Washington, D.C. 20549
(Name, Telephone, Email and/or Facsimile
number and Address of Company Contact Person)
Securities registered or to be registered
pursuant to Section 12(b) of the Act.
Securities registered or to be registered
pursuant to Section 12(g) of the Act.
Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act.
Number of outstanding shares of each of
the issuer’s classes of capital or common stock as of the close of business of the period covered by the annual report.
Indicate by check mark if the Registrant
is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.
If this report is an annual or transition
report, indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Indicate by check mark whether Registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “accelerated
filer,” “large accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company that prepares
its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange
Act. ¨
Indicate by check mark which basis of accounting
the registrant has used to prepare the financial statements included in this filing:
If “Other” has been checked
in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by
check mark whether the Registrant is a shell company (as defined in Rule 12b 2 of the Exchange Act):
(APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether Registrant
has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
This Annual Report on Form 20-F 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 Annual Report 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 Annual Report 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-production vehicles,
the projection of timing and delivery of 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, 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: the Company’s
ability to build pre-production SOLOs and to begin production deliveries within certain timelines; the Company’s expected
production capacity; prices for machinery to equip a new production facility, labor costs and material costs remaining consistent
with the Company’s current expectations; production of 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 the Company’s
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.
Such risks are discussed in Item 3.D “Risk
Factors”. In particular, without limiting the generality of the foregoing disclosure, the statements contained in Item 4.B.
– “Business Overview”, Item 5 – “Operating and Financial Review and Prospects” and Item 11
– “Quantitative and Qualitative Disclosures About Market Risk” are inherently subject to a variety of risks and
uncertainties that could cause actual results, performance or achievements to differ significantly. Such risks, uncertainties and
other factors include but are not limited to:
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. There is no assurance that forward-looking
statements will 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. 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 Annual Report and other documents that the
Company may file from time to time with the securities regulators.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. Selected financial data
The selected historical consolidated financial
information set forth below has been derived from our financial statements for the fiscal years ended December 31, 2019, 2018,
2017, 2016 and 2015.
Consolidated Statement of Net Loss
|
|
|
|
Year ended
December 31,
2019
|
|
|
Year ended
December 31,
2018
|
|
|
Year ended
December 31,
2017
|
|
|
Year ended
December 31,
2016
|
|
|
Period
ended
December 31,
2015
|
|
Revenues
|
|
$
|
775,821
|
|
|
$
|
777,302
|
|
|
$
|
109,173
|
|
|
|
-
|
|
|
|
-
|
|
Gross Profit
|
|
$
|
129,380
|
|
|
$
|
202,130
|
|
|
$
|
45,223
|
|
|
|
-
|
|
|
|
-
|
|
Net Loss
|
|
$
|
30,742,311
|
|
|
$
|
10,038,145
|
|
|
$
|
11,366,372
|
|
|
$
|
8,973,347
|
|
|
|
995,833
|
|
Loss per Share – Basic and Diluted
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|
$
|
(0.85
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.27
|
)
|
|
|
(0.04
|
)
|
Consolidated Statements of Financial Position
|
|
|
|
December 31, 2019
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Cash and cash equivalents
|
|
$
|
11,095,848
|
|
|
$
|
18,926,933
|
|
|
$
|
8,610,996
|
|
|
$
|
3,916,283
|
|
|
$
|
106,357
|
|
Current Assets
|
|
$
|
18,867,905
|
|
|
$
|
22,807,135
|
|
|
$
|
10,007,684
|
|
|
$
|
4,437,152
|
|
|
$
|
197,309
|
|
Total Assets
|
|
$
|
30,281,892
|
|
|
$
|
29,480,731
|
|
|
$
|
12,661,381
|
|
|
$
|
4,787,766
|
|
|
$
|
213,118
|
|
Current Liabilities
|
|
$
|
3,388,987
|
|
|
$
|
1,821,668
|
|
|
$
|
3,354,675
|
|
|
$
|
881,176
|
|
|
$
|
346,416
|
|
Total Liabilities
|
|
$
|
11,319,911
|
|
|
$
|
6,574,543
|
|
|
$
|
7,010,365
|
|
|
$
|
881,176
|
|
|
$
|
346,416
|
|
Shareholders’ Equity (Deficit)
|
|
$
|
18,961,981
|
|
|
$
|
22,906,188
|
|
|
$
|
5,651,016
|
|
|
$
|
3,906,590
|
|
|
$
|
(133,298
|
)
|
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the offer and use of proceeds
Not applicable.
D. Risk Factors
An investment in our shares carries
a significant degree of risk. You should carefully consider the following risks, as well as the other information contained in
this Annual Report, including our financial statements and related notes included elsewhere in this Annual Report, before you
decide to purchase our shares. 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 electric vehicle. To date, we have no revenues from the sale of electric vehicles as any amounts
received from the sale of our pre-production electric vehicles were netted off against research and development costs as cost recovery
and have had minimal revenue from the sale of non-electric custom cars. We intend to derive revenues from the sales of our SOLO
vehicle, our Tofino vehicle and other intended electric vehicles (“EV”s). The Tofino is still in the early design development
stage, and the first commercially-produced SOLOs are scheduled to be delivered to our customers during 2020. Our vehicles require
significant investment prior to commercial introduction and may never be successfully developed or commercially successful.
We have a history of operating losses
and we expect our operating losses to accelerate and materially increase for the foreseeable future.
For the fiscal year ended December 31,
2019, we generated a net loss of $30,742,311, bringing our accumulated deficit to $62,116,008. We anticipate generating a significant
loss for the current fiscal year. The report of independent registered public accounting firm on our audited financial statements
includes an explanatory paragraph relating to our ability to continue as a going concern.
We have minimal revenue and expect significant
increases in costs and expenses to forestall profits for the foreseeable future, even if we generate revenues in the near term.
We have not begun the commercial mass production or sale of our flagship vehicle, the SOLO, and we expect to incur significant
additional costs and expenses through the launch of the vehicle. Even if we are able to successfully launch the SOLO into commercial
mass production, and to launch the Tofino or other intended EVs, 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 that our operating losses will increase substantially in 2020 and thereafter, and we also expect to continue to incur operating
losses and to experience negative cash flows for the next several years.
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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·
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design, develop and manufacture our vehicles and their components;
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|
·
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develop and equip our manufacturing facility;
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|
·
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build up inventories of parts and components for the SOLO, the Tofino and other intended EVs;
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|
·
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open ElectraMeccanica stores;
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|
·
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expand our design, development, maintenance and repair capabilities;
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|
·
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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.
|
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.
Our ability to achieve profitability
will depend, in part, on our ability to materially reduce the bill of materials and per unit manufacturing cost of our products.
We anticipate that the gross profit generated
from the sale of the SOLO will not be sufficient to cover our operating expenses. To achieve our operating and strategic goals
while remaining competitive, we will, among other things, need to reduce the bill of materials and the per-unit manufacturing cost
of the SOLO. We expect the primary factors to contribute to a reduced bill of materials and per unit manufacturing cost to include:
|
·
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continued
product development to make the SOLO easier and cheaper to mass produce commercially;
|
|
·
|
our
ability to utilize less expensive suppliers and components that meet the requirements
for the SOLO;
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|
·
|
increasing
the volume of components that we purchase in order to take advantage of volume-based
pricing discounts;
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|
·
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improving
assembly efficiency;
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|
·
|
enhancing
the automation of our strategic manufacturing partner’s facility to increase volume
and reduce labor costs; and
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|
·
|
increasing our volume to leverage manufacturing overhead costs.
|
Continued product development is subject
to feasibility and engineering risks. Any increase in manufacturing volumes is dependent upon a corresponding increase in sales.
The occurrence of one or more factors that negatively impact the manufacturing or sales of the SOLO, or reduce our manufacturing
efficiency, may prevent us from achieving our desired reduction in manufacturing costs, which would negatively affect our operating
results and may prevent us from attaining profitability.
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 $25 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 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 future 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 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-seat 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 seat 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:
|
·
|
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;
|
|
·
|
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;
|
|
·
|
the decline of an electric vehicle’s range resulting from
deterioration over time in the battery’s ability to hold a charge;
|
|
·
|
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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|
·
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the availability of alternative fuel vehicles, including plug-in
hybrid electric vehicles;
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|
·
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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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|
·
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the environmental consciousness of consumers;
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·
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volatility in the cost of oil and gasoline;
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|
·
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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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|
·
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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
|
|
·
|
perceptions about and the actual cost of alternative fuel.
|
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 eight 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 seat electric vehicle, and have targeted
mainly urban residents of modest means and fleets. 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 wholly-owned subsidiary of Zongshen Industrial Group Co. Ltd., an affiliate of Zongshen Power Machinery
Co., Ltd., located in Chongqing, China. Under the agreement, Zongshen has begun the process of establishing tooling and has contracted
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. Our manufacturing agreement with Zongshen provides that non-performance by either us or Zongshen shall be
excused to the extent that such performance is rendered impossible by strike, fire, flood, earthquake or governmental acts, orders
or restrictions; provided that either we or Zongshen, as applicable, uses commercially reasonable efforts to mitigate the impact
of such non-performance. Notwithstanding any such efforts, any such non-performance by either us or Zongshen shall be cause for
termination of the manufacturing agreement by the other party if the non-performance continues for more than six months. The novel
coronavirus (COVID-19) pandemic or measures taken by the Chinese government relating thereto may result in non- performance by
Zongshen under our manufacturing agreement. If Zongshen is unable to fulfill its obligations or is only able to partially fulfill
its obligations under our existing manufacturing agreement with them, or if Zongshen either voluntarily or is forced to terminate
our agreement with them, either as a result of the coronavirus outbreak, the Chinese government’s measures relating thereto
or otherwise, we will not be able to produce or sell our SOLO vehicle in the volumes anticipated and on the timetable that we
anticipate, if at all.
The impact of the novel coronavirus
(COVID-19) pandemic on the global economy and our operations remains uncertain, which could have a material adverse impact on
our business, results of operations and financial condition and on the market price of our common shares.
In December 2019, a strain of novel coronavirus (now commonly
known as COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spread rapidly throughout many countries,
and, on March 12, 2020, the World Health Organization declared COVID-19 to be a pandemic. In an effort to contain and mitigate
the spread of COVID-19, many countries, including the United States, Canada and China, have imposed unprecedented restrictions
on travel, and there have been business closures and a substantial reduction in economic activity in countries that have had significant
outbreaks of COVID-19. [Although our manufacturing partner, Zongshen, reports that its operations have not been materially affected
at this point], significant uncertainty remains as to the potential impact of the COVID-19 pandemic on our and Zongshen’s
operations (including, without limitation, staffing levels), supply chains for parts and sales channels for our products, and on
the global economy as a whole. It is currently not possible to predict how long the pandemic will last or the time that it will
take for economic activity to return to prior levels. The COVID-19 pandemic has resulted in significant financial market volatility
and uncertainty in recent weeks. A continuation or worsening of the levels of market disruption and volatility seen in the recent
past could have an adverse effect on our ability to access capital, on our business, results of operations and financial condition,
and on the market price of our common shares.
We do not currently have all arrangements
in place that are required to allow us to fully execute our business plan.
To sell our vehicles as envisioned, we
will need to enter into certain additional agreements and arrangements that are not currently in place. These include entering
into agreements with distributors, arranging for the transportation of the mass-produced SOLOs to be delivered pursuant to our
manufacturing agreement with Zongshen, obtaining battery and other essential supplies in the quantities that we require. 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 Michael Paul Rivera, our Chief Executive Officer, Bal Bhullar, our Chief Financial Officer, Henry Reisner,
our President and Chief Operating Officer, and Isaac Moss, our Chief Administrative Officer. A number of these key employees and
consultants have significant experience in the automobile manufacturing and technology industries. 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 suitable
replacements. We are currently in the process of obtaining “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 Tofino or any future model EV 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. With the Tofino we are still in early design development phase, whereby
the similar evaluations are further behind.
We have very limited experience servicing
our vehicles. If we are unable to address the service and warranty 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 during 2020. The total number of SOLOs that
we have produced as pre-production as of December 31, 2019 is approximately 114 (64 from Canada and 50 from Zongshen). Throughout
its history, our subsidiary, InterMeccanica, has produced approximately 2,500 cars, which include providing after sales support
and servicing. We only have limited experience servicing the SOLO as a limited number of SOLOs have been produced. Servicing electric
vehicles on a mass scale is different than servicing electric vehicles and vehicles with internal combustion engines and requires
specialized skills, including high voltage training and servicing techniques on a mass scale
In addition, we presently expect that our
warranty covering the SOLO will cover 24 months, however, the final details on such coverage have not yet been completed. Furthermore,
the SOLO battery pack is expected to have a 60-month warranty period, however, the final details on the exact warranty specifications
is still being determined and is being developed in conjunction with our battery pack and cell suppliers.
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 and 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 SOLO, and the 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
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 that are offered to purchasers of EVs or persons installing home charging
stations, 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 in 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 first 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, or that of Zongshen or 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 a 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 $30 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 United States.
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 Corporations
Act”) and our executive offices are located outside of the United States in Vancouver, British Columbia. Three of our
four officers, our auditor and all but four 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 Annual Report 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. In June 2018, 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.
Recently, U.S. Customs and Border Protection
ruled that the SOLO has a classification under the Harmonized Tariff Schedule of the United States that applies to passenger vehicles
for less than 10 people with only electric motors. The total applicable duty for this classification was recently raised to 27.5%
(2.5% is a “most-favored-nation” tariff for this classification and 25% derives from this classification being on the
China 301 List 1). We envision that the suggested retail purchase price for our SOLO will be USD$18,500. As the landscape for tariffs
involving imports to the United States from the People’s Republic of China has been changing over the past year and may change
again, we have not determined how to adjust the purchase price in the United States in response to the recent tariff increase.
On January 15, 2020, the United States and the People’s
Republic of China (the “PRC”) signed “Phase One” of an Economic and Trade Agreement (the “Phase One
Agreement”), which entered into force on February 14, 2020. Notwithstanding the coming into force of the Phase One Agreement,
the United States will maintain its tariffs on cars built in China and shipped to the United States.
Uncertainties in the interpretation
and enforcement of Chinese laws and regulations could limit the legal protections available to you and us.
The legal system in the PRC is based on
written statutes. Unlike common law systems, it is a system in which legal cases have limited value as precedents. In the late
1970s, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general.
The overall effect of legislation over the past three decades has significantly increased the protections afforded to various production
services in the PRC. Zongshen, our manufacturing partner, is subject to various PRC laws and regulations generally applicable to
companies in China. However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly
evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations
and rules involve uncertainties.
From time to time, we may have to resort
to administrative and court proceedings to enforce our legal rights or Zongshen may have to resort to administrative and court
proceedings to fulfill its obligations under the manufacturing agreement. However, since PRC administrative and court authorities
have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate
the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems.
Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published in
a timely manner or at all) that may have retroactive effect. As a result, we or Zongshen may not be aware of our violation of these
policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our
contractual, property (including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory
environment in China, could materially and adversely affect our business and impede our ability to continue our operations.
Risks Related to Our Common Shares
Our executive officers and directors
beneficially own approximately 43.8% of our common shares.
As of March 25, 2020, our executive officers
and directors beneficially own, in the aggregate, 43.8% of our common shares, which includes shares that our executive officers
and directors have the right to acquire pursuant to warrants and stock options which have vested. As a result, they are 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 our 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. Furthermore, any such issuances could result in a change of control or a reduction in the
market price for our common shares.
Additionally, we had 12,888,417 options
and 20,603,396 warrants outstanding as of March 25, 2020. The exercise price of some of these options and warrants is below our
current market price, and you could purchase shares in the market at a price in excess of the exercise price of our 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 common shares you have or acquire could be diluted as well. As a result, the market value of our
common 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 (within the past year, the fewest number of our shares that were traded on the Nasdaq Capital Market was
3,100 shares daily), and the share price has fluctuated significantly (since trading began on the Nasdaq Capital Market, our closing
price has been as low as US$0.95 and as high as US$4.81). 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.
Financial Industry Regulation Authority
(“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 common shares, have an adverse effect on the market for our common shares and, thereby, depress their market
prices.
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 common 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 common 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 common 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 common 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 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” and 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, 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 30th; 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 of the Sarbanes-Oxley Act 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.
ITEM 4. INFORMATION ON THE COMPANY
Summary
We were incorporated on February 16, 2015,
under the laws of the Province of British Columbia, Canada, and our principal activity is the development and manufacturing of
electric vehicles (EVs).
Our head office is located at, and our
principal address is, 102 East 1st Avenue, Vancouver, British Columbia, Canada, V5T 1A4.
Additional information related us is available
on SEDAR at www.sedar.com and www.electrameccanica.com. We do not incorporate the contents of our website or of sedar.com
into this Annual Report. Information on our website does not constitute part of this Annual Report.
Our registered and records office is located
at Suite 1500, 1055 West Georgia Street, P.O. Box 11117, Vancouver, British Columbia, Canada, V6E 4N7.
A. History and development of the Company
We are a development-stage electric vehicle,
or EV, manufacturing company which was incorporated on February 16, 2015 under the laws of British Columbia, Canada. The concept
for our Company was developed by Jerry Kroll, our founder and a director, 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, the “SOLO”, was born. With the help of long-time automotive expert and friend, Henry Reisner, President of InterMeccanica,
and now the President and a director of our Company, together with InterMeccanica’s vast experience in automotive craftsmanship,
our Company’s first prototype was finished in September of 2016. To solidify our presence and branding in the EV market,
Mr. Kroll incorporated our Company. 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 modern furnished showrooms
near the downtown core of Vancouver, British Columbia, and in Los Angeles, California, together with a store in Los Angeles and
more in mind, where interested consumers may receive more information on the SOLO, review its specifications and technical design,
and even test-drive a prototype.
We have been funding operations to date
through equity financings by our founder and initial subscribing shareholders by way of private placements and through registered
direct offerings completed with numerous investors. Our management maintains substantial control of our company. As of March 25,
2020, our directors and executive officers beneficially owned 43.8% of our outstanding common shares, including common 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.
We have four subsidiaries: InterMeccanica,
a British Columbia, Canada, corporation; EMV Automotive USA Inc., a Nevada corporation; SOLO EV LLC, a Michigan corporation; and
EMV Automotive Technology (Chongqing) Inc., a PRC corporation.
B. Business Overview
General
We are a development-stage electric vehicle,
or EV, designer and manufacturer 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
seat vehicle, of which we have built 64 prototype vehicles in-house as of March 25, 2020, and approximately 50 pre-production vehicles
with our manufacturing partner, Zongshen. We have used some of these pre-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 subsidiary, InterMeccanica’s, 61-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 Zongshen, a wholly-owned subsidiary of Zongshen Industrial Group Co. Ltd., 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. Zongshen has previously purchased common shares and warrants
to purchase common shares from us and beneficially owns approximately 7.3% of our common shares
We have two
other EV candidates in early design development stage, the Super SOLO, a sports car model of the SOLO, and the Tofino, an all-electric,
two-seater roadster.
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 purchase price of USD $18,500, prior to any surcharge to cover tariffs, and being powered
by a high-performance electric rear drive motor which enables the SOLO to achieve:
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•
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a top speed of 80 mph and an attainable cruise speed of 68 mph resulting from its lightweight aerospace composite chassis; and
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•
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acceleration from 0 mph to 60 mph in approximately eight seconds.
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Unique to Canada, the SOLO is, and the
Super SOLO, if developed, will be under the three-wheeled vehicle category and are subject to the safety standards listed in Schedule
III of the Canadian Motor Vehicle Safety Regulations. (See “Government Regulation” below.)
