
provide, without charge, to each person who receives this prospectus, a copy of any or all of the documents incorporated by reference
(other than exhibits to the documents that are not specifically incorporated by reference in the documents). Please direct written
or oral requests for copies to our Corporate Secretary at 102 East 1st Avenue, Vancouver, British Columbia, Canada, V5T 1A4 or
by calling 1-604-428-7656.
ENFORCEABILITY OF CIVIL LIABILITIES
We are organized under
the laws of the Business Corporations Act and our executive offices are located outside of the United States in Vancouver,
British Columbia. All of our officers, our auditor and all but two of our directors reside outside the United States. In addition,
a substantial portion of their assets and our assets are located outside of the United States. As a result, it may be difficult
to serve legal process within the United States upon us or any of these persons. It may also be difficult to enforce, both in and
outside of the United States, judgments of U.S. courts against us or these persons in any action, including actions based upon
the civil liability provisions of U.S. Federal or state securities laws. Furthermore, there is substantial doubt as to the enforceability
in Canada against us or against any of our directors, officers and the expert named in this prospectus who are not residents of
the United States, in original actions or in actions for enforcement of judgments of U.S. courts, of liabilities based solely upon
the civil liability provisions of the U.S. federal securities laws. In addition, shareholders in British Columbia companies may
not have standing to initiate a shareholder derivative action in U.S. federal courts.
MATERIAL CHANGES
On January 15, 2019,
we revised or entered into new compensation arrangements with four of our officers or their affiliated entities as set out below:
Jerry Kroll
On January 15, 2019,
our Board approved the entering into of a new executive employment agreement with Jerry Kroll (the “Kroll Agreement”),
which is dated for reference effective on January 1, 2019 (the “Effective Date”), and which supersedes our company’s
prior agreement with Mr. Kroll, dated July 1, 2016, which had been amended in August of 2018.
The Kroll Agreement
commenced as of the Effective Date and will continue indefinitely until terminated in accordance with its terms. Pursuant to the
terms of the Kroll Agreement, Mr. Kroll will continue to be employed as our CEO and will devote his full business time and best
efforts, business judgment, skill and knowledge exclusively to the advancement of the business and interests of the Company. Mr.
Kroll will not engage in any other business activity or serve in any industry, trade, professional, governmental or academic position
during the term of the Kroll Agreement, except as may be expressly approved in advance by the Board, in writing; provided that
Mr. Kroll may make passive personal investments, engage in outside non-competitive business activities, including being a director
of non-competitive businesses, or engage in other activities for any charitable or other non-profit institution; and provided,
further, that such activities do not conflict with the interests of any member of the Company or otherwise interfere, individually
or in the aggregate, with the performance of Mr. Kroll’s duties and responsibilities or the time required for the discharge
of those duties and responsibilities.
The Company will pay
Mr. Kroll an annual base salary from the Effective Date of $300,000 (the “Base Salary”). The Base Salary is subject
to increase based on periodic reviews at the discretion of the Board. Mr. Kroll will be entitled to participate in all other benefits,
perquisites, benefit plans or programs of the Company which are available generally to executives of the Company in accordance
with the terms of such plans, benefits or programs, including, but not limited to, the following: (a) no less than five weeks paid
vacation during each full fiscal year of Mr. Kroll’s employment (pro-rated for any partial year of employment); and (b) group
insurance coverage for medical, extended health, dental, life and long term disability as may be made available by the Company
to its executive employees from time to time. Mr. Kroll acknowledges that any of the benefits set out above are subject to the
formal plan documents or policies and may also be modified or amended at any time by the Board in its sole and absolute discretion.
The Company will use
commercially reasonable efforts to maintain an appropriate level of coverage for Mr. Kroll under its current directors’ and
officers’ insurance policy and will indemnify Mr. Kroll for all lawful acts (or omissions) undertaken by Mr. Kroll in the
role of either director or CEO of the Company to the extent allowed by law.