For sale into the United States, we and
our vehicles must meet the applicable parts of the U.S. Code of Federal Regulations Title 49 —Transportation. 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. However, currently a motorcycle license is not
required to drive them in all but the States of Alaska, Florida, New York and Massachusetts. Motorcycle helmets must be worn while
operating in the States of New York and Massachusetts. Helmets are also required if the driver is under 18 years old in the States
of Alaska, Montana, Colorado and New Hampshire. (See “Government Regulation” below.)
Pre-orders and expressions of interest
As at March 25, 2020, we maintained
certain deposits from various individuals for SOLOs, Tofinos and Super SOLOs. 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 buyer’s deposit. In addition, we also maintain
certain expressions of interest arising from non-binding letters of interest, including certain deposits associated with the
same, from certain proposed dealers and/or distributors for our vehicles representing their collective expressions of
interest (should we choose to contract with them) for the purchase from or the sale on our behalf of SOLOs and Tofinos.
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. Our marketing and promotional efforts 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 stores in Vancouver and Los Angeles, our management has identified
additional states in the United States that fit the aforementioned criteria and we have plans to seek out suitable locations for
additional stores in California, Washington, Oregon and Southern Florida.
We plan to develop a marketing strategy
that will generate interest and media buzz based on the SOLO’s selling points. Key aspects of our marketing plan include:
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Digital marketing - organic engagement and paid digital marketing media with engaging posts aimed
to educate the public about EVs and develop interest in our SOLO, which to date has had positive traction;
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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;
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Investor Relations/Press Releases — our in-house investor relations team will provide media
releases/kits for updates and news on our progress;
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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 and
2019. Promotional merchandise giveaways are expected to 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
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First-hand experience —Test-drives and public viewings are available at our existing stores
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 cannot guarantee that a significant
number of the pre-orders and expressions of interest, if any, will become binding or result in sales. We have an online reservation
system which allows a potential customer to reserve a SOLO by paying a refundable $250 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. We have achieved ours pre-order book through an 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 have recently opened our first U.S. corporate store
located in Los Angeles.
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 prior to delivery, 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 strategy
Our near-term goal is to commence and expand
sales of the SOLO. We intend to achieve this goal by:
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•
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expanding the commercial production of the SOLO - we anticipate that Zongshen, our manufacturing
partner, will begin producing the SOLO for deliveries to customers in 2020;
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by increasing the pre-orders and expressions of interest for our EVs;
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•
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by having sales and services supported by local corporate stores - we will monitor all cars in
real time via telematics which provides early warning of potential maintenance issues; and
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•
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by 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.
|
We are currently developing a turn key
sales program beginning first from our Los Angeles store.
Service model
We sell our vehicles online via our website
(www.electrameccanica.com) while we develop our planned corporate owned stores in key markets. As each store is established,
any vehicles sold within such store’s designated territory will be delivered to such store to fulfill online orders as well
as such store’s orders.
We have not yet identified where we hope
to establish corporate owned stores or other distribution arrangements. The establishment of stores will depend on regional demand,
available candidates and local regulations. We are currently accepting expressions of interest and applications for stores from
individuals, and do not have any franchise or dealer agreements. Our vehicles will initially be available directly from us.
We plan to only establish and operate corporate
owned stores in those states in the United States that do not restrict or prohibit certain retail sales models by vehicle manufacturers.
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
and fleets. 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 early design development stage, the Super SOLO and the Tofino.
SOLO
We created the SOLO’s first prototype
in September of 2016. 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 80/mph, an attainable cruise speed of 68/mph and is able to go from 0/mph to 60/mph
in approximately eight seconds. Our SOLO features a lithium ion battery system that requires only up to four hours of charging
time on a 220-volt charging station or up to 8 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:
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LCD Digital Instrument Cluster;
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Power Windows, Power Steering and Power Brakes;
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AM/FM stereo with Bluetooth/CD/USB;
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Rear view backup camera;
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Air conditioning;
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•
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Heated seats;
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•
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Heater and defogger; and
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Our first flagship EV is the SOLO, a
single seat vehicle, of which we have built 64 prototype vehicles in-house as of March 25, 2020 and approximately 50
pre-production vehicles with our manufacturing partner Zongshen. We have used some of these pre-production vehicles as
prototypes and for certification purposes, have delivered some to customers and have used others as test drive models in our
showroom. We believe our schedule to mass produce EVs over the near term, combined with our subsidiary,
InterMeccanica’s, 61-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 Zongshen, a wholly-owned subsidiary of Zongshen Industrial Group Co. Ltd.,
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.
Super SOLO
An early design concept, the Super SOLO
is envisaged a high-performance sports car model within our EV product line. The Super SOLO is intended to boast a longer range
and a higher top speed, with sleek, aerodynamic design and features that are contemplated to 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. The Super SOLO is in the early design development
stage, and no set date for its launch has been declared at this time.
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. The Tofino
is still in early design stage development.
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 March 25, 2020, we have ten issued design registrations, two pending design applications and 16 pending
invention 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. As at March 25, 2020, and pursuant to a Manufacturing Agreement
between the Company and Chongqing Zongshen Automobile Industry Co., Ltd., an agreement is being negotiated and finalized in order
to transfer legal title in 18 pending Chinese design applications and six granted Chinese design registrations from Chongqing Zongshen
Institute of Innovation and Technology Co., Ltd. to EMV Automotive Technology (Chongqing) Inc., our wholly owned subsidiary. 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 Canada, China, the European Union and Japan and is the subject of
pending applications in the United States. We have also registered the trademark “ELECTRA MECCANICA TOFINO” in Canada,
Japan, the European Union and China, and we have applied to register the trademark in the United States.
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 March 25, 2020, there are three pending applications in Canada, nine pending applications in China and six pending
applications in the United States. There is also an additional registration in each of the European Union, China and Japan for
the trademark “MONSTERRA.” We also own six registrations in each of the European Union and Japan and we own 35 registrations
in China.
This Annual Report 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 Annual Report 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.
Potential Impact of the COVID-19 Pandemic
In December 2019, a strain of novel coronavirus
(now commonly known as COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spread rapidly throughout many
countries, and, on March 12, 2020, the World Health Organization declared COVID-19 to be a pandemic. In an effort to contain and
mitigate the spread of COVID-19, many countries, including the United States, Canada and China, have imposed unprecedented restrictions
on travel, and there have been business closures and a substantial reduction in economic activity in countries that have had significant
outbreaks of COVID-19.
Our manufacturing partner, Zongshen, reports that its operations
have not been materially affected at this point, and we anticipate that Zongshen remains on track to begin producing the SOLO for
deliveries to customers during 2020. However, significant uncertainty remains as to the potential impact of the COVID-19 pandemic
on our and Zongshen’s operations, and on the global economy as a whole. Government-imposed restrictions on travel and other
“social-distancing” measures such as restrictions on assembly of groups of persons, have to potential to disrupt supply
chains for parts and sales channels for our products, and may result in labor shortages.
It is currently not possible to predict
how long the pandemic will last or the time that it will take for economic activity to return to prior levels. We will continue
to monitor the COVID-19 situation closely, and intend to follow health and safety guidelines as they evolve.
Potential Impact of Tariffs
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. In June 2018, 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.
Recently, U.S. Customs and Border Protection
ruled that the SOLO has a classification under the Harmonized Tariff Schedule of the United States that applies to passenger vehicles
for less than 10 people with only electric motors. The total applicable duty for this classification was recently raised to 27.5%
(2.5% is a “most-favored-nation” tariff for this classification and 25% derives from this classification being on the
China 301 List 1). We envision that the SOLO manufacturer’s suggested retail price will be USD$18,500. As the landscape for
tariffs involving imports to the United States from the People’s Republic of China has been changing over the past year and
may change again, we have not determined how to adjust the purchase price in the United States in response to the recent tariff
increase.
On January 15, 2020, the United States and the PRC signed an
Economic and Trade Agreement commonly referred to as the “Phase 1 Trade Agreement”, which entered into force on February
14, 2020. Notwithstanding the coming into force of the Phase 1 Trade Agreement, the United States will maintain its tariffs on
cars built in China and shipped to the United States.
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 as reported in 2018:
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Level 1 Charging
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Level 2 Charging
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Electric and Power Specifications
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120 Volt, 20 Amp circuit
1.4 kW
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208 – 240 Volt, 40 Amp circuit*
6.2 – 7.6 kW**
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Time to Fully Charge an EV with a 100-mile Battery
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17 – 25 hours
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4 – 5 hours
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Drivers Served per Station per Day
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1
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3 – 4 or more
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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 Honda Clarity (PHEV), the Toyota Prius (PHEV), the Tesla Model 3 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 International Energy Agency (“IEA”), the global stock of electric cars first
crossed the one million vehicle threshold in 2015, crossed the two million vehicle threshold in 2016 and then surpassed 5.1 million
in 2018 vehicles up 2 million from 2017.
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 5.2 million in 2018, an increase of approximately 63% over 2017.
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 125 million and 225 million by 2030.
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 81% between 2017 and 2018 and by 30%
in Canada during the same period.
According to data compiled by EVAdoption.com,
in 2019 sales of EVs in six U.S. states and the District of Columbia comprised 2.31% or more of total auto sales in those jurisdictions.
At 8.97% for the year, California had more than triple the next highest EV purchase rate in any U.S. state.
In addition, and according to data compiled
by EVAdoption.com, California consumers purchased 12% of autos in the United States, but bought more than 46% 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 4.8% in the first quarter of 2018.
The following table sets out data on PHEV
and BEV sales in the United States in 2016, 2017 and August 2018 as broken out for select states.
State
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EV
Sales
2016
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EV
Sales
2017
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%
Year-
On-Year
Increase
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2017
EV
Market Share
Within State
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Aug
2018 EV
Market Share
Within State
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California
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73,854
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94,873
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28.50
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%
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5.02
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%
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9.96
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%
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New
York
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6,043
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10,090
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67.00
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%
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1.03
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%
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1.30
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%
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Washington
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|
|
5,363
|
|
|
|
7,068
|
|
|
|
31.80
|
%
|
|
|
2.51
|
%
|
|
|
3.54
|
%
|
Florida
|
|
|
6,255
|
|
|
|
6,573
|
|
|
|
5.10
|
%
|
|
|
0.52
|
%
|
|
|
1.36
|
%
|
Texas
|
|
|
4,510
|
|
|
|
5,419
|
|
|
|
20.20
|
%
|
|
|
0.39
|
%
|
|
|
0.95
|
%
|
New
Jersey
|
|
|
3,980
|
|
|
|
5,033
|
|
|
|
26.50
|
%
|
|
|
0.91
|
%
|
|
|
1.53
|
%
|
Massachusetts
|
|
|
2,905
|
|
|
|
4,632
|
|
|
|
59.40
|
%
|
|
|
1.35
|
%
|
|
|
2.19
|
%
|
Colorado
|
|
|
2,711
|
|
|
|
4,156
|
|
|
|
53.30
|
%
|
|
|
1.57
|
%
|
|
|
2.46
|
%
|
Oregon
|
|
|
3,486
|
|
|
|
3,988
|
|
|
|
14.40
|
%
|
|
|
2.36
|
%
|
|
|
4.12
|
%
|
Illinois
|
|
|
2,688
|
|
|
|
3,812
|
|
|
|
41.80
|
%
|
|
|
0.62
|
%
|
|
|
0.89
|
%
|
Pennsylvania
|
|
|
2,998
|
|
|
|
3,346
|
|
|
|
11.60
|
%
|
|
|
0.55
|
%
|
|
|
0.84
|
%
|
Maryland
|
|
|
2,185
|
|
|
|
3,244
|
|
|
|
48.50
|
%
|
|
|
1.05
|
%
|
|
|
2.18
|
%
|
Data Sources: Alliance of Automobile Manufacturers;
National Automobile Dealers Association; Chart: EVAdoption.com
Fleet and Urban Driving market
We designed the SOLO with a view to redefining
SOLO mobility for fleets in terms of car share, deliveries and other mobility purposes; and for urban drivers who use a personal
vehicle by cutting their commuting costs and reducing their environmental footprint. We believe that a substantial number of fleets
and urban drivers 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 27 minutes in 2018. 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 SOLO would currently qualify for these tax credits and rebates in the
States of California and Oregon. As of March 12, 2020, we have passed the CARB test for the State of California, and are currently
waiting for the $750 rebate to be posted on the Clean Vehicle Rebate Project (“CVRP”) website and a $2,500 rebate from
the State of Oregon.
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 2019, we received $1,056,193 in a Scientific Research and Experimental Development grant (“SR&ED”).
In 2018, we received $734,229 in governmental grants consisting of $725,599 in a SR&ED grant and $8,630 in government grants
related to Canada’s Industrial Research Assistance Program administered by the National Research Council. 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 SR&ED 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 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 March 25, 2020, we have produced approximately 64 prototype SOLOs at our facilities in Vancouver, British Columbia, and our manufacturing partner has completed 50 pre-production SOLOs;
|
|
·
|
Commercial production of the SOLO is anticipated to during 2020 - we have an agreement with Zongshen whereby they have agreed to produce a total of 75,000 SOLOs over a three-year period once we have started full scale production;
|
|
·
|
Favorable comparable to our competitors - we believe that consumers will find that the performance and price of the SOLO compares favorably to those of competing EVs as set out in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electra
Meccanica
SOLO
|
|
Smart
Electric
|
|
Tesla Model
3
|
|
Chevrolet
Bolt
|
|
Nissan Leaf
|
|
Price
|
|
US$18,500*
|
|
US$24,550
|
|
Up to US$56,500
|
|
US$41,780+
|
|
US$37,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric only miles
|
|
Up to 100 miles
|
|
Up to 63 miles
|
|
Up to 310 miles
|
|
Up to 238 miles
|
|
Up to 226 miles
|
|
Price per Mile
|
|
US$155/mile
|
|
US$389/mile
|
|
US$182/mile
|
|
US$176/mile
|
|
US$166/mile
|
|
Top Speed
|
|
80/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
|
|
SOLO Mobility
|
|
Sub-compact
|
|
Compact
|
|
Compact
|
|
Compact
|
|
* Base price prior to any adjustments for tariffs;
and
|
·
|
Management expertise - we have selected our management with an eye towards providing us with the business and technical expertise needed to be successful. They include Michael Paul Rivera, our Chief Executive Officer, Bal Bhullar, our Chief Financial Officer, Henry Reisner, our President and Chief Operating Officer, and Isaac Moss, our Chief Administrative Officer. A number of these key employees and consultants have significant experience in the automobile manufacturing and technology industries. We have supplemented additional expertise by adding consultants and directors with corporate, accounting, legal and other strengths.
|
Government Regulation
As a vehicle manufacturer, 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 for
the Canadian Market. 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 certified the SOLO for compliance with
the applicable US requirements in the first quarter of 2018. Results from third party vehicle testing at a facility in Quebec,
Canada, were used for this certification. We continue to use third party facilities for certification testing to ensure that any
changes to the SOLO’s design continue to meet safety requirements. Compliance certification of the SOLO for Canada began
in 2018.
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. The equivalent U.S standard, FMVSS No. 305, is not applicable to the motorcycle category under the U.S. regulations.
We and our vehicles must meet the applicable
parts of the U.S. Code of Federal Regulations Title 49 —Transportation. 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. However, currently a motorcycle license is not required to drive them in all but the States of
Alaska, Florida, New York and Massachusetts. Motorcycle helmets must be worn while operating in the States of New York and Massachusetts.
Helmets are also required if the driver is under 18 years old in the States of Alaska, Montana, Colorado and New Hampshire.
Research and Development
We have allocated substantial resources
in developing our first vehicles. We expended $ 9,514,520 during the fiscal year ended December 31, 2019, and $5,566,036 during
the fiscal year ended December 31, 2018, on research and development costs which include labor and materials.
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. We intend to continue the legacy business
of InterMeccanica, but we do not envision that it will be central to our operations, or 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 Annual Report, 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.
C. Organizational structure
We have four subsidiaries: InterMeccanica,
a British Columbia, Canada, corporation; EMV Automotive USA Inc., a Nevada corporation; SOLO EV LLC, a Michigan corporation; and
EMV Automotive Technology (Chongqing) Inc., a PRC corporation. We own 100% of the voting and dispositive control over all of our
subsidiaries.
D. Property, plant and equipment
We operate from our head office located
in Vancouver, Canada. We do not own any real property. We have leased the following properties:
Location
|
|
Area
(In square feet)
|
|
|
2019
Gross Monthly
Rent
|
|
|
Lease
Expiration
Date
|
|
|
Use
|
|
Vancouver BC, Canada
|
|
|
7,235
|
|
|
$
|
9,174
|
|
|
|
CAD
|
|
|
October
31, 2020
|
|
|
Head
office
|
|
New Westminster BC, Canada
|
|
|
10,803
|
|
|
$
|
10,467
|
|
|
|
CAD
|
|
|
July
31, 2022
|
|
|
Development
office
|
|
New Westminster BC, Canada
|
|
|
10,911
|
|
|
$
|
10,412
|
|
|
|
CAD
|
|
|
July
31, 2020
|
|
|
Development
office
|
|
Studio City, CA, USA
|
|
|
9,600
|
|
|
$
|
29,870
|
|
|
|
USD
|
|
|
August
31, 2021
|
|
|
Sales
office
|
|
We believe that our current facilities
are adequate to meet our ongoing needs and that, if we require additional space, we will be able to obtain additional facilities
on commercially reasonable terms.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
General
This Annual Report should be read in conjunction
with the accompanying financial statements and related notes. The discussion and analysis of the financial condition and results
of operations are based upon the financial statements, which have been prepared in accordance with International Financial Reporting
Standards (“IFRS”), as adopted by the International Accounting Standards Board (“IASB”).
The preparation of financial statements
in conformity with these accounting principles requires us to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent liabilities at the financial statement date and reported amounts of revenue and
expenses during the reporting period. On an on-going basis we review our estimates and assumptions. The estimates were based on
historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely
to differ from those estimates or other forward-looking statements under different assumptions or conditions, but we do not believe
such differences will materially affect our financial position or results of operations. Our actual results may differ materially
as a result of many factors, including those set forth under the headings entitled “Forward-Looking Statements” and
“Risk Factors” herein.
Critical accounting policies, the policies
we believe are most important to the presentation of our financial statements and require the most difficult, subjective and complex
judgments, are outlined below under the heading “Critical Accounting Policies and Estimates”, and have not changed
significantly since our founding.
Overview
We were incorporated on February 16, 2015,
under the laws of the Province of British Columbia, Canada, and our principal activity is the development and manufacturing of
single occupancy electric vehicles. Our head office and principal address is located at 102 East 1st Avenue, Vancouver, British
Columbia, Canada, V5T 1A4.
Additional information related to the
Company is available on www.electrameccanica.com. Information on our website does not
constitute part of this Annual Report.
Going Concern
Our principal activity is the development
and manufacture of electric vehicles, and we are still in the development stage. We also manufacture high-end custom-built vehicles.
Our 2019 financial statements have been
prepared on the assumption that we will continue as a going concern, meaning we will continue in operation for the foreseeable
future and will be able to realize assets and discharge liabilities in the ordinary course of operations. As at December 31, 2019,
we had not commenced commercial production of the SOLO single seat electric vehicle and are not able to finance day-to-day activities
through operations. Our continuation as a going concern depends upon the successful results from our electric vehicles manufacturing
activities and our ability to attain profitable operations and generate funds there from and/or raise equity capital or borrowings
sufficient to meet current and future obligations.
We are yet to begin mass production or
the commercial delivery of our first electric vehicle. As at December 31, 2019, there have been no revenues from the sale of electric
vehicles as any amounts received from the sale of pre-production electric vehicles were netted off against research and development
costs as cost recovery. We had had minimal revenue from the sale of custom cars.
We intend to derive revenues from the sale
of our SOLO, Tofino and other intended EVs vehicles. The Tofino is still in early design development stage, and the first commercially-produced
SOLOs will be delivered to customers during 2020.
We have incurred an accumulated deficit
of $62,116,008 as of December 31, 2019 (2018 - $31,373,697). For the year ended December 31, 2019, we had incurred a net loss of
$30,742,311 (2018 - $10,038,145) and used net cash in operating activities of $22,501,917 (2018 - $15,583,590).
These factors indicate the existence of
a material uncertainty that casts substantial doubt about our ability to continue as a going concern.
Management intends to finance our operations
over the next 12 months through private placement and/or public offerings of equity capital, strategic investments and revenues
to be derived from the sale of electric vehicles and high-end custom vehicles.
Management does not intend to liquidate
the entity or to cease operations and is operating in a highly competitive industry.
Events and conditions that may affect
the going concern assumption
Financing
Our ability to continue as a going concern
will depend on our continued ability to raise capital on acceptable terms. We incurred losses of $30,742,311 in 2019, $10,038,145
in 2018, $11,366,372 in 2017, and anticipate incurring losses in our 2020 fiscal year. We had negative operating cash flows of
$22,501,917 for the year ended December 31, 2019 and anticipate negative operating cash flows during our current fiscal year. Although
we had net current assets of $15,478,918, including cash and cash equivalents of $11,095,848 at December 31, 2019, and anticipate
deriving revenue this fiscal year from the sale of EVs and high-end custom cars, we believe that we will need additional financing
to continue as a going concern. If we are unable to continue to access private and public capital on terms that are acceptable
to us, we may be forced to curtail or cease operations.
Market conditions, trends or events
Our ability to continue as a going concern
also depends on market conditions outside of our control. 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. Failure to keep up with advances in electric vehicle technology would
result in a decline in the Company’s competitive position which may materially and adversely affect our business, prospects,
operating results and financial condition.
A. Operating Results
Results of Operations for the Year ended
December 31, 2019 as Compared to the Year Ended December 31, 2018
Revenues
Revenue for the year ended December 31,
2019 was $775,821 (2018: $777,302). The cost of revenue was $646,441 (2018: $575,172) providing a gross profit of $129,380 (2018:
$ 202,130) or 16.7% (2018: 26%).
The Company operates in two reportable business segments in
Canada.
The two reportable business segments offer
different products, require different production processes, and are based on how the financial information is produced internally
for the purposes of making operating decisions. The following summary describes the operations of each of the Company’s reportable
business segments:
|
·
|
Electric Vehicles – development and manufacture of electric vehicles for mass markets, and
|
|
·
|
Custom build vehicles – development and manufacture of high-end custom built vehicles.
|
Sales between segments are accounted for
at prices that approximate fair value. No business segments have been aggregated to form the above reportable business segments.
(Financial statement note 16 for the year ended December 31, 2019).
Revenue for custom build vehicles is recognized
when the Company has transferred control to the customer which generally occurs upon shipment. No revenue from sales of electric
vehicles is recognized because the vehicle has not been commercialized. Proceeds from these sales are incidental revenue and are
not being made with expectation of profit. The following table indicates the number of vehicles produced for either delivery to
customers, testing or marketing purposes.
|
|
Production
Twelve Months Ended
|
|
|
Customer Deliveries
Twelve Months Ended
|
|
Vehicle Type
|
|
Dec. 31, 2019
|
|
|
Dec. 31, 2018
|
|
|
Dec. 31, 2019
|
|
|
Dec. 31, 2018
|
|
Custom build vehicles
|
|
|
8
|
|
|
|
7
|
|
|
|
7
|
|
|
|
6
|
|
Electric vehicles
|
|
|
22
|
|
|
|
25
|
|
|
|
21
|
|
|
|
8
|
|
Operating Expenses
During the year ended December 31, 2019,
the Company incurred a net loss of $30,742,311 compared to a $10,038,145 loss for the corresponding period in 2018. The increase
in net loss between the two years resulted from an increase in an operating loss to $27,314,471 for the year ended December 31,
2019, from $16,858,405 for the prior year, and an increase in the loss from other items, principally changes in fair value of warrant
derivative of $2,926,392 for the year ended December 31, 2019 from a gain of $7,707,051 for the prior year. The largest expense
items in net comprehensive loss are described below.
General and administrative expenses.
For the year ended December 31, 2019, general and administrative expenses were $8,088,529 compared to $5,490,938 for the year ended
December 31, 2018. The following items are included in such expenses:
|
·
|
Rent decreased to $425,450 for the year ended December 31, 2019, from $488,273 for the year ended December 31, 2018. The decrease was caused by some rent expense being reclassified as interest and depreciation expense under IFRS 16, offset by the increase of rent expense related to the opening of our Los Angeles showroom;
|
|
·
|
Office expenses increased to $1,581,266 for the year ended December 31, 2019, from $944,771 for the corresponding year ended December 31, 2018. The increase was caused by increases in insurance costs for directors’ and officers’ liability and vehicle insurance, travel costs related to investor meetings and travel to the Company’s China electric vehicle production facility and additional office costs associated with the opening of our showroom in Los Angeles;
|
|
·
|
Legal and professional expenses were $1,846,695 for the year ended December 31, 2019, from $1,491,818 for the corresponding year ended December 31, 2018. The increase in legal and professional expenses relate to the increases in accounting fees and recruiting fees;
|
|
·
|
Consulting expenses were $2,004,616 for the year ended December 31, 2019, compared to $1,191,593 for the corresponding year ended December 31, 2018. The increase in fees related to the use of additional consultants for investor relations and executive advisory services, and directors’ fees;
|
|
·
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Investor relations expenses, not including consultant fees above, decreased to $330,524 for the year ended December 31, 2019, from $614,803 for the corresponding year ended December 31, 2018. The decrease is related to a reduction in filing fees and investor meetings and conference expenses; and
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|
·
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Salaries increased to $1,899,978 for the year ended December 31, 2019, compared to $759,680 for the corresponding year ended December 31, 2018. The increase is related to addition of new employees, performance increases to certain salaried employees, as well as severance and bonus costs.
|
Research and development expenses.
Research and development expenses increased to $9,514,520 for the year ended December 31, 2019, from $5,566,036 for the corresponding
year ended December 31, 2018. Research and development costs relate to the electric vehicle segment as the Company continues to
develop its first electric vehicle, the SOLO. All costs related to pre-production vehicles are being expensed to research and development
and SR&ED funds are being booked to reduce the research and development expenses. During the year ended December 31, 2019,
the Company received $1,056,193 (2018: $725,599) in SR&ED funds under the program administered by the Canada Revenue Agency.
In addition, the Company received $Nil (2018: $8,630) in government grants due from the Industrial Research Assistance Program
Co-op program administered by the National Research Council. We also accrued $249,111 (2018: $675,000) in SR&ED credits which
is the estimated amount we will receive after filing 2018 SR&ED claims.
Sales and marketing expenses. Sales
and marketing expenses increased to $1,743,855 for the year ended December 31, 2019, from $1,386,901 for the corresponding year
ended December 31, 2018. The Company has increased its sales and marketing efforts by attending trade shows, re-establishing its
social media presence and increasing its staff in its Los Angeles showroom.
Stock-based compensation expense.
For the year ended December 31, 2019, stock-based compensation expense was $6,816,321 (2018: $3,228,508). The Company issued 8,755,000
stock options with exercise prices between US$1.80 and US$3.40 per share during the year ended December 31, 2019. In addition,
the stock-based compensation charges relate to stock options issued during previous quarters wherein charges are recognized over
the stock option vesting period. The Company uses the Black-Scholes method of calculating the stock-based compensation expense
under the graded method.
Share-based payment expense. For
the year ended December 31, 2019, share-based payment expense was $213,720, (2018: $1,109,531). These charges relate to shares
issued to consultants as compensation for services performed and are valued at the market price of the Company’s share price
at the time of issuance.
Other Items
Share issue costs allocated to derivative
liability. The Company did not incur share issue costs related to derivative liability for the year ended December 31, 2019
(2018: $1,493,554).
Changes in fair values of warrant derivative.
The Company incurred a loss relating to changes in the fair value of warrant derivatives of $2,926,392 (2018: gain of $7,707,051)
caused by warrants priced in US dollars while the Company’s functional currency is in Canadian dollars. As a result of this
difference in currencies, the proceeds that will be received by the Company are not fixed and will vary based on foreign exchange
rates, hence the warrants are a derivative under IFRS and are required to be recognized and measured at fair value at each reporting
period. Any changes in fair value from period to period are recorded as a non-cash gain or loss in our consolidated statement of
net loss and comprehensive loss.
Foreign exchange loss. This totaled
$795,172 on net working capital in the year ended December 31, 2019 (2018: gain of $605,096) as caused by fluctuations between
the US and Canadian dollar.
Net Loss
As a result of the above factors, we reported
a net loss for the year ended December 31, 2019 of $30,742,311, compared to a $10,038,145 loss for the corresponding period in
2018.
Results of Operations for the year ended
December 31, 2018 as Compared to the Year Ended December 31, 2017
Revenues
Revenue for the year ended December 31,
2018 was $777,302 (2017: $109,173), caused by the acquisition of InterMeccanica. The cost of revenue was $575,172 (2017: $63,950)
providing a gross profit of $202,130 (2017: $45,223) or 26%.
The Company operates in two reportable business segments in
Canada.
The two reportable business segments offer
different products, require different production processes, and are based on how the financial information is produced internally
for the purposes of making operating decisions. The following summary describes the operations of each of the Company’s reportable
business segments:
|
•
|
Electric Vehicles – development and manufacture of electric vehicles for mass markets, and
|
|
•
|
Custom build vehicles – development and manufacture of high-end custom built vehicles.
|
Sales between segments are accounted for
at prices that approximate fair value. No business segments have been aggregated to form the above reportable business segments.
(Financial statement note 16 for the year ended December 31, 2018).
Revenue recognition for custom build vehicles
is based on the percentage completion method. No revenue from sales of electric vehicles is recognized because the vehicle has
not been commercialized. Proceeds from these sales are incidental revenue and are not being made with expectation of profit. The
following table indicates the number of vehicles produced for either delivery to customers, testing or marketing purposes.
|
|
Production
Twelve Months Ended
|
|
|
Customer Deliveries
Twelve Months Ended
|
|
Vehicle Type
|
|
Dec. 31, 2018
|
|
|
Dec. 31, 2017
|
|
|
Dec. 31, 2018
|
|
|
Dec. 31, 2017
|
|
Custom build vehicles
|
|
|
7
|
|
|
|
8
|
|
|
|
6
|
|
|
|
8
|
|
Electric vehicles
|
|
|
25
|
|
|
|
11
|
|
|
|
8
|
|
|
|
3
|
|
Operating Expenses
During the year ended December 31, 2018,
the Company incurred a net loss of $10,038,145 compared to a $11,366,372 loss for the corresponding period in 2017. The decrease
in net loss between the two years resulted from an increase in an operating loss to $16,858,405 for the year ended December 31,
2018 from $9,489,156 for the prior year offset by a decrease in the loss from other items, principally changes in fair value of
warrant derivative to a gain of $7,707,051 for the year ended December 31, 2018 from $186,269 for the prior year. The largest expense
items in net comprehensive loss are described below.
General and administrative expenses.
For the year ended December 31, 2018 general and administrative expenses were $5,490,938 compared to $2,373,251 for the year ended
December 31, 2017. The following items are included in such expenses:
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·
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Rent increased to $488,273 for the year ended December 31, 2018, from $269,716 for the year ended December 31, 2017. The increase was caused by full year effect of the acquisition of InterMeccanica and the opening of our showroom in Los Angeles in 2018;
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·
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Office expenses increased to $944,771 for the year ended December 31, 2018, from $345,986 for the corresponding year ended December 31, 2017. The increase was caused by increases in insurance costs for directors’ and officers’ liability and vehicle insurance; travel costs related to investor meetings and travel to the Company’s off-shore electric vehicle production facility and additional office costs associated with the acquisition of InterMeccanica and the opening of our dealership in Los Angeles;
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·
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Legal and professional expenses were $1,491,818, for the year ended December 31, 2018, from $912,347 for the corresponding year ended December 31, 2017. The increase in legal and professional expenses relate to the increases in accounting fees and legal fees related to the Company’s patent and trademark filings and legal costs associated with the Company’s Nasdaq listing application and patent applications;
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|
·
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Consulting fees were $1,191,593, for the year ended December 31, 2018, compared to $405,176 for the corresponding year ended December 31, 2017. The increase in fees related to the use of additional consultants for investor relations and executive advisory services, and directors’ fees;
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|
·
|
Investor relations expenses, not including consultant fees above, increased to $614,803 for the year ended December 31, 2018, from $113,256 for the corresponding year ended December 31, 2017. The costs relate to Nasdaq and SEC filing fees and attending investor conferences, outreach program and media relation promotions; and
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|
·
|
Salaries increased to $759,680 for the year ended December 31, 2018, compared to $326,770 for the corresponding year ended December 31, 2017. The increase is related to performance increases to certain salaried employees, the addition of new employees and the full year effect of the additional employees from the purchase of InterMeccanica.
|
Research and development expenses.
Research and development expenses increased to $5,566,036 for the year ended December 31, 2018, from $4,430,386 for the corresponding
year ended December 31, 2017. Research and development costs relate to the electric vehicle segment as the Company continues to
develop its first electric vehicle, the SOLO. All costs related to pre-production vehicles are being expensed to research and development.
During the year ended December 31, 2018, the Company received $8,630 (2017: $193,534) in government grants due from the Industrial
Research Assistance Program Co-op program administered by the National Research Council of Canada. In addition, the Company received
$725,599 (2017: $111,380) in SR&ED funds under the program administered by the Canada Revenue Agency. We also accrued $675,000
(2017: Nil) in SR&ED credits which is the estimated amount we will receive after filing 2017 and 2018 SR&ED claims.
Sales and marketing expenses. Sales
and marketing expenses increased to $1,386,901 for the year ended December 31, 2018, from $631,381 for the corresponding year ended
December 31, 2017. The Company has increased its sales and marketing efforts by attending trade shows, re-establishing its social
media presence and increasing its staff in its Los Angeles showroom.
Stock-based compensation expense.
For the year ended December 31, 2018, stock-based compensation expense was $3,228,508 (2017: $889,511). The Company issued 1,307,424
stock options with exercise prices between US$1.53 and US$9.60 per share during the year ended December 31, 2018. In addition,
the stock-based compensation charges relate to stock options issued during previous quarters wherein charges are recognized over
the stock option vesting period. The Company uses the Black-Scholes method of calculating the stock-based compensation expense
under the graded method.
Share-based payment expense. For
the year ended December 31, 2018, share-based payment expense was $1,109,531, (2017: $1,085,716). These charges relate to shares
issued to a consultant as compensation for services performed and are valued at the market price of the Company’s share price
at the time of issuance.
Other Items
Interest accretion expense. The
Company did not incur an interest accretion expense for the year ended December 31, 2018 (2017: $69,562) relating to a convertible
loan. The Company did not incur any finder’s fee expense associated with a convertible loan for the year ended December 31,
2018 (2017: $258,542).
Share issue costs allocated to derivative
liability. These totaled $1,493,554 for the year ended December 31, 2018 (2017: $Nil).
Changes in fair values of warrant derivative.
The Company incurred changes in the fair values of warrant derivatives of $(7,707,051) (2017: $186,269) caused by warrants
priced in US dollars while the Company’s functional currency is in Canadian dollars. As a result of this difference in currencies,
the proceeds that will be received by the Company are not fixed and will vary based on foreign exchange rates, hence the warrants
are a derivative under IFRS and are required to be recognized and measured at fair value at each reporting period. Any changes
in fair value from period to period are recorded as a non-cash gain or loss in our consolidated statement of net loss and comprehensive
loss.
Foreign exchange gain. This totaled
$605,096 on net working capital in the year ended December 31, 2018 (2017: $20,049) as caused by fluctuations between the US and
Canadian dollar.
Net Loss
As a result of the above factors, we reported
a net loss for the year ended December 31, 2018 of $10,038,145, compared to a $11,366,372 loss for the corresponding period in
2017.
B. Liquidity and Capital Resources
Liquidity
The Company’s operations consist
of the designing, developing and manufacturing of electric vehicles. The Company’s financial success depends upon its ability
to market and sell its electric vehicles and to raise sufficient working capital to enable the Company to execute its business
plan. The Company’s historical capital needs have been met by the sale of the Company’s stock. Equity funding might
not be possible at the times required by the Company. If no funds can be raised and sales of its electric vehicles do not produce
sufficient net cash flow, then the Company may require a significant curtailing of operations to ensure its survival or may be
required to cease operations.
The financial statements have been prepared
on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the
normal course of business for the foreseeable future. The Company incurred a net loss of $30,742,311 during the year ended December
31, 2019, and had a cash and cash equivalents balance and a working capital surplus of $11,095,848 and $15,478,918, respectively,
as at December 31, 2019. The Company’s ability to meet its obligations as they fall due and to continue to operate as a going
concern depends on the continued financial support of the creditors and the shareholders. In the past, the Company has relied on
sales of its equity securities to meet its cash requirements. Funding from this or other sources might not be sufficient in the
future to continue its operations. Even if the Company is able to obtain new financing, it may not be on commercially reasonable
terms or terms that are acceptable to it. Failure to obtain such financing on a timely basis could cause the Company to reduce
or terminate its operations. The above indicates the existence of a material uncertainty that may cast significant doubt on the
Company’s ability to continue as a going concern.
As of December 31, 2019, the Company had
37,049,374 issued and outstanding shares and 70,561,085 shares on a fully-diluted basis. The Company began trading on Nasdaq on
August 9, 2018.
The Company had $15,478,918 of working
capital surplus as at December 31, 2019 compared to $20,985,467 of working capital surplus as at December 31, 2018. The decrease
in working capital resulted from cash used in operations of $22,501,917 (2018: $15,583,590) and cash used in investing activities
of $3,721,453 (2018: $4,291,449) related to the additions to property, plant and equipment and an increase in restricted cash,
offset by cash generated from financing activities of $18,326,075 (2018:$ 30,217,649), due to the issuance of 3,333,334 common
shares for net cash proceeds of $14,699,097 (2018: $21,175,610).
Capital Resources
As at December 31, 2019, the Company had
cash and cash equivalents of $11,095,848 (2018: $18,926,933). The Company continues to pursue additional equity financing although
there can be no guarantees given that the Company will be successful in such endeavors.
As of the date of this Annual Report, the
Company has no outstanding commitments, other than $0.9 million payable to the Company’s manufacturing partner, Zongshen,
for the production of the SOLO (see financial statement note 5 December 31, 2019). On October 16, 2017, Jerry Kroll, a director,
entered into a Share Pledge Agreement with Zongshen to guarantee the Company’s payment for the cost of the prototype tooling
and molds estimated to be $1.8 million through the pledge of 400,000 of our common shares at a deemed price of US$4.00. Apart from
our agreement to reimburse Mr. Kroll for liabilities under his Share Pledge Agreement, we have not pledged any of our assets as
security for loans, or otherwise, and are not subject to any debt covenants.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of the Company’s
financial statements requires management to use estimates and assumptions that affect the reported amounts of assets and liabilities
as well as revenue and expenses.
Research costs are expensed when incurred
and are stated net of government grants. Development costs including direct material, direct labor and contract service costs are
capitalized as intangible assets when the Company can demonstrate that the technical feasibility of the project has been established;
the Company intends to complete the asset for use or sale and has the ability to do so; the asset can generate probable future
economic benefits; the technical and financial resources are available to complete the development; and the Company can reliably
measure the expenditure attributable to the intangible asset during its development.