The Company may grant
Mr. Kroll stock options under its Stock Option Plan from time to time in its absolute discretion. Any stock options granted will
be in accordance with the following provisions: (a) the stock options will be subject to the terms and conditions of the Company’s
Stock Option Plan as may be amended from time to time by the Board in its absolute discretion; (b) the number of shares which may
be purchased pursuant to a stock option will be in accordance with the Company’s Stock Option Plan for allocating amounts
of stock options to employees as determined by the Board or any Board committee or party to whom that task has been delegated;
(c) the terms and conditions attaching to the Stock Option and including, without limitation, the number of shares which may be
purchased pursuant to the stock option, its exercise price, its term, its termination provisions and its vesting provisions, will
be in the sole discretion of the Board or any Board committee or party to whom that task has been delegated; and (d) stock options
will otherwise be subject to the requirements of any stock exchange, securities commission or other similar regulatory body having
jurisdiction and rules and policies adopted by the Company’s Compensation Committee.
The Company has the
right to and may terminate the Kroll Agreement for Cause (as defined therein) immediately upon written notice to Mr. Kroll. Following
any such termination, the Company will have no further obligations to Mr. Kroll under the Kroll Agreement other than the Company’s
obligations to: (a) pay Mr. Kroll Base Salary accrued to the date of termination; (b) pay Mr. Kroll any accrued and unused vacation;
and (c) reimburse Mr. Kroll for expenses incurred through the termination date that are reimbursable under the Kroll Agreement.
The Company also has
the right to and may terminate the Kroll Agreement at any time, for any reason or for no reason, without Cause, immediately upon
notice to Mr. Kroll. Following any such termination the Company will have no further obligations to Mr. Kroll under Kroll Agreement
other than the Company’s obligations to: (a) pay Mr. Kroll Base Salary accrued to the date of termination; (b) pay Mr. Kroll
Severance Pay (as defined therein); (c) reimburse Mr. Kroll for expenses incurred by Mr. Kroll through the termination date that
are reimbursable pursuant under the Kroll Agreement; and (d) pay Mr. Kroll any accrued and unused vacation.
Within 12 months following
a Change of Control (as defined in the Kroll Agreement), Mr. Kroll may, in his sole discretion, elect to terminate the Kroll Agreement
on written notice to the Company. Following any such termination, the Company will have no further obligations to Mr. Kroll under
the Kroll Agreement other than the Company’s obligation to: (a) pay Mr. Kroll Base Salary accrued to the date of termination;
(b) pay Mr. Kroll Severance Pay; (c) reimburse Mr. Kroll for expenses incurred by Mr. Kroll through the termination date that are
reimbursable under the Kroll Agreement; and (d) pay Mr. Kroll any accrued and unused vacation.
In the event that the
Kroll Agreement is terminated by the Company without Cause, or by Mr. Kroll as a result of a Change of Control, Mr. Kroll will
be entitled to a “Severance Pay” in an amount equal to 12 months of Base Salary plus one additional month of Base Salary
for each full year of employment under the Kroll Agreement to a maximum of 18 months. In addition, all stock options then granted
will accelerate and vest as at the date of termination and be exercisable for the greater of 180 days or the greatest time permitted
for exercise after any termination of employment as set out in the Company’s then Stock Option Plan. The Company shall pay
any such Severance Pay forthwith, but in any event within two weeks of the termination date (subject to earlier payment of some
of the Severance Pay in accordance with the requirements of the British Columbia
Employment Standards Act
)
.
Upon
satisfaction of its above obligations, as applicable, the Company shall have no further liability or obligation to Mr. Kroll under
the Kroll Agreement and including, without limitation, any liability for any further severance pay for failure to give reasonable
notice or for damages in lieu of reasonable notice.