The Company accounts for all stock-based
payments and awards using the fair value-based method. Under the fair value-based method, stock-based payments to non-employees
are measured at the fair value of the consideration received, or the fair value of the equity estimates issued, or liabilities
incurred, whichever is more reliably measurable.
From time to time, the company must make
accounting estimates. These are based on the best information available at the time, utilizing generally accepted industry standards
Our accounting policies are disclosed in
note 2 of Notes to our financial statements. During the fiscal year ended December 31, 2019 there were no material changes to these
policies. Our more critical accounting policies are noted below:
Statement of compliance with International
Financial Reporting Standards
The consolidated financial statements were
prepared using the same accounting policies and methods as those used in the Company’s consolidated financial statements
for the year ended December 31, 2018, with the exception of new accounting policies that were adopted on January 1, 2019 as described
in the Notes to the financial statements.
Basis of preparation
The financial statements of the Company
have been prepared on an accrual basis and are based on historical costs, modified where applicable. The Company’s functional
and presentation currency is Canadian dollars.
Consolidation
The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries, EMV Automotive USA Inc., InterMeccanica, from the date of its acquisition
on October 18, 2017, EMV Automotive Technology (Chongqing) Inc., from the date of its incorporation on October 15, 2019, and SOLO
EV, LLC, from the date of its incorporation on November 22, 2019. Inter-company balances and transactions, including unrealized
income and expenses arising from inter-company transactions, are eliminated on consolidation.
Significant estimates and assumptions
The preparation of financial statements
in accordance with IFRS requires the Company to make estimates and assumptions concerning the future. The Company’s management
reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively
in the period in which the estimates are revised.
Estimates and assumptions where there
is significant risk of material adjustments to assets and liabilities in future accounting periods include the estimated
recoverable amount of goodwill, intangible assets and other long-lived assets, the useful lives of plant and equipment the
estimated amount of SR&ED tax credits, fair value measurements for financial instruments and share-based payments, and
the recoverability and measurement of deferred tax assets.
Significant judgements
The preparation of financial statements
in accordance with IFRS requires the Company to make judgements, apart from those involving estimates, in applying accounting policies.
The most significant judgements in applying the Company’s financial statements include:
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·
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the assessment of the Company’s ability to continue as a going concern and whether there are events or conditions that may give rise to significant uncertainty;
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|
·
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the classification of financial instruments; and
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|
·
|
the calculation of income taxes require judgement in interpreting tax rules and regulations.
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Financial Instruments
The Company classifies its financial instruments
in the following categories: at fair value through profit or loss (“FVTPL”) or at amortized cost. The Company determines
the classification of financial assets at initial recognition. The classification of financial assets is driven by the Company’s
business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held
for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable
election (on an instrument-by-instrument basis) to designate them as at fair value through other comprehensive income (loss) (“FVTOCI”).
Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held
for trading or derivatives) or if the Company has opted to measure them at FVTPL.
The following table shows the classification
of the Company’s financial assets and liabilities:
Financial assets/liabilities
Cash and cash equivalents
|
Amortized cost
|
Receivables
|
Amortized cost
|
Trade payables and accrued liabilities
|
Amortized cost
|
Shareholder loan
|
Amortized cost
|
Derivative liability
|
FVTPL
|
The Company completed a detailed assessment
of its financial assets and liabilities as at January 1, 2018. The following table shows the original classification under IAS
39 and the new classification under IFRS 9:
Financial assets/liabilities
|
|
Original classification IAS 39
|
|
New classification IFRS 9
|
Cash and cash equivalents
|
|
Loans and Receivables
|
|
Amortized cost
|
Receivables
|
|
Loans and Receivables
|
|
Amortized cost
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Trade payable and accrued liabilities
|
|
Other financial liabilities
|
|
Amortized cost
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Shareholder loan
|
|
Other financial liabilities
|
|
Amortized cost
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Bank overdraft and demand loan
|
|
Other financial liabilities
|
|
Amortized cost
|
Derivative liability
|
|
FVTPL
|
|
FVTPL
|
Financial assets and liabilities at amortized
cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized
cost less any impairment.
Financial assets and liabilities carried
at FVTPL are initially recorded at fair value and transaction costs are expensed in the consolidated statements of comprehensive
loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held
at FVTPL are included in the consolidated statements of comprehensive loss in the period in which they arise.
The Company recognizes a loss allowance
for expected credit losses on financial assets that are measured at amortized cost. At each reporting date, the Company measures
the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses if the financial risk on the
financial asset has increased significantly since initial recognition. If at the reporting date, the financial asset has not increased
significantly since initial recognition, the Company measures the loss allowance for the financial asset at an amount equal to
the twelve month expected credit losses. The Company shall recognize in the consolidated statements of comprehensive loss, as an
impairment gain or loss, the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the
reporting date to the amount that is required to be recognized.
The Company derecognizes financial assets
only when the contractual rights to cash flows from the financial assets expire, or when it transfers the financial assets and
substantially all of the associated risks and rewards of ownership to another entity. Gains and losses on derecognition are generally
recognized in the consolidated statements of comprehensive loss.
Revenue from contracts with customers
Revenue is recognized to the extent that
the amount of revenue can be measured reliably and collection is probable.
Part sales
Sales of parts are recognized when the
Company has transferred control to the customer which generally occurs upon shipment.
Services, repairs and support services
Services, repairs and support services
are recognized in the accounting period when the services are rendered.
Sales of custom build vehicles
The Company manufactures and sells custom
built vehicles typically on fixed fee arrangements with its customers. Revenue is recognized when the Company has transferred control
to the customer which generally occurs upon shipment.
Sales of electric vehicles
The Company will be manufacturing and selling
electric powered one-seat vehicles (“SOLO”) which has not yet been commercialized. At this time proceeds of these sales
are considered to be incidental revenue and are not being made with the expectation of profit. These are sold to ‘beta’
customers who provide real-world testing and feedback on the vehicles. The revenue generated from sales are recorded against research
and development expenses.
Cash and cash equivalents
Cash and cash equivalents include cash
and short-term investments with original maturities of less than 90 days and are presented at cost, which approximates market value.
Customer deposits
Customer deposits consist primarily of
advance payments from customers who order the SOLO vehicles. The deposit will be recognized as revenue when the Company starts
commercial production and transfers control to the customer which generally occurs upon delivery.
Construction contract liabilities
Construction contract liabilities consist
primarily of advance payments from customers who order custom built vehicles. The deposit is recognized as revenue when the Company
has transferred control to the customer which generally occurs upon shipment.
Inventory
Inventory consists of parts held for resale
or for use in fixed fee contracts and is valued at the lower of cost and net realizable value. Cost is determined on the first-in,
first-out basis.
Trademarks and patents
The Company expenses legal fees and filing
costs associated with the development of its trademarks and patents.
Plant and equipment
Plant and equipment is stated at historical
cost less accumulated depreciation and accumulated impairment losses.
Subsequent costs are included in the asset’s
carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated
with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced asset
is derecognized. All other repairs and maintenance are charged to the statement of comprehensive loss during the financial period
in which they are incurred.
Gains and losses on disposals are determined
by comparing the proceeds with the carrying amount and are recognized in the statements of comprehensive loss.
Amortization is calculated on a straight-line
method to write off the cost of the assets to their residual values over their estimated useful lives. The amortization rates applicable
to each category of plant and equipment are as follows:
Class of plant and equipment
|
|
Amortization rate
|
|
Furniture and equipment
|
|
|
20
|
%
|
Computer equipment
|
|
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33
|
%
|
Computer software
|
|
|
50
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%
|
Vehicles
|
|
|
33
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%
|
Leasehold improvements
|
|
|
over term of lease
|
|
Right of use assets
|
|
|
over term of lease
|
|
Production tooling and molds
|
|
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per unit produced
|
|
Share-based payments
Share-based payments to employees are measured
at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured
at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair
value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The
corresponding amounts are recorded to the option reserve. The fair value of options is determined using a Black–Scholes pricing
model. The number of options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount
recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments
that eventually vest.
Loss per share
Basic loss per share is calculated by dividing
the loss attributable to common shareholders by the weighted average number of common shares outstanding in the period. For all
periods presented, the loss attributable to common shareholders equals the reported loss attributable to owners of the Company.
Fully diluted loss per share is calculated by the treasury stock method. Under the treasury stock method, the weighted average
number of common shares outstanding for the calculation of fully diluted loss per share assumes that the proceeds to be received
on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during
the period.
Research and development expenses
Research costs are expensed when incurred
and are stated net of government grants. Development costs, including direct material, direct labor and contract service costs,
are capitalized as intangible assets when the Company can demonstrate that the technical feasibility of the project has been established.
The Company intends to complete the asset for use or sale and has the ability to do so; as the asset can generate probable future
economic benefits; the technical and financial resources are available to complete the development; and the Company can reliably
measure the expenditure attributable to the intangible asset during its development. After initial recognition, internally generated
intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses. These costs are amortized
on a straight-line basis over the estimated useful life. To date the Company did not have any development costs that met the capitalization
criteria.
Derivative Liability
The Company accounts for its warrants as
either equity or liabilities based upon the characteristics and provisions of each instrument. Warrants classified as equity are
recorded at fair value as of the date of issuance on the Company’s consolidated balance sheets and no further adjustments
to their valuation are made. Warrants classified as derivative liabilities that require separate accounting as liabilities are
recorded on the Company’s consolidated balance sheets at their fair value on the date of issuance and will be revalued on
each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting
periods recorded as other income or expense. Management estimates the fair value of these liabilities using option pricing models
and assumptions that are based on the individual characteristics of the warrants or instruments on the valuation date, as well
as assumptions for future financings, expected volatility, expected life, yield and risk-free interest rate.
Change in accounting policy - Leases
In January 2016, the IASB issued IFRS 16
Leases (“IFRS 16”), which replaced IAS 17 Leases (“IAS 17”) and related interpretations. IFRS 16 introduces
a single lessee accounting model eliminating the previous distinction between finance and operating leases. IFRS 16 requires the
recognition of lease-related assets and liabilities on the balance sheet, except for short-term leases and leases of low value
underlying assets. Lessor accounting remained substantially unchanged.
The Company adopted IFRS 16 on January
1, 2019. The Company transitioned to IFRS 16 in accordance with the modified retrospective approach. The comparative information
has not been restated and continues to be reported under IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease.
In calculating the lease liability at this date, the Company has chosen to apply practical expedients in IFRS 16, which include:
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(i)
|
recognition exemption of short-term leases;
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|
|
|
|
(ii)
|
recognition exemption of low-value leases;
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|
|
|
|
(iii)
|
application of a single discount rate to a portfolio
of leases with similar characteristics on transition;
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|
|
|
|
(iv)
|
exclusion of initial direct costs from the measurement
of the right-of-use assets upon transition;
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|
|
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(v)
|
application of hindsight in determining the applicable
lease term at the date of transition; and
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|
|
|
|
(vi)
|
election to not separate non-lease components from lease components, and instead account for each
lease component and any associated non-lease components as a single lease component.
|
The adoption of IFRS 16 resulted in an
increase of $2.1 million in total assets and total liabilities each for recognition of right-of-use assets and lease liabilities,
respectively, and had no impact to opening retained earnings as at January 1, 2019. The majority of our property leases, which
were previously treated as operating leases, were impacted by IFRS 16. The adoption of IFRS 16 has resulted in:
|
(i)
|
higher non-current assets related to the initial recognition of the present value of our unavoidable
future lease payments as right-of-use assets under property, plant and equipment, adjusted by the amount of any prepaid or accrued
lease payments relating to the lease recognized in the balance sheet as at January 1, 2019;
|
|
|
|
|
(ii)
|
higher current and non-current liabilities related to the concurrent recognition of lease liabilities,
which are measured at the present value of the remaining fixed lease payments, discounted by our weighted average incremental borrowing
rate of 5% - 10% as of January 1, 2019;
|
|
|
|
|
(iii)
|
replacement of rent expense previously recorded in operating expenses with depreciation expense
of these right-of-use assets and higher finance costs related to the accretion and interest expense of the corresponding lease
liabilities; and
|
|
|
|
|
(iv)
|
variable lease payments and non-lease components are
expensed as incurred.
|
The new standard does not change the amount
of cash transferred between the lessor and lessee but impacts the presentation of the operating and financing cash flows presented
on the Company’s consolidated statement of cash flows by decreasing operating cash flows and increasing financing cash flows.
When measuring lease liabilities, the Company
discounted lease payments using its incremental borrowing rate at January 1, 2019 of 5%-10%.
Operating lease commitment at December 31, 2018 as disclosed in the Company’s consolidated financial statement
|
|
$
|
2,148,834
|
|
Discounting effect using the incremental borrowing rate at January 1, 2019
|
|
|
379,371
|
|
|
|
|
1,769,463
|
|
Extension options reasonably certain to be exercised
|
|
|
349,078
|
|
Lease liabilities recognized at January 1, 2019
|
|
$
|
2,118,541
|
|
Impairment of assets
The carrying amount of the Company’s
long-lived assets with finite useful lives (which include plant and equipment and intangible assets) is reviewed at each reporting
date to determine whether there is any indication of impairment. If such indication exists, the recoverable amount of the asset
is estimated in order to determine the extent of the impairment loss. An impairment loss is recognized whenever the carrying amount
of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognized in the statement of comprehensive
loss.
The recoverable amount of assets is the
greater of an asset’s fair value less cost to sell and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time
value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those
from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
An impairment loss is only reversed if
there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine
the recoverable amount. Any reversal of impairment cannot increase the carrying value of the asset to an amount higher than the
carrying amount that would have been determined had no impairment loss been recognized in previous years.
Goodwill and other intangible assets that
have an indefinite useful life are not subject to amortization and are tested annually for impairment, or more frequently if indicators
of impairment exist.
Income taxes
Current income tax
Current income tax assets and liabilities
for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates
and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries
where the Company operates and generates taxable income. Current income tax relating to items recognized directly in other comprehensive
income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates
positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation
and establishes provisions where appropriate.
Tax Credits
The Company earns SR&ED tax credits
with respect to its research and development expenses. The benefit of these SR&ED tax credits is recorded as a reduction of
research and development expenses when their recoverability is reasonably expected. The SR&ED tax credits earned while the
Company was a Canadian Controlled Private Corporation are refundable to the Company and are recorded as a receivable, while the
tax credits earned now that the Company is a reporting/public company (as defined under Canadian tax laws) can be used to reduce
future Canadian income taxes payable.
Deferred income tax:
Deferred income tax is recognized, using
the asset and liability method, on temporary differences at the reporting date arising between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes. The carrying amount of deferred income tax assets is reviewed at the
end of each reporting period and recognized only to the extent that it is probable that sufficient taxable profit will be available
to allow all or part of the deferred income tax asset to be utilized. Deferred income tax assets and liabilities are measured at
the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates
(and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred income tax assets and
deferred income tax liabilities are offset, if deferred income taxes relate to the same taxable entity and the same taxation authority.
C. Research and Development, Patents and Licenses, etc.
Research costs are expensed when incurred.
Development costs, including direct material, direct labor and contract service costs, are capitalized as intangible assets when:
we can demonstrate that the technical feasibility of a project has been established; when we intend to complete the asset for use
or sale and have the ability to do so; when the asset can generate probable future economic benefits; when the technical and financial
resources are available to complete the development; and when we can reliably measure the expenditure attributable to the intangible
asset during its development. After initial recognition, internally- generated intangible assets are recorded at cost less accumulated
amortization and accumulated impairment losses. These costs are amortized on a straight-line basis over the estimated useful life.
To date, we have not met the criteria to capitalize development costs.
The following table specifies the amounts
spent on research and development for the fiscal years ended December 31, 2019, 2018 and 2017:
|
|
Fiscal year
ended
December 31,
2019
|
|
|
Fiscal year
ended
December 31,
2018
|
|
|
Fiscal year
ended
December 31,
2017
|
|
Labor
|
|
$
|
5,834,938
|
|
|
$
|
3,581,970
|
|
|
$
|
1,971,945
|
|
Materials
|
|
|
4,311,686
|
|
|
|
3,393,295
|
|
|
|
2,763,355
|
|
Government grants
|
|
|
(632,104
|
)
|
|
|
(1,409,229
|
)
|
|
|
(304,914
|
)
|
Total
|
|
$
|
9,514,520
|
|
|
$
|
5,566,036
|
|
|
$
|
4,430,386
|
|
D. Trend Information
Due to our short operating history, except
as noted below, we are not aware of any trends that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.
Potential Impact of the COVID-19 Pandemic
In December 2019, a strain of novel coronavirus
(now commonly known as COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spread rapidly throughout many
countries, and, on March 12, 2020, the World Health Organization declared COVID-19 to be a pandemic. In an effort to contain and
mitigate the spread of COVID-19, many countries, including the United States, Canada and China, have imposed unprecedented restrictions
on travel, and there have been business closures and a substantial reduction in economic activity in countries that have had significant
outbreaks of COVID-19. Our manufacturing partner, Zongshen, reports that its operations have not been materially affected at this
point, and we anticipate that Zongshen remains on track to begin producing the SOLO for deliveries to customers during 2020. However,
significant uncertainty remains as to the potential impact of the COVID-19 pandemic on our and Zongshen’s operations, and
on the global economy as a whole. It is currently not possible to predict how long the pandemic will last or the time that it will
take for economic activity to return to prior levels. We do not yet know the full extent of any impact on our business or our operations,
however, we will continue to monitor the COVID-19 situation closely, and intend to follow health and safety guidelines as they
evolve.
E. Off-Balance Sheet Arrangements
As of December 31, 2019, we did not have
any off-balance sheet debt nor did we have any transactions, arrangements, obligations (including contingent obligations) or other
relationships with any unconsolidated entities or other persons that may have material current or future effect on financial conditions,
changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources or significant components
of revenue or expenses.
F. Tabular Disclosure of Contractual Obligations
The Company adopted IFRS 16 on January
1, 2019 resulting in an increase of $2.1 million in total assets and total liabilities each for recognition of right-of-use assets
and lease liabilities respectively, therefore, the contractual obligation as at December 31, 2019 is $1,463,676 (2018: $2,148,834).
G. Safe Harbor
Not applicable.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
Name, Province/State and Country of Residence
|
|
Age
|
|
Position
|
|
Director/Officer Since
|
Michael Paul Rivera, Arizona, U.S.
|
|
52
|
|
Chief Executive Officer and a director
|
|
August 12, 2019
|
Henry Reisner(1), British Columbia, Canada
|
|
56
|
|
President, Chief Operating Officer and a director
|
|
February 16, 2015
|
Bal Bhullar(2), British Columbia, Canada
|
|
50
|
|
Chief Financial Officer, Secretary and a director
|
|
November 19, 2018
|
Steven Sanders(3)(5), New York, U.S.
|
|
73
|
|
Chairman and a director
|
|
March 16, 2018
|
Jerry Kroll(4), British Columbia, Canada
|
|
60
|
|
Director
|
|
February 16, 2015
|
Luisa Ingargiola(5), Florida, U.S.
|
|
51
|
|
Director
|
|
March 16, 2018
|
Jack Austin(5), British Columbia, Canada
|
|
86
|
|
Director
|
|
November 20, 2018
|
Joanne Yan(5), British Columbia, Canada
Peter Savagian, California, U.S.
|
|
61
59
|
|
Director
Director
|
|
March 6, 2019
October 17, 2019
|
Isaac Moss, British Columbia, Canada
|
|
67
|
|
Chief Administrative Officer
|
|
May 15, 2018
|
|
(1)
|
Mr. Reisner was appointed as President and Chief Operating
Officer of our Company on May 15, 2018.
|
|
(2)
|
Ms. Bhullar was appointed as Chief Financial Officer
of our Company on November 19, 2018 and as a director of our Company on December 6, 2019.
|
|
(3)
|
Mr. Sanders was appointed Chairman of our Company on
October 20, 2018.
|
|
(4)
|
Mr. Kroll was appointed
President, Chief Executive Officer and a director of our Company effective February 16, 2015. Mr. Kroll resigned from his position
as President on May 15, 2018 and as Chairman on October 20, 2018. Mr. Kroll resigned as Chief Executive Officer on
August 12, 2019.
|
|
(5)
|
Members of the Company’s
Audit Committee, the Nominating Committee, the Corporate Governance and Human Resources Committee, the Compensation Committee,
the Enterprise Risk Oversight Committee and the Social Media Committee.
|
Business Experience
The following summarizes the occupation
and business experience during the past five years or more for our directors and executive officers as of the date of this Annual
Report:
Michael Paul Rivera, Chief Executive
Officer and a director
Michael
Paul Rivera joined ElectraMeccanica as Chief Executive Officer in August 2019. Before joining ElectraMeccanica, Mr. Rivera most
recently served as President of Ricardo, USA, a division of Ricardo, PLC (LON: RCDO), a 100-year-old global engineering, strategic
and environmental consultancy business with a value chain that includes the design, engineering, testing and product launch, of
vehicle systems, as well as the niche manufacture of high performance products.