Mr. Kroll may resign
at anytime by providing the Company with not less than 90 days’ prior written notice, in which case the Kroll Agreement will
terminate and all obligations of each party to the other under the Kroll Agreement will terminate, on the date specified in the
notice, other than the Company’s obligations to: (a) pay Mr. Kroll Base Salary accrued to the date of termination; (b) reimburse
Mr. Kroll for expenses incurred by Mr. Kroll through the termination date that are reimbursable under the Kroll Agreement; and
(c) pay Mr. Kroll any accrued and unused vacation pay. In its discretion, the Company may elect to place Mr. Kroll on leave with
pay and benefits during the notice period of termination.
The Kroll Agreement
will automatically terminate upon the death or Permanent Disability (as defined therein) of Mr. Kroll and, upon such termination,
the Company’s obligations under the Kroll Agreement will immediately terminate other than the Company’s obligations
to: (a) pay Mr. Kroll Base Salary accrued to the date of termination; (b) pay Mr. Kroll any accrued and unused vacation pay; and
(c) reimburse Mr. Kroll for expenses incurred by Mr. Kroll through the termination date that are reimbursable under the Kroll Agreement.
In the event that Mr. Kroll dies or suffers a Permanent Disability, any payments due and owing to Mr. Kroll under the Kroll Agreement
0will enure to the benefit of Mr. Kroll’s heirs and/or estate.
Bal Bhullar
On January 15, 2019,
our Board approved the entering into of a new consulting agreement with BKB Management Ltd., a company under the control and direction
of Bal Bhullar, our Chief Financial Officer (the “CFO”; and the “Bhullar Agreement”), which is dated for
reference effective on January 1, 2019 (the “Effective Date”), and which supersedes our company’s prior offer
letter with Ms. Bhullar, dated October 19, 2018.
In accordance with
the Bhullar Agreement the Consultant will provide the Company with management services as CFO (the “Services”). All
Services will be performed by the Consultant’s principal, Bal Bhullar. The Consultant shall report to and take direction
from our CEO and the Board. Under the Bhullar Agreement it is acknowledged that the Consultant may provide its services to other
businesses and organizations provided there is no conflict of interest and that the Consultant complies with its obligations under
the Bhullar Agreement. The Consultant shall devote as much time as required in the fulfillment of the role as CFO.
The Bhullar Agreement
takes effect on the Effective Date and is effective for a period of two years with an option to renew for an additional year by
mutual agreement by both parties thereafter.
In consideration of
the Services provided under the Bhullar Agreement, the Company will pay the Consultant a monthly fee of $15,000 and a $300 vehicle
allowance plus any applicable GST (collectively, the “Fees”) at the end of each month.
The Company may, at
its option, terminate the Bhullar Agreement at any time without notice or cause by advising the Consultant in writing. Following
any such termination without cause, the Company will have no further obligation to the Consultant under the Bhullar Agreement other
than the Company’s obligations to: (a) pay the Consultant all remaining unpaid Fees due at the time of termination; and (b)
reimburse the Consultant for any expenses incurred through to the termination date. The Company may also terminate the Bhullar
Agreement at any time without notice and for cause under the following circumstances: (i) the Consultant’s negligent performance
of the Services; (ii) the Consultant’s persistent failure to perform the Services; (iii) any breach by the Consultant of
any of the obligations set forth in the Bhullar Agreement; or (iv) a continued course of malfeasant or misfeasant actions or omissions
by the Consultant, an in each such instance.
The Company may terminate
the Bhullar Agreement at any time upon providing the Consultant with only the following: (a) Fees owed to the Consultant up to
and including the date of termination and any Bonus (as therein defined) earned prior to the date of termination; a lump sum payment
equal to then term of the Bhullar Agreement (the “Notice Period”) of Fees as in effect at the termination of the Consultant’s
engagement; (c) the Consultant’s participation in the Company’s benefits programs shall be continued for a period of
eight weeks and, thereafter, the Consultant’s benefits, including professional dues, but not including disability insurance
coverage or perquisites such as mobile phone, parking, etc., will be continued through the Notice Period to the maximum extent
permitted under applicable plan terms. To the extent the Company is unable to extend any such benefits coverage for any portion
of such period after reasonable efforts to obtain same, the Company shall pay the Consultant an amount sufficient to purchase comparable
coverage for such time; and (d) with a lump sum payment equal to the Bonus it would have earned through the Notice Period based
on the Bonus received by the Consultant in the year prior to the termination of the Bhullar Agreement (which, for greater certainty,
will be calculated by including the value of any Bonus paid in cash, RSUs or stock options)
The Consultant may
terminate the Bhullar Agreement by giving the Company written notice of Good Reason (as therein defined). In the event of a termination
for Good Reason, the Consultant shall be entitled to each of the Notice Period entitlements set forth above. The Consultant may
voluntarily terminate the Bhullar Agreement at any time by giving the Company two months’ prior notice. The Company may waive
such notice in whole or in part without any payment to the Consultant in lieu of the waived period of notice.
If at any time during
the term of the Bhullar Agreement there is a Change of Control (as therein defined) and, within 12 months of such Change of Control:
(i) there is a material reduction in the CFO’s title or a material reduction in hers duties or responsibilities such that
the Consultant gives notice of the Consultant’s intention to terminate the Bhullar Agreement as a result thereof; (ii) there
is a material adverse change in the Consultant’s Fees or benefits such that the Consultant gives notice of the Consultant’s
intention to terminate the Bhullar Agreement as a result thereof; or (iii) the Consultant’s engagement is terminated by the
Company unless such termination is as a result of the Consultant’s material breach of the Bhullar Agreement; the Consultant
shall then be entitled to receive from the Company: (a) a cash amount equal to two years of the Consultant’s Fees as in effect
at the termination of the Consultant’s engagement; and (b) an additional amount equal to two times the previous year’s
annual Bonus (as defined therein, and which, for greater certainty, will be calculated by including the value of any Bonus paid
in cash, Restricted Stock Units (“RSU”) or stock options). Notwithstanding the terms of any other plan or agreement,
and subject to the Company’s then Stock Option Plan and any RSU Plan, all stock options and RSUs previously granted by the
Company to the Consultant which have not vested shall be deemed to vest and all stock options held by the Consultant shall remain
exercisable until the earlier of their expiration date or 90 days from the termination date. The Company shall maintain the Consultant’s
benefits under the Bhullar Agreement for a period of 12 months.
Henry Reisner
On January 15, 2019,
our Board approved the entering into of a new executive employment agreement with Henry Reisner (the “Reisner Agreement”),
which is dated for reference effective on January 1, 2019 (the “Effective Date”), and which supersedes our company’s
prior agreement with Mr. Reisner, dated July 1, 2016, which had been amended in August of 2018.
The Reisner Agreement
commenced as of the Effective Date and will continue indefinitely until terminated in accordance with its terms. Pursuant to the
terms of the Reisner Agreement, Mr. Reisner will continue to be employed as our Chief Operating Officer (the “COO”)
and President and will devote his full business time and best efforts, business judgment, skill and knowledge exclusively to the
advancement of the business and interests of the Company. Mr. Reisner will not engage in any other business activity or serve in
any industry, trade, professional, governmental or academic position during the term of the Reisner Agreement, except as may be
expressly approved in advance by the Board, in writing; provided that Mr. Reisner may make passive personal investments, engage
in outside non-competitive business activities, including being a director of non-competitive businesses, or engage in other activities
for any charitable or other non-profit institution; and provided, further, that such activities do not conflict with the interests
of any member of the Company or otherwise interfere, individually or in the aggregate, with the performance of Mr. Reisner’s
duties and responsibilities or the time required for the discharge of those duties and responsibilities.