Previous
to that, as Executive VP of Hybrid & Electric Systems at Ricardo, Mr. Rivera led the company’s evolution towards an efficient
and sustainable low carbon future. Ricardo's engineering and design solutions have had a significant impact on technical developments
throughout the auto sector, providing innovative solutions across engines, drivelines and hybrid systems, as well as supporting
the development of emerging technologies such as autonomous and connected vehicles.
Mr.
Rivera brings more than two decades of experience in technical consulting, engineering services, general management and global
business development together with a deep understanding of engineering in the automotive, transport and energy industries to ElectraMeccanica.
Henry Reisner, President, Chief Operating
Officer and a director
Mr. Reisner is the current President of
InterMeccanica, a subsidiary of our Company, which is an automobile manufacturer, and has held this position since 2001. He is
experienced in the automotive industry and has a background in manufacturing.
Mr. Reisner holds a Bachelor of Arts degree
in political science from the University of British Columbia from 1989.
Bal Bhullar, Chief Financial Officer.
Secretary and a director
Bal
Bhullar brings over 25 years of diversified business, financial and risk management experience as an executive in both private
and public companies, in the industries of technology, manufacturing, block chain, e-commerce, resource, marine, energy, transportation
and health/wellness.
Among
some of the areas of experience, Ms. Bhullar brings expertise in financial and strategic planning, operational and risk management,
regulatory compliance reporting, business expansion, product development and marketing, start-up operations, financial modeling,
program development, corporate financing and corporate governance/internal controls.
Previously,
Ms. Bhullar has held various positions including President of the BC Risk Management Association of BC, and has held positions
as director and CFO of several private and public companies including the following:: CFO and a director of ElectraMeccanica; CEO/Founder
of KISMET Nutrients/American e-Commerce Solutions LLC; CEO/Founder of BKB Management Ltd.; and an Advisory Board member of Enertopia
Corp. CSE:TOP OTCQX:ENRT. Formerly, Ms. Bhullar held positions as CFO and a director of each of Lexaria Corp CSE:LXX OTCQX:LXRP,
and . Enertopia Corp. CSE:TOP OTCQX:ENRT.
Ms.
Bhullar is a Chartered Professional Accountant and Certified General Accountant and as well holds a CRM designation from Simon
Fraser University and a diploma in Financial Management from British Columbia Institute of Technology.
Steven Sanders, Chairman and a director
Since January 2017, Steven Sanders
has been Of Counsel to the law firm of Ortoli Rosenstadt LLP. From July 2007 until January 2017, Mr. Sanders was a Senior
Partner of Ortoli Rosenstadt LLP. From January 1, 2004 until June 30, 2007, he was Of Counsel to the law firm of Rubin,
Bailin, Ortoli, LLP. From January 1, 2001 to December 31, 2003, Mr. Sanders was counsel to the law firm of Spitzer &
Feldman PC. Mr. Sanders also serves as a director of Helijet International, Inc. Additionally, Mr. Sanders has been a
director at the American Academy of Dramatic Arts since October 2013 and has been a director of the Bay Street Theater since
February 2015. Mr. Sanders received his JD from Cornell University and his BBA from The City College of New York.
Jerry Kroll, a director
Mr. Kroll has an extensive background working
in small businesses and start-ups. Mr. Kroll’s career began when he managed the production, strategic planning and sales
operations of Kroll Greenhouses, his family business. From there, Mr. Kroll served in other management roles in the floral and
food services industries, overseeing the import/export of floral products, managing employees, managing food franchises and establishing
supplier/distributor relationships.
In 1996 Mr. Kroll became involved in air
racing as the owner of Vancouver International Air Races and Airshow, which featured large scale events attracting over 15,000
spectators and 31 corporate sponsors. From then on Mr. Kroll became increasingly involved in air racing and motor races. He eventually
became the President and CEO of Corbin Motors Vancouver Inc. in 2001 where he organized the sales of the firm’s three-wheeled
commuter vehicle in Canada.
In 2007 Mr. Kroll founded KleenSpeed Technologies,
a firm focused on stationary energy storage products. Mr. Kroll began researching and developing an EV for the everyday commuter.
As an entrepreneur, Mr. Kroll also founded Ascend Sportmanagement Inc., a sports property and technology management firm.
Mr. Kroll’s experience and skillset
in innovative technology and start-ups, coupled with his passion for clean technology developments, allows Mr. Kroll to coordinate,
manage and execute strategies for our Company.
Mr. Kroll is also actively involved in
the Vancouver venture capital community and has been a member of the Vancouver Angel Technology Network, an investing and mentoring
network for new technology start-ups, since 2003. From February 2013 to February 2015, Mr. Kroll was the President and CEO of Ascend
Sports Management Inc.
Luisa Ingargiola, a director
Since 2017, Luisa Ingargiola has been the
Chief Financial Officer of Avalon GloboCare, a leading biotech health care company that is developing cell based therapeutic technologies
for cancer and neuromuscular disease. Ms. Ingargiola also serves as a director and Audit Chair of FTE Networks, a leading international
network infrastructure solutions and cyber security company. Ms. Ingargiola was the Chief Financial Officer of MagneGas Corporation,
from 2007 to 2016, and is a current board member. In addition, Ms. Ingargiola has served as Audit Chair for several public companies
in the technology, environmental and energy industries. Ms. Ingargiola received her Bachelor’s degree in Finance from Boston
University and a Masters of Health Administration from the University of Florida.
Jack Austin, a director
Jack Austin brings
a distinguished career of more than 50 years, including the teaching and practice of business law, experience as a corporate executive,
and extensive experience in public policy. Mr. Austin served as a Deputy Minister, Principal Secretary to Prime Minister Pierre
Elliot Trudeau, as a Senator representing British Columbia, and as a Cabinet Minister in the Governments of Prime Minister Pierre
Trudeau and Prime Minister Paul Martin. Mr. Austin served as President of the Canada China Business Council from 1993 to 2000,
and for the following three years as Vice-Chairman.
Mr. Austin retired from the Canadian Senate
in 2007 and resumed his activity in the private sector, during which time he served on the advisory council of several leading
academic institutions, including the Universities of British Columbia and Simon Fraser.
Joanne Yan, a director
Joanne Yan has 25 years of experience
in advising and managing both publicly traded and private companies. Ms. Yan serves as the President of Joyco Consulting Services,
which she founded in 1994 to provide consulting services in the areas of corporate structuring, business development and strategic
planning initiatives. Ms. Yan recently established Alphaco Venture Corp., a capital pool company listed on the TSX Venture Exchange,
and she acts as CEO and CFO of that company. Ms. Yan recently led a transaction that enabled an affiliate of Zongshen Industrial
Group to acquire a 49% interest in Harbour Air, the largest sea plane operator in North America.
Ms. Yan has served on the Board of
Directors of several public and private companies, including: (i) Zongshen, our strategic manufacturing partner, and three of
its subsidiaries; and (ii) the Toronto Stock Exchange-listed Hanwei Energy Services Corp., which manufactures and sells high
pressure fiberglass reinforced plastic pipes for international oil and gas and infrastructure industries in addition to
producing oil & gas in Canada.
Peter Savagian, a director
Peter Savagian
is a pioneer in automotive electrification, with a broad spectrum of expertise in the technology, development, launch and production
of electric vehicles. In 1990 Mr. Savagian began work on the General Motors EV1, the first modern electric vehicle, and was named
Chief Engineer of Electric Propulsion Systems in 1998. Later, as General Director of Electrified Propulsion, Mr. Savagian built
and led multiple teams to innovate, engineer and execute the full range of electrified vehicle propulsion systems. Mr. Savagian’s
accomplishments at General Motors include 13 electrified autos brought to production. Notably, these include the first modern Electric
Vehicle, the GM EV1, the first plug-in hybrid, the Chevy Volt, and the industry’s first long-range value EV, the Chevy Bolt.
Mr. Savagian is
presently Senior VP of Engineering at Ampaire, an electric aircraft startup company where he directs innovation, design, development
and certification of electric propulsion systems and their integration into short-haul, fixed-wing electric aircrafts. Mr. Savagian
holds 44 patents and has authored 17 technical publications in the field of electrification. Mr. Savagian holds a BS in Mechanical
Engineering from the University of Wisconsin, an MS in Operations Research Engineering from the University of Southern California
and an MBA from Duke University.
Isaac Moss, Chief Administrative
Officer
Isaac Moss has 27 years of international
multi-jurisdictional business, investment banking and corporate finance experience ranging across diverse industry sectors from
media, forests products, hospitality, telecommunications, bio technology and green energy. Mr. Moss is experienced in scaling and
managing businesses from start up through operations phase. He has held senior executive positions including President of a European
specialty chemical company, CFO of a green energy company, COO of a software company and senior vice president of a mining company.
Mr. Moss has been semi-retired since 2012 pursuing private business interests. He is a graduate of the University of Cape Town
with a Bachelor of Social Science and Masters Degree in Public Administration. Mr. Moss also studied music, is an accomplished
pianist and serves as an ambassador for the University of British Columbia’s School of Music.
Family Relationships
There are no family relationships among
any of our directors and executive officers.
Term of Office
Each director of our company is to serve
for a term of one year ending on the date of the subsequent annual meeting of stockholders following the annual meeting at which
such director was elected. Notwithstanding the foregoing, each director is to serve until his successor is elected and qualified
or until his death, resignation or removal. Our Board of Directors appoints our officers and each officer is to serve until his
successor is appointed and qualified or until his or her death, resignation or removal.
Involvement in Certain Legal Proceedings
During the past ten years, none of our
directors or executive officers have been the subject of the following events:
|
1.
|
a petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
|
|
2.
|
convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
|
|
3.
|
the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
|
|
i)
|
acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
|
|
ii)
|
engaging in any type of business practice; or
|
|
iii)
|
engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
|
|
4.
|
the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph 3.i in the preceding paragraph or to be associated with persons engaged in any such activity;
|
|
5.
|
was found by a court of competent jurisdiction in a civil action or by the SEC to have violated any Federal or State securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated;
|
|
6.
|
was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
|
|
7.
|
was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
|
|
i)
|
any Federal or State securities or commodities law or regulation;
|
|
ii)
|
any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or
|
|
iii)
|
any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
|
|
8.
|
was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
|
Director Independence
Our Board of Directors has determined that
the following directors are “independent” as such directors do not have a direct or indirect material relationship
with our Company. A material relationship is a relationship which could, in the view of our Board of Directors, be reasonably expected
to interfere with the exercise of a director’s independent judgment.
Code of Business Conduct and Ethics
On December 22, 2017, we adopted a Code
of Conduct and Ethics that applies to our directors, officers and other employees.
B. Compensation
Compensation Discussion and Analysis
This section sets out the objectives of
our Company’s executive compensation arrangements, our Company’s executive compensation philosophy and the application
of this philosophy to our Company’s executive compensation arrangements. It also provides an analysis of the compensation
design, and the decisions that the Board of Directors made in fiscal 2019 with respect to its Named Executive Officers (as herein
defined). When determining the compensation arrangements for the Named Executive Officers, our Compensation Committee considers
the objectives of: (i) retaining an executive critical to the success of the Company and the enhancement of shareholder value;
(ii) providing fair and competitive compensation; (iii) balancing the interests of management and our Company’s shareholders;
and (iv) rewarding performance, both on an individual basis and with respect to the business in general.
Benchmarking
Our Board of Directors established a Compensation
Committee in March 2018. Prior to that, our Board of Directors acted as the Compensation Committee.
The Compensation Committee will consider
a variety of factors when designing and establishing, reviewing and making recommendations for executive compensation arrangements
for all our executive officers. The Compensation Committee does not intend to position executive pay to reflect a single percentile
within the industry for each executive. Rather, in determining the compensation level for each executive, the Compensation Committee
will look at factors such as the relative complexity of the executive’s role within the organization, the executive’s
performance and potential for future advancement and pay equity considerations.
Elements of Compensation
The compensation paid to Named Executive
Officers in any year consists of two primary components:
|
(a)
|
base salary; and
|
|
|
|
|
(b)
|
long-term incentives in the form of stock options granted under our Stock Option Plan (as herein defined).
|
The key features of these two primary components
of compensation are discussed below:
Base Salary
Base salary recognizes the value of an
individual to our Company based on his or her role, skill, performance, contributions, leadership and potential. It is critical
in attracting and retaining executive talent in the markets in which the Company competes for talent. Base salaries for the Named
Executive Officers are intended to be reviewed annually. Any change in base salary of a Named Executive Officer is generally determined
by an assessment of such executive’s performance, a consideration of competitive compensation levels in companies similar
to the Company (in particular, companies in the EV industry) and a review of the performance of the Company as a whole and the
role such executive officer played in such corporate performance.
Stock Option Awards
The Company provides long-term incentives
to Named Executive Officers in the form of stock options as part of its overall executive compensation strategy. Our Compensation
Committee believes that stock option grants serve the Company’s executive compensation philosophy in several ways: firstly,
it helps attract, retain, and motivate talent; secondly, it aligns the interests of the Named Executive Officers with those of
the shareholders by linking a specific portion of the officer’s total pay opportunity to the share price; and finally, it
provides long-term accountability for Named Executive Officers.
Risks Associated with Compensation Policies and Practices
The oversight and administration of the
Company’s executive compensation program requires the Compensation Committee to consider risks associated with the Company’s
compensation policies and practices. Potential risks associated with compensation policies and compensation awards are considered
at annual reviews and also throughout the year whenever it is deemed necessary by the Compensation Committee.
The Company’s executive compensation
policies and practices are intended to align management incentives with the long-term interests of the Corporation and its shareholders.
In each case, the Corporation seeks an appropriate balance of risk and reward. Practices that are designed to avoid inappropriate
or excessive risks include (i) financial controls that provide limits and authorities in areas such as capital and operating expenditures
to mitigate risk taking that could affect compensation, (ii) balancing base salary and variable compensation elements and (iii)
spreading compensation across short and long-term programs.
Compensation Committee
Our Compensation Committee consists of
Steven Sanders, Luisa Ingargiola, Jack Austin and Joanne Yan and is chaired by Luisa Ingargiola. Each of the Compensation Committee
members satisfies the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of Nasdaq. Our Compensation
Committee will assist the Board of Directors in reviewing and approving the compensation structure, including all forms of compensation,
relating to our directors and executive officers. No officer may be present at any committee meeting during which such officer’s
compensation is deliberated upon.
The Compensation Committee’s responsibility
is to formulate and make recommendations to our directors in respect of compensation issues relating to our directors and executive
officers. Without limiting the generality of the foregoing, the Compensation Committee has the following duties:
|
(a)
|
to review the compensation philosophy and remuneration policy for our executive officers and to recommend to our directors changes to improve our ability to recruit, retain and motivate executive officers;
|
|
(b)
|
to review and recommend to the Board of Directors the retainer and fees, if any, to be paid to our directors;
|
|
(c)
|
to review and approve corporate goals and objectives relevant to the compensation of the Chief Executive Officer (the “CEO”), evaluate the CEO’s performance in light of those corporate goals and objectives, and determine (or make recommendations to our directors with respect to) the CEO’s compensation level based on such evaluation;
|
|
(d)
|
to recommend to our directors with respect to non-CEO officer and director compensation including reviewing management’s recommendations for proposed stock options and other incentive-compensation plans and equity-based plans, if any, for non-CEO officer and director compensation and make recommendations in respect thereof to our directors;
|
|
(e)
|
to administer the Stock Option Plan approved by our directors in accordance with its terms including the recommendation to our directors of the grant of stock options in accordance with the terms thereof; and
|
|
(f)
|
to determine and recommend for the approval of our directors’ bonuses to be paid to our executive officers and employees and to establish targets or criteria for the payment of such bonuses, if appropriate. Pursuant to the mandate and terms of reference of the Compensation Committee, meetings of the Compensation Committee are to take place at least once per year and at such other times as the Chair of the Compensation Committee may determine.
|
Summary Compensation Table
The following table sets forth all annual
and long-term compensation for services in all capacities to the Company during the fiscal periods indicated in respect of the
executive officers set out below (the “Named Executive Officers”) and includes amounts paid to affiliates of the Named
Executive Officers for services provided by the Named Executive Officers:
Named
Executive
Officer and
Principal
Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Share-
based
awards
($)
|
|
|
Option-
based
awards
($)(1)
|
|
|
Annual
Incentive
Plan
($)
|
|
|
Long-
term
Incentive
Plan
($)
|
|
|
Pension
Value
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
Compensation
($)
|
|
Michael Paul Rivera(2),
|
|
|
2019
|
|
|
|
156,018
|
|
|
|
Nil
|
|
|
|
3,740,145
|
|
|
|
51,353
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
3,947,516
|
|
Chief Executive Officer
|
|
|
2018
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
2017
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Jerry Kroll(3),
|
|
|
2019
|
|
|
|
300,000
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
300,000
|
|
former President and Chief Executive Officer
|
|
|
2018
|
|
|
|
140,000
|
|
|
|
Nil
|
|
|
|
123,726
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
263,726
|
|
|
|
|
2017
|
|
|
|
60,000
|
|
|
|
Nil
|
|
|
|
358,045
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
418,694
|
|
Bal Bhullar(4),
|
|
|
2019
|
|
|
|
196,667
|
|
|
|
Nil
|
|
|
|
2,289,225
|
|
|
|
36,000
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
3,600
|
|
|
|
2,252,492
|
|
Chief Financial Officer and Secretary
|
|
|
2018
|
|
|
|
20,000
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
450
|
|
|
|
20,450
|
|
|
|
|
2017
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Isaac Moss(5),
|
|
|
2019
|
|
|
|
233,336
|
|
|
|
Nil
|
|
|
|
1,391,404
|
|
|
|
25,000
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
1,649,740
|
|
Chief Administrative Officer
|
|
|
2018
|
|
|
|
94,664
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
94,664
|
|
|
|
|
2017
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Henry Reisner(6),
|
|
|
2019
|
|
|
|
180,000
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
180,000
|
|
President and Chief Operating Officer
|
|
|
2018
|
|
|
|
126,700
|
|
|
|
Nil
|
|
|
|
39,430
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
166,130
|
|
|
|
|
2017
|
|
|
|
60,000
|
|
|
|
Nil
|
|
|
|
69,757
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
130,450
|
|
Iain Ball(7),
|
|
|
2019
|
|
|
|
90,000
|
|
|
|
Nil
|
|
|
|
380,519
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
470,519
|
|
former Vice-President, Finance
|
|
|
2018
|
|
|
|
70,000
|
|
|
|
Nil
|
|
|
|
29,936
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
99,936
|
|
|
|
|
2017
|
|
|
|
60,000
|
|
|
|
Nil
|
|
|
|
37,23
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
97,883
|
|
Ed Theobald(8),
|
|
|
2019
|
|
|
|
32,000
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
32,000
|
|
former General Manager Sales and Dealerships
|
|
|
2018
|
|
|
|
96,000
|
|
|
|
Nil
|
|
|
|
29,936
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
125,936
|
|
|
|
|
2017
|
|
|
|
60,000
|
|
|
|
Nil
|
|
|
|
37,235
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
97,235
|
|
Lorenzo Caprilli(9),
|
|
|
2019
|
|
|
|
87,567
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
87,567
|
|
former Executive Vice-President Sales and Marketing
|
|
|
2018
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
2017
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
(1)
|
Option-based awards represent the fair value of stock options granted in the year under our Stock Option Plan. The fair value of stock options granted is calculated as of the grant date using the Black-Scholes option pricing model. For discussion of the assumptions made in the valuation, refer to Note 11 to our financial statements for the fiscal year ended December 31, 2019.
|
|
|
(2)
|
Mr. Rivera was appointed CEO and a director of our Company on August 12, 2019.
|
|
|
(3)
|
Mr. Kroll was appointed the President and CEO of our Company on February 16, 2015 and served as the Secretary of our Company from June 11, 2015 to August 8, 2016. On May 15, 2018, Mr. Kroll resigned from his position as President of our Company and on August 12, 2019 he resigned as CEO.
|
|
|
(4)
|
Ms. Bhullar was appointed CFO and Secretary of our Company on November 19, 2018 and as a director on December 6, 2019.
|
|
|
(5)
|
Mr. Moss was appointed Chief Administrative Officer of our Company on May 15, 2018.
|
|
|
(6)
|
Mr. Ball was appointed Vice-President, Finance of our Company on June 27, 2016 and resigned effective on June 30, 2019.
|
|
|
(7)
|
Mr. Reisner was appointed Chief Operating Officer of our Company on February 16, 2015 and on May 15, 2018 he was appointed as President of our Company.
|
|
|
(8)
|
Mr. Theobald was appointed General Manager of our Company on February 16, 2015 and resigned effect on June 30, 2019.
|
|
|
(9)
|
Lorenzo Caprilli was appointed Executive Vice-President Sales and Marketing of our Company on May 1, 2019 and resigned effect on November 30, 2019.
|
Executive Compensation Agreements
Michael Paul Rivera
On May 17, 2019, the Company entered into
an employment agreement with Michael Paul Rivera (the “Rivera Agreement”), which is dated for reference effective August
12, 2019. Effective on January 1, 2020 (the “Effective Date” therein), with an execution date of February 26, 2020,
Mr. Rivera and the Company entered into an amending agreement to the Rivera Agreement (the “Amended Rivera Agreement”).