The Company will pay
Mr. Reisner an annual base salary from the Effective Date of $180,000 (the “Base Salary”). The Base Salary is subject
to increase based on periodic reviews at the discretion of the Board. Mr. Reisner will be entitled to participate in all other
benefits, perquisites, benefit plans or programs of the Company which are available generally to executives of the Company in accordance
with the terms of such plans, benefits or programs, including, but not limited to, the following: (a) no less than five weeks paid
vacation during each full fiscal year of Mr. Reisner’s employment (pro-rated for any partial year of employment); and (b)
group insurance coverage for medical, extended health, dental, life and long term disability as may be made available by the Company
to its executive employees from time to time. Mr. Reisner acknowledges that any of the benefits set out above are subject to the
formal plan documents or policies and may also be modified or amended at any time by the Board in its sole and absolute discretion.
The Company will use
commercially reasonable efforts to maintain an appropriate level of coverage for Mr. Reisner under its current directors’
and officers’ insurance policy and will indemnify Mr. Reisner for all lawful acts (or omissions) undertaken by Mr. Reisner
in the role of either director, COO or President of the Company to the extent allowed by law.
The Company may grant
Mr. Reisner stock options under its Stock Option Plan from time to time in its absolute discretion. Any stock options granted will
be in accordance with the following provisions: (a) the stock options will be subject to the terms and conditions of the Company’s
Stock Option Plan as may be amended from time to time by the Board in its absolute discretion; (b) the number of shares which may
be purchased pursuant to a stock option will be in accordance with the Company’s Stock Option Plan for allocating amounts
of stock options to employees as determined by the Board or any Board committee or party to whom that task has been delegated;
(c) the terms and conditions attaching to the Stock Option and including, without limitation, the number of shares which may be
purchased pursuant to the stock option, its exercise price, its term, its termination provisions and its vesting provisions, will
be in the sole discretion of the Board or any Board committee or party to whom that task has been delegated; and (d) stock options
will otherwise be subject to the requirements of any stock exchange, securities commission or other similar regulatory body having
jurisdiction and rules and policies adopted by the Company’s Compensation Committee.
The Company has the
right to and may terminate the Reisner Agreement for Cause (as defined therein) immediately upon written notice to Mr. Reisner.
Following any such termination, the Company will have no further obligations to Mr. Reisner under the Reisner Agreement other than
the Company’s obligations to: (a) pay Mr. Reisner Base Salary accrued to the date of termination; (b) pay Mr. Reisner any
accrued and unused vacation; and (c) reimburse Mr. Reisner for expenses incurred through the termination date that are reimbursable
under the Reisner Agreement.
The Company also has
the right to and may terminate the Reisner Agreement at any time, for any reason or for no reason, without Cause, immediately upon
notice to Mr. Reisner. Following any such termination the Company will have no further obligations to Mr. Reisner under Reisner
Agreement other than the Company’s obligations to: (a) pay Mr. Reisner Base Salary accrued to the date of termination; (b)
pay Mr. Reisner Severance Pay (as defined therein); (c) reimburse Mr. Reisner for expenses incurred by Mr. Reisner through the
termination date that are reimbursable pursuant under the Reisner Agreement; and (d) pay Mr. Reisner any accrued and unused vacation.
Within 12 months following
a Change of Control (as defined in the Reisner Agreement), Mr. Reisner may, in his sole discretion, elect to terminate the Reisner
Agreement on written notice to the Company. Following any such termination, the Company will have no further obligations to Mr.
Reisner under the Reisner Agreement other than the Company’s obligation to: (a) pay Mr. Reisner Base Salary accrued to the
date of termination; (b) pay Mr. Reisner Severance Pay; (c) reimburse Mr. Reisner for expenses incurred by Mr. Reisner through
the termination date that are reimbursable under the Reisner Agreement; and (d) pay Mr. Reisner any accrued and unused vacation.
In the event that the
Reisner Agreement is terminated by the Company without Cause, or by Mr. Reisner as a result of a Change of Control, Mr. Reisner
will be entitled to a “Severance Pay” in an amount equal to 12 months of Base Salary plus one additional month of Base
Salary for each full year of employment under the Reisner Agreement to a maximum of 18 months. In addition, all stock options then
granted will accelerate and vest as at the date of termination and be exercisable for the greater of 180 days or the greatest time
permitted for exercise after any termination of employment as set out in the Company’s then Stock Option Plan. The Company
shall pay any such Severance Pay forthwith, but in any event within two weeks of the termination date (subject to earlier payment
of some of the Severance Pay in accordance with the requirements of the British Columbia
Employment Standards Act
)
.
Upon satisfaction of its above obligations, as applicable, the Company shall have no further liability or obligation to Mr. Reisner
under the Reisner Agreement and including, without limitation, any liability for any further severance pay for failure to give
reasonable notice or for damages in lieu of reasonable notice.
Mr. Reisner may resign
at anytime by providing the Company with not less than 90 days’ prior written notice, in which case the Reisner Agreement
will terminate and all obligations of each party to the other under the Reisner Agreement will terminate, on the date specified
in the notice, other than the Company’s obligations to: (a) pay Mr. Reisner Base Salary accrued to the date of termination;
(b) reimburse Mr. Reisner for expenses incurred by Mr. Reisner through the termination date that are reimbursable under the Reisner
Agreement; and (c) pay Mr. Reisner any accrued and unused vacation pay. In its discretion, the Company may elect to place Mr. Reisner
on leave with pay and benefits during the notice period of termination.
The Reisner Agreement
will automatically terminate upon the death or Permanent Disability (as defined therein) of Mr. Reisner and, upon such termination,
the Company’s obligations under the Reisner Agreement will immediately terminate other than the Company’s obligations
to: (a) pay Mr. Reisner Base Salary accrued to the date of termination; (b) pay Mr. Reisner any accrued and unused vacation pay;
and (c) reimburse Mr. Reisner for expenses incurred by Mr. Reisner through the termination date that are reimbursable under the
Reisner Agreement. In the event that Mr. Reisner dies or suffers a Permanent Disability, any payments due and owing to Mr. Reisner
under the Reisner Agreement 0will enure to the benefit of Mr. Reisner’s heirs and/or estate.
Isaac Moss
On January 15, 2019,
our Board approved the entering into of a new independent contractor agreement with Isaac Moss (the “Moss Agreement”),
which is dated for reference effective on January 1, 2019 (the “Effective Date”), and which supersedes our company’s
prior agreement with Mr. Moss, dated December 1, 2017, which had been amended in August of 2018.
The term of the Moss
Agreement commenced on the Effective Date and continues for a period of two years unless terminated as therein provided. The Moss
Agreement automatically renews for a further term of one year unless either party provides written notice of intent not to renew
30 days prior to expiration of the Moss Agreement.
Under the Moss Agreement
the Company has agreed to pay Mr. Moss an annual fee of $200,000 (the “Fee”), and the Fee is payable in equal monthly
instalments by no later than the 30
th
day of each month.
The Company has the
right to and may terminate the Moss Agreement for Cause (as defined therein) immediately upon written notice to Mr. Moss. Following
any such termination for Cause, the Company will have no further obligations to Mr. Moss under the Moss Agreement other than to:
(a) pay Mr. Moss all unpaid Fees and applicable taxes thereon due to Mr. Moss at time of termination; and (b) reimburse Mr. Moss
for any expenses incurred through the termination date.
The Company will have
the right to and may terminate the Moss Agreement at any time, for any reason or for no reason without Cause, immediately upon
notice to Mr. Moss. Following any such termination of the Moss Agreement without Cause, the Company will have no further obligation
to Mr. Moss under the Moss Agreement other than the Company’s obligations to: (a) pay Mr. Moss all remaining unpaid Fees
and applicable taxes thereon due to the termination date of the Moss Agreement; and (b) to reimburse Mr. Moss for any expenses
incurred through the termination date. In addition, any stock options granted to Mr. Moss will accelerate and vest at the date
of termination.