In accordance with the Amended Rivera
Agreement, the Rivera Agreement commenced on the Effective Date and continues until the third anniversary of the Effective
Date, unless terminated earlier, provided that upon the third anniversary date the Rivera Agreement shall be deemed to be
automatically extended upon the same terms and conditions. Either party may provide 60 days prior written notice of its
intention not to extend the term. Pursuant to the terms of the Rivera Agreement, Mr. Rivera will be employed as the Chief
Executive Officer and report to the Board of Directors of the Company (the “Board of Directors”), and shall have
the duties, authority and responsibilities as shall be determined by the Board of Directors from time to time. Mr. Rivera
will devote substantially all of his business time and attention to the performance of his duties under the Rivera Agreement
and will not engage in any business, profession or occupation for compensation or otherwise which would conflict or interfere
with the performance of such services either directly or indirectly without consent of the majority of the Board of
Directors. During the term of his employment Mr. Rivera will not engage in any Prohibited Activity (as defined in the Rivera
Agreement), provided, however, that Mr. Rivera shall be permitted to purchase and own less than 5% of the publicly traded
securities of any corporation if such ownership represents a passive investment and Mr. Rivera is not a controlling person
of, or a member of a group that controls, such corporation.
Under the Rivera Agreement the Company
will pay Mr. Rivera an annual base salary of USD$300,000.00 (the “Base Salary”) in periodic installments in accordance
with the Company’s customary payroll practices. Mr. Rivera’s Base Salary is subject to increase based on periodic reviews
at the discretion of the Board of Directors. Mr. Rivera shall be eligible to receive an annual bonus of not less than USD$150,000
for fiscal 2020, which will paid by at the sole and absolute discretion of the Compensation Committee. Mr. Rivera will be entitled
to participate in all benefit plans, practices and programs maintained by the Company, as in effect from time to time, and including,
but not limited to, the following: (a) reimbursements for payments to participate in one U.S. health insurance plan and one U.S.
dental plan; and (b) no less than 25 paid vacation during each full fiscal year of Mr. Rivera’s employment (pro-rated for
any partial year of employment).
The Rivera Agreement may be terminated
upon either party’s failure to renew the Rivera Agreement, by the Company for Cause (as defined therein) or by the Employee
without Good Reason (as defined therein). Following any such termination, the Company will have no further obligations under the
Rivera Agreement other than the Company’s obligations to, within two weeks following a termination date, provide Mr. Rivera
with: (a) any accrued but unpaid Base Salary and accrued but unused vacation; (b) reimbursements for unreimbursed business expenses
that are reimbursable in accordance with the Company’s expense reimbursement policy; and (c) employee benefits, if any, to
which Mr. Rivera may be entitled to under the Company’s employee benefit plans as of the date of termination.
The Company also has the right to terminate
the Rivera Agreement without Cause and Mr. Rivera has the right to terminate the Rivera Agreement for Good Reason. In the event
of such termination, Mr. Rivera shall be entitled to receive: (a) all Accrued Amounts (as defined therein); (b) severance pay in
equal installments, which are in the aggregate equal to the sum of Mr. Rivera’s Base Salary and Target Bonus (as defined
therein) for two years from the date of termination of the Rivera Agreement; (c) the Company shall reimburse Mr. Rivera for up
to USD$1,800.00 of the monthly U.S. health insurance premium paid by Mr. Rivera; and (d) the Company shall pay Mr. Rivera an amount
equal to the greater of (i) the average STIP (as defined therein) paid to Mr. Rivera for the previous two years and (ii) 80% of
Mr. Rivera’s target annual STIP for the current fiscal year of the Company if Mr. Rivera has been employed by the Company
for less than two years at the date of termination.
The Rivera Agreement will automatically
terminate upon the death of Mr. Rivera and the Company may terminate the Rivera Agreement on account of Mr. Rivera’s Disability
(as therein defined). In the event of such termination, Mr. Rivera (or his estate or beneficiaries, as the case may be) shall be
entitled to receive the Accrued Amounts. Notwithstanding any provision of the Rivera Agreement, all payments made in connection
with Mr. Rivera’s Disability will be provided in a manner consistent with state and federal law.
Effective on January 1, 2020, Mr. Rivera
and the Company agreed to amend the Rivera Agreement and entered into the Amended Rivera Agreement. Pursuant to the Amended Rivera
Agreement, Mr. Rivera will be eligible to participate in any STIP or LTIP (each as defined therein) introduced by the Company from
time to time and the terms of such participation shall be determined by the Board of Directors. Mr. Rivera will also be entitled
to five weeks’ paid vacation per calendar year (pro-rated for partial years) in accordance with the Company’s vacation
policies as in effect from time to time.
The Amended Rivera Agreement also
provides that Mr. Rivera may provide notice to the Company of any Change In Control of the Company (as defined therein) by
providing not less than 45 calendar days’ notice in writing to the Company after the Change In Control has been
effected; provided, however, that the Company will be entitled to carefully review and object to any said Change In Control
designation by the Executive within 15 calendar days of said notice; the final determination of which, upon dispute, if any,
to be determined by arbitration under California law in Los Angeles, California. Unless otherwise determined by mutual
agreement of the parties or by arbitration as provided for therein, within 60 days of the completion of the Change In Control
the Company shall be obligated to pay Mr. Rivera a one-time fee in cash in the amount of USD$3,000,000 whether the Rivera
Agreement is otherwise terminated or otherwise at the time of the completion of the Change In Control.
Henry Reisner
On January 15, 2019, our Board of Directors
approved the entering into of an executive employment agreement with Henry Reisner, which is dated for reference effective on January
1, 2019, and which then superseded our Company’s prior agreement with Mr. Reisner, dated July 1, 2016, which had been amended
in August of 2018. On January 1, 2020 (the “Effective Date” therein), the Company entered into a new executive employment
agreement with Henry Reisner (the “Reisner Agreement”) which superseded the January 15, 2019 executive employment agreement
with Mr. Reisner.
The Reisner Agreement commenced as of its
Effective Date and will continue for a period of three years unless terminated in accordance with its terms. The Company may notify
Mr. Reisner in writing at least 30 calendar days prior to the end of the term of its intent to renew the Reisner Agreement, any
such renewal being on the same terms and conditions as provided in the Reisner Agreement. Pursuant to the terms of the Reisner
Agreement, Mr. Reisner will continue to be employed as our Chief Operating Officer and President and will: (a) devote reasonable
efforts and attentions to the business and affairs of the Company; (b) perform the Services (as defined in the Reisner Agreement)
in a competent and efficient manner and in manner consistent with his obligations to the Company and in compliance with all the
Company policies; and (c) promote the interests and goodwill of the Company. Mr. Reisner will not, directly or indirectly, anywhere
in Canada or the United States, either individually or in partnership, jointly or in conjunction with any person, firm, association,
syndicate, company, whether as agent, shareholder, employee, consultant, or in any manner whatsoever, engage in any business the
same or similar to or in competition with that of the Company’s Business (as defined therein). However, Mr. Reisner may hold
or become beneficially interest in up to 1% of any class of securities in any company provided that such class of securities are
listed on a recognized stock exchange in Canada or the United States.
The Company will pay Mr. Reisner a monthly
base salary from the Effective Date of CAD$18,333.34 (the “Monthly Salary”). The Monthly Salary is subject to increase
based on periodic reviews at the discretion of the Company. The Board of Directors, in its sole discretion, may consider the payment
of a reasonable industry standard bonus to Mr. Reisner based upon the performance of the Company and upon the achievement by Mr.
Reisner of reasonable management objectives. Mr. Reisner will be eligible to receive a one-time lump sum payment of CAD$25,000.00
by delivering on the Company’s objective of having the Generation 3 SOLO begin production by May 15, 2020. Mr. Reisner will
be eligible to participate in benefits, perquisites and allowances, as such plans and policies may be amended from time to time,
and including, but not limited to: (a) group insurance coverage for dental, health, and life insurance; and (b) no less than five
weeks paid vacation per calendar year (the “Vacation”), such Vacation to extend for such periods and to be taken at
such intervals as shall be appropriate and consistent with the proper performance of Mr. Reisner’s duties.
The Company may grant Mr. Reisner stock
options under its Stock Option Plan (as defined therein) from time to time in its absolute discretion. Any stock options granted
will be in accordance with provisions, and including, but not limited to, the following: (a) the exercise of stock options shall
be subject to, at all times, to such vesting and resale provisions as may then be contained in the Company’s Stock Option
Plan as may be finally determined by the Board of Directors acting reasonably; (b) Mr. Reisner in no event make any disposition
of all or any portion of stock options unless the requirements as provided in the Reisner Agreement have been satisfied; and (c)
the Company shall have an independent committee of the Board approve each grant of stock options and, if required, by the applicable
regulatory authorities and the shareholders of the Company.
The Company has the right to and may terminate
the Reisner Agreement at any time for Just Cause (as defined therein). Following any such termination, the Company shall pay to
Mr. Reisner an amount equal to the Monthly Salary and Vacation pay earned and payable to Mr. Reisner up to the date of termination,
and Mr. Reisner shall have no entitlement to any further notice of termination, payment in lieu of notice of termination, severance,
continuation of benefits or any damages whatsoever.
The Company also has the right to terminate
the Reisner Agreement without Just Cause and for any reason or no reason whatsoever by providing written notice to Mr. Reisner
specifying the effective date of termination. Mr. Reisner may terminate the Reisner Agreement at any time in connection with a
Change of Control (as defined therein) of the Company by providing not less than 90 calendar days’ notice in writing of said
date of termination to the Company after the Change of Control has been effected. In the event that the Reisner Agreement is terminated
by the Company without Just Cause, or by Mr. Reisner as a result of a Change of Control, the Company will have the obligation to:
(a) pay Mr. Reisner an amount equal to the Monthly Salary and Vacation payable to Mr. Reisner up to the date of termination, together
with any Vacation pay required to comply with applicable employment standards legislation; (b) pay Mr. Reisner his annual performance
Bonus entitlements (as defined therein) calculated pro rata for the period up to the date of termination based on the achievement
of the objectives to such date; (c) pay severance equal to 12 months’ Monthly Salary plus an additional one month’s
Monthly Salary for each completed full year of employment with the Company; and (d) subject to the Company’s Stock Option
Plan and policies of any regulatory authority and stock exchange having jurisdiction over the Company, allow for Mr. Reisner to
exercise any unexercised and fully vested stock options at any time during three months from the date of termination.
Mr. Reisner may terminate the Reisner Agreement
at any time by providing written notice of resignation to the Board of Directors specifying the date of termination (such date
being not less than three months after the date of notice). In the event the Reisner Agreement is terminated by Mr. Reisner’s
resignation, the Company shall pay to Mr. Reisner an amount equal to the Monthly Salary and Vacation pay earned and payable to
Mr. Reisner up to the date of termination, and Mr. Reisner shall have no entitlement to any further notice of termination, payment
in lieu of notice of termination, severance, continuation of benefits or any damages whatsoever.
The Reisner Agreement will automatically
terminate upon the death 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’s estate an amount equal to
the Monthly Salary and Vacation payable to Mr. Reisner up to the date of termination; (b) pay Mr. Reisner’s estate his annual
performance Bonus (entitlements) calculated pro rata for the period up to the date of termination based on the achievement of the
objectives to such date; and (c) subject to the Company’s Stock Option Plan and policies of any regulatory authority and
stock exchange having jurisdiction over the Company, allow for Mr. Reisner’s estate to exercise any unexercised and fully
vested stock options at any time during three months from the date of termination.
The Company may terminate the Reisner Agreement
at any time as a result of Total Disability (as defined therein) by providing 30 calendar days’ written notice. In the event
of such termination, the Company’s obligations under the Reisner Agreement will immediately terminate other than the Company’s
obligations to (a) pay Mr. Reisner’s an amount equal to the Monthly Salary and Vacation payable to Mr. Reisner up to the
date of termination; (b) pay Mr. Reisner his annual performance Bonus entitlements calculated pro rata for the period up to the
date of termination based on the achievement of the objectives to such date; (c) subject to provisions of any Company plans and
arrangements under which Benefits (as defined therein) are being provided to Mr. Reisner, continue each of Mr. Reisner’s
Benefits in full force and effect for a period of six months from the date of termination; and (d) subject to the Company’s
Stock Option Plan and policies of any regulatory authority and stock exchange having jurisdiction over the Company, allow for Mr.
Reisner to exercise any unexercised and fully vested stock options at any time during three months from the date of termination.
Bal Bhullar
On January 15, 2019, our Board of Directors
approved the entering into of a consulting agreement with BKB Management Ltd., a company under the control and direction of Bal
Bhullar, our Chief Executive Officer (the “Consulting Agreement”), which is dated for reference effective on January
1, 2019, and which superseded our Company’s prior offer letter with Ms. Bhullar, dated October 19, 2018. On December 19,
2019, the Company entered into a new executive employment agreement with Ms. Bhullar (the “Bhullar Agreement”) which
is effective January 1, 2020 (the “Effective Date” therein), and which superseded the Consulting Agreement.
The Bhullar Agreement commenced as of its
Effective Date and will continue for a period of three years unless terminated in accordance with its terms. The Bhullar Agreement
shall renew automatically if not specifically terminated by the Company notifying Ms. Bhullar in writing at least 90 calendar days
prior to the end of the term of its intent to not renew the Bhullar Agreement.
Pursuant to the terms of the Bhullar Agreement,
Ms. Bhullar will continue to be employed as our Chief Financial Officer and will: (a) devote reasonable efforts and attentions
to the business and affairs of the Company; (b) perform the Services (as defined in the Bhullar Agreement) in a competent and efficient
manner and in manner consistent with her obligations to the Company and in compliance with all the Company policies; and (c) promote
the interests and goodwill of the Company. Ms. Bhullar will not, directly or indirectly, anywhere in North America, either individually
or in partnership, jointly or in conjunction with any person, firm, association, syndicate, company, whether as agent, shareholder,
employee, consultant, or in any manner whatsoever, engage in any business the same or similar to or in competition with that of
the Company’s Business (as defined therein). However, Ms. Bhullar may hold or become beneficially interest in up to 1% of
any class of securities in any company provided that such class of securities are listed on a recognized stock exchange in Canada
or the United States.
The Company will pay Ms. Bhullar a monthly
base salary from the Effective Date of CAD$23,333.33 (the “Monthly Salary”). The Monthly Salary is subject to increase
based on periodic reviews at the discretion of the Company. The Board of Directors, in its sole discretion, may consider the payment
of a reasonable industry standard bonus to Ms. Bhullar based upon the performance of the Company and upon the achievement by Ms.
Bhullar of reasonable management objectives. Ms. Bhullar will be eligible to participate in benefits, perquisites and allowances,
as such plans and policies may be amended from time to time, and including, but not limited to: (a) group insurance coverage for
dental, health and life insurance; (b) an automobile expense allowance of CAD$300.00 per month; (c) professional dues necessary
to maintain Ms. Bhullar’s professional designation; and (d) no less than five weeks paid vacation per calendar year (the
“Vacation”), such Vacation to extend for such periods and to be taken at such intervals as shall be appropriate and
consistent with the proper performance of Ms. Bhullar’s duties.
The Company may grant Ms. Bhullar stock
options under its Stock Option Plan (as defined therein) from time to time in its absolute discretion. Any stock options granted
will be in accordance with provisions, and including, but not limited to, the following: (a) the exercise of stock options shall
be subject to, at all times, to such vesting and resale provisions as may then be contained in the Company’s Stock Option
Plan as may be finally determined by the Board of Directors acting reasonably; (b) Ms. Bhullar in no event make any disposition
of all or any portion of stock options unless the requirements as provided in the Bhullar Agreement have been satisfied; and (c)
the Company shall have an independent committee of the Board of Directors approve each grant of stock options and, if required,
by the applicable regulatory authorities and the shareholders of the Company.
The Company has the right to and may terminate
the Bhullar Agreement at any time for Just Cause (as defined therein). Following any such termination, the Company shall pay to
Ms. Bhullar an amount equal to the Monthly Salary and Vacation pay earned and payable to Ms. Bhullar up to the date of termination,
and Ms. Bhullar shall have no entitlement to any further notice of termination, payment in lieu of notice of termination, severance,
continuation of benefits or any damages whatsoever.
The Company also has the right to
terminate the Bhullar Agreement without Just Cause and for any reason or no reason whatsoever by providing written notice to
Ms. Bhullar specifying the effective date of termination. Ms. Bhullar may terminate the Bhullar Agreement at any time in
connection with a Change of Control (as defined therein) of the Company by providing not less than 90 calendar days’
notice in writing of said date of termination to the Company after the Change of Control has been effected. In the event that
the Bhullar Agreement is terminated by the Company without Just Cause, or by Ms. Bhullar as a result of a Change of Control,
the Company will have the obligation to: (a) pay Ms. Bhullar an amount equal to the Monthly Salary and Vacation payable to
Ms. Bhullar up to the date of termination, together with any Vacation pay required to comply with applicable employment
standards legislation; (b) pay Ms. Bhullar her annual performance Bonus entitlements (as defined therein) calculated pro rata
for the period up to the date of termination based on the achievement of the objectives to such date; (c) severance equal to
24 months’ Monthly Salary for each completed year of employment with the Company; (d) subject to provisions of any
Company plans and arrangements under which Benefits (as defined therein) are being provided to Ms. Bhullar, continue each of
Ms. Bhullar’s Benefits in full force and effect for a period of 12 months from the date of termination; (e) the Company
shall pay Ms. Bhullar an amount equal to the greater of (i) the average STIP (as defined therein) paid to Ms. Bhullar for the
previous two years and (ii) 80% of Ms. Bhullar’s target annual STIP for the current fiscal year of the Company if Ms.