If at any time during
the term of the Moss Agreement there is a Change of Control (as defined therein) and, within 12 months of such Change of Control:
(i) there is a material reduction in Mr. Moss’s title or a material reduction in his duties or responsibilities such that
Mr. Moss gives notice of his intention to terminate the Moss Agreement as a result thereof; (ii) there is a material adverse change
in Mr. Moss’s Fees such that Mr. Moss gives notice of his intention to terminate the Moss Agreement as a result thereof;
or (iii) Mr. Moss’s engagement is terminated by the Company unless such termination is as a result of Mr. Moss’s material
breach of the Moss Agreement; then Mr. Moss will be entitled to receive from the Company: (a) a cash amount equal to two years
of the Fees as in effect at the termination of the Moss Agreement; and (b) all stock options previously granted by the Company
to Mr. Moss which have not vested shall be deemed to vest and all stock options held by Mr. Moss shall remain exercisable until
the earlier of their expiration date or 90 days from the termination date.
LEGAL MATTERS
Ortoli Rosenstadt LLP
is acting as counsel to our company regarding U.S. securities law matters. The current address of Ortoli Rosenstadt LLP is 366
Madison Avenue, 3rd Floor, New York, NY 10017. McMillan LLP is acting as our Canadian counsel. The current address of McMillan
LLP is Royal Centre, 1055 West Georgia Street, Vancouver, British Columbia, Canada, V6E 4N5.
EXPERTS
The financial statements
of Electrameccanica as of December 31, 2017 and December 31, 2016 and for the years respectively then ended incorporated by
reference into this prospectus and registration statement have been so included in reliance on the report of Dale Matheson Carr-Hilton
Labonte LLP, an independent registered public accounting firm, given on the authority of said firm as experts in accounting and
auditing. Dale Matheson Carr-Hilton Labonte LLP has offices at Suite 1500, 1140 West Pender Street, Vancouver, British Columbia,
Canada, V6E 4G1. Their telephone number is (604) 687-4747.
INTERESTS OF EXPERTS AND COUNSEL
None of the named experts
or legal counsel was employed on a contingent basis, owns an amount of shares in our company which is material to that person,
or has a material, direct or indirect economic interest in our company or that depends on the success of the offering.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the
SEC a registration statement on Form F-3 under the Securities Act with respect to the common shares offered hereby. This prospectus
does not contain all of the information set forth in the registration statement and the exhibits thereto, to which reference is
hereby made. With respect to each contract, agreement or other document filed as an exhibit to the registration statement, reference
is made to such exhibit for a more complete description of the matter involved. The registration statement and the exhibits thereto
filed by us with the SEC may be inspected at the public reference facility of the SEC listed below.
The registration statement,
reports and other information filed or to be filed with the SEC by us can be inspected and copied at the public reference facilities
maintained by the SEC at 100 F. Street NW, Washington, D.C. 20549. The SEC maintains a website at www.sec.gov that contains reports,
proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its
EDGAR system.
As a foreign private
issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our
executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act.
ELECTRAMECCANICA VEHICLES CORP.
4,250,000 Common Shares Underlying Warrants
PROSPECTUS
March
1, 2019
Until May 30, 2019 (the 90th day after the date of this prospectus), all dealers that buy, sell or trade
our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement
is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to unsold
allotments or subscriptions.
No dealer, salesperson or other individual
has been authorized to give any information or to make any representations not contained in this prospectus in connection with
the offering covered by this prospectus. If given or made, such information or representations must not be relied upon as having
been authorized by us. This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy the offered securities
in any jurisdiction where, or to any person to whom, it is unlawful to make any such offer or solicitation. Neither the delivery
of this prospectus nor any offer or sale made hereunder shall, under any circumstances, create an implication that there has not
been any change in the facts set forth in this prospectus or in our affairs since the date hereof.
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