Bhullar has been employed by the Company for less than two years at the date of termination; and (f) subject to the
Company’s Stock Option Plan and policies of any regulatory authority and stock exchange having jurisdiction over the
Company, allow for Ms. Bhullar to exercise any unexercised and fully vested stock options at any time during the Termination
Option Exercise Period (as defined therein).
The Company may terminate the Bhullar Agreement
by notifying Ms. Bhullar in writing at least 90 calendar days prior to the end of the term of its intent to not renew the Bhullar
Agreement. In the event of such termination, the Company will be obligated to provide Ms. Bhullar with (a) through (f) noted immediately
above, however, the Company will only pay Ms. Bhullar severance equal to four months of Monthly Salary for each completed full
year of employment with the Company.
Ms. Bhullar may terminate the Bhullar Agreement
at any time by providing written notice of resignation to the Board of Directors specifying the date of termination (such date
being not less than three months after the date of notice). In the event the Bhullar Agreement is terminated by Ms. Bhullar’s
resignation, the Company shall pay to Ms. Bhullar an amount equal to the Monthly Salary and Vacation pay earned and payable to
Ms. Bhullar up to the date of termination, and Ms. Bhullar shall have no entitlement to any further notice of termination, payment
in lieu of notice of termination, severance, continuation of benefits or any damages whatsoever.
The Bhullar Agreement will automatically
terminate upon the death of Ms. Bhullar and, upon such termination, the Company’s obligations under the Bhullar Agreement
will immediately terminate other than the Company’s obligations to: (a) pay Ms. Bhullar’s estate an amount equal to
the Monthly Salary and Vacation payable to Ms. Bhullar up to the date of termination; (b) pay Ms. Bhullar’s estate her annual
performance Bonus entitlements calculated pro rata for the period up to the date of termination based on the achievement of the
objectives to such date; and (c) subject to the Company’s Stock Option Plan and policies of any regulatory authority and
stock exchange having jurisdiction over the Company, allow for Ms. Bhullar’s estate to exercise any unexercised and fully
vested stock options at any time during the Termination Option Exercise Period from the date of termination.
The Company may terminate the Bhullar Agreement
at any time because of Total Disability (as defined therein) by providing 30 calendar days’ written notice. In the event
of such termination, the Company’s obligations under the Bhullar Agreement will immediately terminate other than the Company’s
obligations to (a) pay Ms. Bhullar an amount equal to the Monthly Salary and Vacation payable to Ms. Bhullar up to the date of
termination; (b) pay Ms. Bhullar her annual performance Bonus entitlements calculated pro rata for the period up to the Date of
Termination based on the achievement of the objectives to such date; (c) subject to provisions of any Company plans and arrangements
under which Benefits are being provided to Ms. Bhullar, continue each of Ms. Bhullar’s Benefits in full force and effect
for a period of 12 months from the date of termination; and (d) subject to the Company’s Stock Option Plan and policies of
any regulatory authority and stock exchange having jurisdiction over the Company, allow for Ms. Bhullar to exercise any unexercised
and fully vested stock options at any time during the Termination Option Exercise Period from the date of termination.
Jerry Kroll
On January 15, 2019, our Board of Directors
approved the entering into of an executive employment agreement with Jerry Kroll (the “Kroll Agreement”), which is
dated for reference effective on January 1, 2019, and which superseded the Company’s prior agreement with Mr. Kroll, dated
July 1, 2016, which had been amended in August of 2018. On August 16, 2019 the Company entered into a continuing relationship agreement
with Jerry Kroll (the “Continuing Relationship Agreement”), which superseded the Kroll Agreement.
Pursuant to the terms of the Continuing
Relationship Agreement, the Company has no further obligations under the Kroll Agreement other than to: (a) pay Mr. Kroll’s
Executive Base Salary (as defined in the Kroll Agreement) accrued to August 16, 2019; (b) pay Mr. Kroll any accrued and unused
vacation; (c) reimburse Mr. Kroll for expenses incurred up to August 16, 2019 that are reimbursable pursuant to the Kroll Agreement;
and (d) pay Mr. Kroll an amount equal to the Base Salary (as defined in the Kroll Agreement) for a one year period payable in 12
installments.
Pursuant to the terms of the
Continuing Relationship Agreement, Mr. Kroll will continue to conceptualize new concepts for products and business with the
consent, and under the direction of, the Company’s Chief Executive Officer and/or the Company’s Board of
Directors. Mr. Kroll will not have the authority to bind the Company nor will Mr. Kroll make any agreements or
representations on behalf of the Company without the Company’s prior written consent. Mr. Kroll may be engaged or
employed in any other business, trade, profession, or activity, which does not (i) involve electric vehicles or their
components, including their manufacturing, distribution, marketing, or sale, or (ii) place him in a conflict of interest with
the Company. During the term of the Continuing Relationship Agreement and for a period of 12 months following expiration or
termination, Mr. Kroll will not make any solicitation to employ the personnel of the Company (including its subsidiaries)
without prior written consent of the Company.
Mr. Kroll will not be eligible to participate
in any vacation, group medical or life insurance, disability, profit sharing, or retirement benefits, or any other fringe benefits
or benefit plans offered by the Company to its employees. Though Mr. Kroll will not be an employee of the Company, Mr. Kroll will
agree to adhere to the Company’s policies governing media and social media activities and the Company’s Code of Ethics.
Pursuant to the Continuing Relationship
Agreement, the Company will grant Mr. Kroll 1,250,000 stock options to acquire common shares of the Company which shall (i) be
exercisable at a price of USD$2.45 per option and (ii) vest in 12 equal installments. The 18,966 stock options previously granted
to Mr. Kroll that had not vested as of August 16, 2019, will be deemed to be fully vested and remain exercisable by Mr. Kroll.
The Continuing Relationship Agreement will
terminate upon its one-year anniversary unless terminated earlier. The Continuing Relationship Agreement may be extended with the
mutual consent of the Company and Mr. Kroll. The Continuing Relationship Agreement may be terminated by the Company and Mr. Kroll,
effective immediately upon 60 days’ written notice, if the other party breaches the Continuing Relationship Agreement. Upon
expiration or termination of the Continuing Relationship Agreement, Mr. Kroll will have five calendar days following expiration
or termination to: (a) deliver to the Company all hardware, software, tools, equipment, or other materials provided by the Company;
(b) deliver to the Company all tangible documents and materials containing, reflecting, incorporating or based on Confidential
Information (as defined in the Continuing Relationship Agreement); (c) permanently erase all Confidential Information (as defined
therein) from his computer systems; and (d) certify to the Company that he has complied with the requirements noted above.
Isaac Moss
On January 15, 2019, our Board of Directors
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 superseded 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 its 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 30th day of each month. Effective May 1, 2019, Mr. Moss annual fee was amended to $250,000.
The Company has the right to and may terminate
the Moss Agreement for Cause (as defined in the Moss Agreement) immediately upon written notice to Mr. Moss. Following any such
termination for Cause (as defined therein), 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.
Stock Option Plans and Stock Options
The following table sets forth, as at December
31, 2019, the equity compensation plans pursuant to which equity securities of the Company may be issued:
Plan Category
|
|
Number of
securities to be
issued upon
exercise of
outstanding
options
(a)
|
|
|
Weighted-
average
exercise price
of outstanding
options ($) (b)
|
|
|
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a)) (c)
|
|
Equity compensation plans approved by securityholders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Equity compensation plans not approved by securityholders
|
|
|
12,908,315
|
|
|
$
|
2.07
|
|
|
|
17,091,685
|
|
Total
|
|
|
12,908,315
|
|
|
$
|
2.07
|
|
|
|
17,091,685
|
|
2015 Stock Option Plan
On June 11, 2015, our Board of Directors
adopted our 2015 Stock Option Plan (the “Stock Option Plan”) under which an aggregate of 30,000,000 common shares may
be issued, subject to adjustment as described in the Stock Option Plan. As at December 31, 2019, there were 12,908,315 outstanding
stock options under the Stock Option Plan leaving an additional 17,091,685 options to acquire common shares that may be granted
under the Stock Option Plan.
The purpose of the Stock Option Plan is
to retain the services of valued key employees, directors and consultants of the Company and such other persons as the plan administrator,
which is currently the Board of Directors, shall select in accordance with the eligibility requirements of the Stock Option Plan,
and to encourage such persons to acquire a greater proprietary interest in the Company, thereby strengthening their incentive to
achieve the objectives of the shareholders of the Company, and to serve as an aid and inducement in the hiring of new employees
and to provide an equity incentive to consultants and other persons selected by the plan administrator. The Stock Option Plan shall
be administered initially by the Board of Directors of the Company, except that the Board of Directors may, in its discretion,
establish a committee composed of two or more members of the Board of Directors to administer the Stock Option Plan, which committee
may be an executive, compensation or other committee, including a separate committee especially created for this purpose.
Unless accelerated in accordance with
the Stock Option Plan, unvested options shall terminate immediately upon the optionee resigning from or the Company
terminating the optionee’s employment or contractual relationship with the Company or any related company for any
reason whatsoever, including death or disability. Options that have vested shall terminate, to the extent not previously
exercised, upon the occurrence of the first of the following events: (i) the expiration of the option as designated by the
plan administrator; (ii) the date of an optionee’s termination of employment or contractual relationship with the
Company or any related company for cause (as determined in the sole discretion of the plan administrator); (iii) the
expiration of three months from the date of an optionee’s termination of employment or contractual relationship with
the Company or any related company for any reason whatsoever other than cause, death or disability; or (iv) the expiration of
three months from termination of an optionee’s employment or contractual relationship by reason of death or disability.
Upon the death of an optionee, any vested options held by the optionee shall be exercisable only by the person or persons to
whom such optionee’s rights under such option shall pass by the optionee’s will or by the laws of descent and
distribution of the optionee’s domicile at the time of death and only until such options terminate as provided above.
For purposes of the Stock Option Plan, unless otherwise defined in the stock option agreement between the Company and the
optionee, “disability” shall mean medically determinable physical or mental impairment which has lasted or can be
expected to last for a continuous period of not less than six months or that can be expected to result in death. The plan
administrator shall determine whether an optionee has incurred a disability on the basis of medical evidence acceptable to
the plan administrator. Upon making a determination of disability, the plan administrator shall, for purposes of the Stock
Option Plan, determine the date of an optionee’s termination of employment or contractual relationship.
The foregoing summary of the Stock Option
Plan is not complete and is qualified in its entirety by reference to the Stock Option Plan, which is filed as Exhibit 99.1 to
our registration statement on Form F-1 under the Securities Act, as filed with the SEC on October 11, 2016 and is incorporated
by reference herein.
Incentive Plan Awards
The following table sets out information
on the incentive plan awards held by Named Executive Officers and/or directors as at December 31, 2019.
|
|
Option–based Awards
|
|
Named Executive Officer
or Director
|
|
Number of securities underlying
unexercised options (#)
|
|
|
Option exercise
price
|
|
|
Option expiration
date
|
|
Michael Paul Rivera, Chief Executive Officer and a director
|
|
|
700,000
|
|
|
|
$
|
2.62 USD
|
|
|
Jun 25, 2022
|
|
|
|
|
2,300,000
|
|
|
|
$
|
1.91 USD
|
|
|
Dec 6, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry Kroll, a director
|
|
|
2,045,455
|
|
|
|
$
|
0.30 CAD
|
|
|
June 11, 2022
|
|
|
|
|
227,273
|
|
|
|
$
|
0.80 CAD
|
|
|
Dec. 9, 2022
|
|
|
|
|
5,000
|
|
|
|
$
|
2.00 CAD
|
|
|
Feb. 17, 2024
|
|
|
|
|
5,000
|
|
|
|
$
|
9.60 USD
|
|
|
Jan 5, 2025
|
|
|
|
|
1,250,000
|
|
|
|
$
|
2.45 USD
|
|
|
Aug 4, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bal Bhullar, Chief Financial
Officer, Secretary and a director
|
|
|
400,000
|
|
|
|
$
|
3.40 USD
|
|
|
Mar 19, 2026
|
|
|
|
|
1,100,000
|
|
|
|
$
|
1.91 USD
|
|
|
Dec 6, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry Reisner, Chief Operating Officer, President and a director
|
|
|
56,818
|
|
|
|
$
|
0.30 CAD
|
|
|
Aug. 13, 2022
|
|
|
|
|
56,818
|
|
|
|
$
|
0.80 CAD
|
|
|
Dec. 9, 2022
|
|
|
|
|
5,000
|
|
|
|
$
|
2.00 CAD
|
|
|
Feb. 17, 2024
|
|
|
|
|
5,000
|
|
|
|
$
|
9.60 USD
|
|
|
Jan 5, 2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Isaac Moss, Chief Administrative Officer
|
|
|
250,000
|
|
|
|
$
|
3.40 USD
|
|
|
Mar 19, 2026
|
|
|
|
|
750,000
|
|
|
|
$
|
1.91 USD
|
|
|
Dec 6, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven Sanders, Chairman and a director
|
|
|
120,000
|
|
|
|
$
|
3.40 USD
|
|
|
Mar 19, 2026
|
|
|
|
|
225,000
|
|
|
|
$
|
1.91 USD
|
|
|
Dec 6, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Luisa Ingargiola, a director
|
|
|
120,000
|
|
|
|
$
|
3.40 USD
|
|
|
Mar 19, 2026
|
|
|
|
|
225,000
|
|
|
|
$
|
1.91 USD
|
|
|
Dec 6, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jack Austin, a director
|
|
|
120,000
|
|
|
|
$
|
1.53 USD
|
|
|
Nov 19, 2023
|
|
|
|
|
225,000
|
|
|
|
$
|
1.91 USD
|
|
|
Dec 6, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joanne Yan, a director
|
|
|
2,500
|
|
|
|
$
|
2.00 CAD
|
|
|
Feb 17, 2024
|
|
|
|
|
2,500
|
|
|
|
$
|
9.60 USD
|
|
|
Jan 5, 2025
|
|
|
|
|
120,000
|
|
|
|
$
|
3.40 USD
|
|
|
Mar 19, 2026
|
|
|
|
|
225,000
|
|
|
|
$
|
1.91 USD
|
|
|
Dec 6, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Savagian, a director
|
|
|
120,000
|
|
|
|
$
|
1.80 USD
|
|
|
Oct 17, 2026
|
|
|
|
|
225,000
|
|
|
|
$
|
1.91 USD
|
|
|
Dec 6, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iain Ball, former Vice-President, Finance(1)
|
|
|
34,091
|
|
|
|
$
|
0.80 CAD
|
|
|
Dec 9, 2022
|
|
|
|
|
3,642
|
|
|
|
$
|
2.00 CAD
|
|
|
Feb. 17, 2024
|
|
|
|
|
2,498
|
|
|
|
$
|
9.60 USD
|
|
|
Jan. 5, 2025
|
|
|
|
|
183,182
|
|
|
|
$
|
3.40 USD
|
|
|
Mar 19, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ed Theobald, former General Manager(2)
|
|
|
22,727
|
|
|
|
$
|
0.30 CAD
|
|
|
Aug. 13, 2022
|
|
|
|
|
34,091
|
|
|
|
$
|
0.80 CAD
|
|
|
Dec. 9, 2022
|
|
|
|
|
5,000
|
|
|
|
$
|
2.00 CAD
|
|
|
Feb. 17, 2024
|
|
|
|
|
5,000
|
|
|
|
$
|
9.60 USD
|
|
|
Jan 5, 2025
|
|
|
|
|
56,818
|
|
|
|
$
|
2.53 USD
|
|
|
Aug 9, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lorenzo Caprilli, former Executive Vice-President Sales and Marketing(5)
|
|
|
25,000
|
|
|
|
$
|
0.30 CAD
|
|
|
Aug. 13, 2022
|
|
|
|
|
50,000
|
|
|
|
$
|
0.80 CAD
|
|
|
Dec. 9, 2022
|
|
|
|
|
3,434
|
|
|
|
$
|
2.00 CAD
|
|
|
Feb. 17, 2024
|
|
|
|
|
2,394
|
|
|
|
$
|
9.60 USD
|
|
|
Jan 5, 2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shaun Greffard, a former director(3)
|
|
|
25,000
|
|
|
|
$
|
0.30 CAD
|
|
|
Aug. 13, 2022
|
|
|
|
|
12,500
|
|
|
|
$
|
0.80 CAD
|
|
|
Dec. 9, 2022
|
|
|
|
|
125,000
|
|
|
|
$
|
2.00 CAD
|
|
|
Feb. 17, 2024
|
|
|
|
|
5,000
|
|
|
|
$
|
9.60 USD
|
|
|
Jan 5, 2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Tarzwell, a former director(4)
|
|
|
12,500
|
|
|
|
$
|
0.30 CAD
|
|
|
Aug. 13, 2022
|
|
|
|
|
2,500
|
|
|
|
$
|
2.00 CAD
|
|
|
Feb. 17, 2024
|
|
|
|
|
5,000
|
|
|
|
$
|
9.60 USD
|
|
|
Jan 5, 2025
|
|
(1)
|
Mr. Ball resigned as an officer on June 30, 2019.
|
|
|
(2)
|
Mr. Theobald resigned as an officer on June 30, 2019.
|
|
|
(3)
|
Mr. Greffard resigned as a director on December 6, 2019.
|
|
|
(4)
|
Dr. Tarzwell resigned as a director on March 6, 2019.
|
|
|
(5)
|
Mr. Caprilli resigned as an officer on November 30, 2019.
|
The following table provides information
concerning the incentive award grants of the Company with respect to each Named Executive Officer during the fiscal year ended
December 31, 2019. The only incentive award grants of the Company during such fiscal year was under the Stock Option Plan:
Named Executive Officer
and Director
|
|
Option-based
Awards –
Value Vested
During the
Year ($)(1)
|
|
|
Non-Equity
Incentive Plan
Compensation –
Value
Vested During the
Year ($)
|
Michael Paul Rivera, Chief Executive Officer
|
|
$
|
Nil
|
|
|
Nil
|
Jerry Kroll, former President and Chief Executive Officer
|
|
$
|
800,379
|
|
|
Nil
|
Bal Bhullar, Chief Financial Officer and Secretary
|
|
$
|
Nil
|
|
|
Nil
|
Isaac Moss, Chief Administrative Officer
|
|
$
|
6,652
|
|
|
Nil
|
Iain Ball, former Vice-President, Finance
|
|
$
|
38,345
|
|
|
Nil
|
Henry Reisner, Chief Operating Officer and President
|
|
$
|
66,159
|
|
|
Nil
|
Ed Theobald, former General Manager
|
|
$
|
23,249
|
|
|
Nil
|
Lorenzo
Caprilli, former Executive Vice-President Sales and Marketing
|
|
$
|
43,982
|
|
|
Nil
|
|
(1)
|
The amount represents the aggregate dollar value that would have been realized if the options had been exercised on the vesting date, based on the difference between the closing price of our shares on the Nasdaq on vesting date, and the exercise price of the options, multiplied by the number of options that have vested.
|
Director Compensation for Fiscal 2019
The following table sets forth all compensation
for services as a director to the Company during the fiscal year ended December 31, 2019 in respect of the directors set out below,
which for those directors who are Named Executive Officers excludes compensation for services provided as a Named Executive Officer.
Director
|
|
Year
|
|
Salary ($)
|
|
|
Share-based
awards ($)
|
|
|
Option-based
awards ($) (1)
|
|
|
All Other
Compensation ($)
|
|
|
Total
Compensation ($)
|
|
Michael Paul Rivera
|
|
2019
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
Jerry Kroll
|
|
2019
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
Bal Bhullar
|
|
2019
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
Henry Reisner
|
|
2019
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
Shaun Greffard
|
|
2019
|
|
|
60,000
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
60,000
|
|
Luisa Ingargiola
|
|
2019
|
|
|
105,727
|
|
|
|
Nil
|
|
|
|
511,049
|
|
|
|
Nil
|
|
|
|
616,776
|
|
Steven Sanders
|
|
2019
|
|
|
156,948
|
|
|
|
Nil
|
|
|
|
511,049
|
|
|
|
Nil
|
|
|
|
667,997
|
|
Robert Tarzwell
|
|
2019
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
Jack Austin
|
|
2019
|
|
|
67,500
|
|
|
|
Nil
|
|
|
|
261,777
|
|
|
|
Nil
|
|
|
|
329,277
|
|
Joanne Yan
|
|
2019
|
|
|
15,000
|
|
|
|
Nil
|
|
|
|
522,846
|
|
|
|
Nil
|
|
|
|
537,846
|
|
Peter Savagian
|
|
2019
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
395,524
|
|
|
|
Nil
|
|
|
|
395,524
|
|
|
(1)
|
Option-based awards represent the fair value of stock options granted in the year under the Stock
Option Plan. The fair value of stock options granted is calculated as of the grant date using the Black-Scholes option pricing
model. For a discussion of the assumptions made in the valuation, refer to Note 11 to our financial statements for the fiscal year
ended December 31, 2019.
|
We reimburse out-of-pocket costs that are incurred by the directors.
In March of 2018 our Board of Directors
appointed a Compensation Committee to assess the appropriate level of remuneration for our directors and officers.
Pension Benefits
We do not have any defined benefit pension
plans or any other plans providing for retirement payments or benefits.
Termination of Employment and Change
of Control Benefits
Details with respect to termination of
employment and change of control benefits for our directors and executive officers is reported above under the section titled “Executive
Compensation Agreements.”
C. Board Practices
Board of Directors
Our Notice of Articles and Articles were
filed as an exhibit to our registration statement on Form F-1 as filed with the SEC on October 12, 2016 and incorporated herein
by reference. The Articles of the Company provide that the number of directors 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).
|
Our Board of Directors currently consists
of nine directors. Our directors are elected annually at each annual meeting of our Company’s shareholders. The Board of
Directors assesses potential Board candidates to fill perceived needs on the Board of Directors for required skills, expertise,
independence and other factors.
Our Board of Directors is responsible for
appointing our Company’s officers.
Board of Director Committees
Our Board of Directors currently has six
committees, the Audit Committee, the Nominating Committee, the Corporate Governance and Human Resources Committee, the Compensation
Committee, the Enterprise Risk Oversight Committee and the Social Media Committee.
Audit Committee
Our Audit Committee consists of Luisa Ingargiola,
Steven Sanders, Joanne Yan and Peter Savagian and is chaired by Luisa Ingargiola. Each member of the Audit Committee satisfies
the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq and meets the independence standards
under Rule 10A-3 under the Exchange Act. Our Audit Committee consists solely of independent directors that satisfy the Nasdaq and
SEC requirements. Our Board of Directors believes that Louisa Ingargiola qualifies as an audit committee financial expert pursuant
to Items 16A(b) and (c) of Form 20-F. The Audit Committee oversees our accounting and financial reporting processes and the audits
of the financial statements of our Company. The Audit Committee is responsible for, among other things:
|
·
|
selecting our independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by our independent registered public accounting firm;
|
|
·
|
reviewing with our independent registered public accounting firm any audit problems or difficulties and management’s response and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K;
|
|
·
|
discussing the annual audited financial statements with management and our independent registered public accounting firm;
|
|
·
|
annually reviewing and reassessing the adequacy of our Audit Committee Charter;
|
|
·
|
meeting separately and periodically with the management and our internal auditor and our independent registered public accounting firm;
|
|
·
|
reporting regularly to the full Board of Directors;
|
|
·
|
reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposure; and
|
|
·
|
such other matters that are specifically delegated to our Audit Committee by our Board of Directors from time to time.
|
Nominating Committee
Our Nominating Committee consists of Steven
Sanders, Luisa Ingargiola, Peter Savagian and Joanne Yan and is chaired by Steven Sanders. The Nominating Committee is responsible
for overseeing the selection of persons to be nominated to serve on our Board of Directors. The Nominating Committee considers
persons identified by its members, management, shareholders, investment bankers and others.
Corporate Governance and Human Resources
Committee
Our Corporate Governance and Human Resources
Committee consists of Steven Sanders, Luisa Ingargiola, Jack Austin and Joanne Yan and is chaired by Steven Sanders. The Corporate
Governance and Human Resources Committee shall be responsible for: developing our approach to the Board of Directors and corporate
governance issues; helping to maintain an effective working relationship between the Board of Directors and management; exercising,
within the limits imposed by our by-laws, by applicable laws, and by the Board of Directors, the powers of the Board of Directors
for the management and direction of our affairs during the intervals between meetings of the Board of Directors; reviewing and
making recommendations to the Board of Directors for the appointment of our senior executives and for considering their terms of
employment; reviewing succession planning and matters of compensation; recommending awards under our long term and short term incentive
plans; assuming the role of administrator, whether by delegation or by statute, for the corporate-sponsored registered pension
plans and our Supplementary Executive Retirement Plan and its wholly-owned subsidiaries and any future, additional or replacement
plans relating to the plans; and monitoring the investment performance of the trust funds for the plans and compliance with applicable
legislation and investment policies.
Our Corporate Governance and Human Resources
Committee shall also review any “red flags” or issues that may arise out of the Compensation Committee compensation
and award recommendations and report them to the Board of Directors. The Compensation Committee and the Corporate Governance and
Human Resources Committee, at times, may be collaborative but will not coordinate as the process is intended to be a “checks
and balance” approach. It is set up as an internal control mechanism that would safeguard against fraud and errors due to
omission.
Compensation Committee
Our Compensation Committee consists of
Luisa Ingargiola, Steven Sanders, Joanne Yan, Peter Savagian and Jack Austin and is chaired by Luisa Ingargiola. Each of the Compensation
Committee members satisfies the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock
Market. Our Compensation Committee will assist the Board of Directors in reviewing and approving the compensation structure, including
all forms of compensation, relating to our directors and executive officers. No officer may be present at any committee meeting
during which such officer’s compensation is deliberated upon. The Compensation Committee will be responsible for, among other
things:
|
·
|
reviewing and recommending to the Board of Directors for approval with respect to the total compensation package for our most senior executive officers;
|
|
·
|
approving and overseeing the total compensation package for our executives other than the most senior executive officers;
|
|
·
|
reviewing and recommending to the Board of Directors with respect to the compensation of our directors;
|
|
·
|
reviewing periodically and approving any long-term incentive compensation or equity plans;
|
|
·
|
selecting compensation consultants, legal counsel or other advisors after taking into consideration all factors relevant to that person’s independence from management; and
|
|
·
|
programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans.
|
Enterprise Risk Oversight Committee
Our Enterprise Risk Oversight Committee
consists of Steven Sanders, Luisa Ingargiola and Peter Savagian and is chaired by Steven Sanders. The Enterprise Risk Oversight
Committee shall oversee the effectiveness of risk management policies, procedures and practices implemented by management of the
Company with respect to strategic, operational, environmental, health and safety, human resources, legal and compliance and other
risks faced by the Company. The Enterprise Risk Oversight Committee shall:
|
·
|
review executive management’s assessment of our material risk exposures and our actions to identify, monitor and mitigate such exposures,
|
|
·
|
review executive management’s implementation of systems and controls designed to promote compliance with applicable legal and regulatory requirements and
|
|
·
|
report to the Board of Directors on an annual basis with respect to the committee’s review of our material risks and measures in place to mitigate them, and at least annually in respect of the committee’s other activities.
|
Social Media Committee
Our Social Media Committee consists of
Luisa Ingargiola, Steven Sanders and Joanne Yan and is chaired by Luisa Ingargiola. The Social Media Committee shall oversee our
social media strategy initiatives pursuant to Regulation FD. The Social Media Committee shall:
|
·
|
provide compliant Regulation FD strategic leadership for social media through the alignment of social media strategies and activities with enterprise strategic objectives and processes;
|
|
·
|
establish and maintain corporate policies with respect to use of social media for both process-driven social engagements, as well as for use of social media by employees for participating in social conversations (e.g. blogging and Tweeting by subject matter experts);
|
|
·
|
prioritize social media initiatives and deliver final approvals and recommendations on proceeding with proposed social media projects, including process, technology and organizational projects; and
|
|
·
|
ensure open communication between the social media department and our other functional units so as to promote collaborative strategies, planning, and implementation.
|
D. Employees
As of March 25, 2020, we employed a total
of 63 full-time and no part-time people. None of our employees are covered by a collective bargaining agreement.
The breakdown of employees by main category
of activity is as follows:
Activity
|
|
Number of
Employees
|
|
Engineering/R&D
|
|
|
37
|
|
Sales & Marketing
|
|
|
10
|
|
General & Administration
|
|
|
12
|
|
Executives
|
|
|
4
|
|
E. Share Ownership
Shares
The shareholdings of our officers and directors
are set out in Item 7 below.
Options
The stock options, exercisable into common
shares of the Company, held by our officers and directors are set out in Item 6 B above.
Warrants
Warrants, exercisable into common shares
of the Company, held by our officers and directors are set forth below as of March 25, 2020.
Name
|
|
Position
|
|
Allotment date
|
|
Expiration date
|
|
Exercise price
|
|
|
Total
|
|
Joanne Yan
|
|
Director
|
|
Nov. 21, 2016
|
|
Nov. 21, 2021
|
|
$
|
4.00
|
|
|
|
50,000
|
|
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain
information regarding the beneficial ownership of our common share as of March 25, 2020 by (a) each stockholder who is known to
us to own beneficially 5% or more of our outstanding common share; (b) all directors; (c) our executive officers, and (d) all executive
officers and directors as a group. Except as otherwise indicated, all persons listed below have (i) sole voting power and investment
power with respect to their common shares, except to the extent that authority is shared by spouses under applicable law, and (ii)
record and beneficial ownership with respect to their common shares.
Name
|
|
Common
Shares of the
Company
Beneficially
Owned (1)
|
|
|
Percentage of
Common
Shares
Beneficially
Owned (2)
|
|
Directors and Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Paul Rivera(3), Chief Executive Officer and a director
|
|
|
418,182
|
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
Henry Reisner(4), Chief Operating Officer, President and a director
|
|
|
3,145,816
|
|
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
|
Bal Bhullar(5), Chief Financial Officer, Secretary and a director
|
|
|
587,235
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
Steven Sanders(6), Chairman and a director
|
|
|
176,250
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Jerry Kroll(7), a director
|
|
|
11,574,395
|
|
|
|
28.6
|
%
|
|
|
|
|
|
|
|
|
|
Joanne Yan(8), a director
|
|
|
254,840
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Jack Austin(9), a director
|
|
|
176,250
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Luisa Ingargiola(10), a director
|
|
|
176,250
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Peter Savagian(11), a director
|
|
|
126,250
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Isaac Moss(12), Chief Administrative Officer
|
|
|
596,152
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
Directors and Executive Officers as a Group (Eleven Persons)
|
|
|
17,231,620
|
|
|
|
43.8
|
%
|
|
|
|
|
|
|
|
|
|
Other 5% or more Shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Megan Martin(13)
|
|
|
2,700,000
|
|
|
|
7.2
|
%
|
|
|
|
|
|
|
|
|
|
Yuan Sheng Zhang(14)
|
|
|
2,700,000
|
|
|
|
7.2
|
%
|
|
|
|
|
|
|
|
|
|
Shang Wen Yang(15)
|
|
|
3,762,972
|
|
|
|
9.9
|
%
|
|
|
|
|
|
|
|
|
|
Unison International Holdings Ltd.(16)
|
|
|
3,200,000
|
|
|
|
8.2
|
%
|
|
|
|
|
|
|
|
|
|
Zongshen (Canada) Environtech Ltd.(17)
|
|
|
2,800,000
|
|
|
|
7.3
|
%
|
|
(1)
|
Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or common shares: (i) voting power, which includes the power to vote, or to direct the voting of common shares; and (ii) investment power, which includes the power to dispose or direct the disposition of common shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the common shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of common shares actually outstanding on March 25, 2020.
|
|
(2)
|
The percentage is calculated based on 37,049,374 common shares that were outstanding as of March 25, 2020.
|
|
(3)
|
Shares beneficially owned consists of (i) stock options to purchase 278,788 of our common shares which have vested and (ii) 139,394 shares of our common stock which will vest within 60 days of March 25, 2020.
|
|
(4)
|
Shares beneficially owned consists of (i) 2,375,000 common shares registered directly to Henry Reisner, (ii) 525,000 common shares held of record by Mr. Reisner’s wife, (iii) 125,000 common shares held of record by Mr. Reisner’s daughter, (iv) stock options to purchase 120,400 shares of our common stock which have vested and (v) stock options to purchase 416 shares of our common stock which will vest within 60 days of March 25, 2020.
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(5)
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Shares beneficially owned consists of (i) 3,900 common shares registered directly to Bal Bhullar, (ii) stock options to purchase 522,224 shares of our common stock which have vested and (iii) stock options to purchase 61,111 shares of our common stock which will vest within 60 days of March 25, 2020.
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(6)
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Shares beneficially owned consists of stock options to purchase 176,250 shares of our common share which have vested.
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(7)
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Shares beneficially owned consists of (i) 3,612,500 common shares held by Jerry Kroll, (ii) 5,000,000 common shares registered to Ascend Sportmanagement Inc. (over which Mr. Kroll has discretionary voting and investment authority), (iii) 62,500 common shares issuable upon the exercise of warrants registered directly to Mr. Kroll, (iv) stock options to purchase 3,116,062 shares of our common stock which have vested and (v) stock options to purchase 208,333 shares of our common stock which will vest within 60 days of March 25, 2020.
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(8)
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Shares beneficially owned consists of (i) 25,000 common shares registered directly to Joanne Yan, (ii) 50,000 common shares issuable upon the exercise of warrants registered directly to Ms. Yan, (iii) stock options to purchase 179,632 shares of our common stock which have vested and (iv) stock options to purchase 208 shares of our common stock which will vest within 60 days of March 25, 2020.
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(9)
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Shares beneficially owned consists of stock options to purchase 176,250 shares of our common share which have vested.
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(10)
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Shares beneficially owned consists of stock options to purchase 176,250 shares of our common share which have vested.
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(11)
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Shares beneficially owned consists of (i) stock options to purchase 106,250 shares of our common stock which have vested and (ii) stock options to purchase 20,000 shares of our common stock which will vest within 60 days of March 25, 2020.
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(12)
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Shares beneficially owned consists of (i) stock options to purchase 480,768 shares of our common stock which have vested and (ii) stock options to purchase 115,384 shares of our common stock which will vest within 60 days of March 25, 2020.
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(13)
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Shares beneficially owned consists of (i) 625,000 common shares held by to Megan Martin, (ii) 625,000 common shares held by Ms. Martin’s husband, Yuan Sheng Zhang, (iii) 100,000 common shares held by Ms. Martin’s son, Bo Hong Zhang, (iv) 625,000 common shares issuable upon the exercise of warrants registered directly to Ms. Martin, (v) 625,000 common shares issuable upon the exercise of warrant registered directly to Ms. Martin’s husband and (vi) 100,000 common shares issuable upon the exercise of warrants registered directly to Ms. Martin’s son.
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(14)
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Shares beneficially owned consists of (i) 625,000 common shares held by Yuan Sheng Zhang, (ii) 625,000 common shares held by Mr. Zhang’s wife, Megan Martin, (iii) 100,000 common shares held by Mr. Zhang’s son, Bo Hong Zhang, (iv) 625,000 common shares issuable upon the exercise of warrants registered directly to Mr. Zhang, (v) 625,000 common shares issuable upon the exercise of warrants registered directly to Mr. Zhang’s wife and (vi) 100,000 common shares issuable upon the exercise of warrants registered directly to Mr. Zhang’s son.
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(15)
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Shares beneficially owned consists of (i) 1,029,688 common shares registered directly to Shang Wen Yang (ii) 500,017 common shares held by Mr. Yang’s mother, Cheng Quan Sang, (iii) 320,080 common shares held by Canada Jia-Qiao Group Investment Ltd. (over which Mr. Yang’s mother has discretionary voting and investment authority), (iv) stock options held by Shang Wen Yang to purchase 57,090 shares of our common stock which have vested, (v) 1,000,000 common shares issuable upon the exercise of warrants registered directly to Shang Wen Yang, (vi) 500,017 common shares issuable upon the exercise of warrants registered directly to Mr. Yang’s mother and (vii) 320,080 common shares issuable upon the exercise of warrants registered directly to Canada Jia-Qiao Group Investment Ltd.
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(16)
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Shares beneficially owned consists of (i) 1,200,000 common shares registered directly to Unison International Holdings Ltd. and (ii) 2,000,000 common shares issuable upon the exercise of warrants registered directly to Unison International Holdings Ltd. (over which Mr. Ping Hui Lu has discretionary voting and investment authority).
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(17)
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Shares beneficially owned consists of (i) 1,400,000 common shares registered directly to Zongshen (Canada) Environtech Ltd. and (ii) 1,400,000 common shares issuable upon the exercise of warrants registered directly to Zongshen (Canada) Environtech Ltd. (over which Mr. Daxue Zhang has discretionary voting and investment authority).
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The information as to shares beneficially
owned, not being within our knowledge, has been furnished by the officers and directors.
As at March 25, 2020, there were 85 holders
of record of our common shares.
Transfer Agent
Our shares of common stock are recorded
in registered form on the books of our transfer agent, VStock Transfer, LLC, located 18 Lafayette Place, Woodmere, New York 11598.
B. Related Party Transactions
Michael Paul Rivera
On June 24, 2019, we granted 700,000 stock
options to Mr. Rivera having an exercise price of USD$2.62 per common share and being exercisable until June 24, 2022. On December
6, 2019, we granted 2,300,000 stock options to Mr. Rivera having an exercise price of USD$1.91 per common share and being exercisable
until December 6, 2022.
On May 17, 2019, the Company entered into
the Rivera Agreement with Mr Rivera. Effective on January 1, 2020, Mr. Rivera and the Company entered into the Amended Rivera Agreement
to the Rivera Agreement. Mr. Rivera has a base salary annual salary of USD$300,000 with a guaranteed bonus of USD$150,000. Mr.
Rivera had a bonus of USD$38,904 for 2019.
Henry Reisner
On October 18, 2017, we entered into a
Share Purchase Agreement (the “SPA”) to acquire InterMeccanica with Mr. Reisner and two members of his family, which
replaced a prior Joint Operating Agreement, dated July 15, 2015, as amended on September 19, 2016, which was comprised of three
underlying agreements. Under the SPA, we agreed to purchase all the shares of InterMeccanica for $2,500,000; $300,000 of which
had been previously paid under the Joint Operating Agreement. At closing we paid the sellers $700,000 and issued a promissory note
(the “Note”) for the balance of $1,500,000. On January 28, 2018, we paid off all of the principal and interest due
on the Note for $1,520,548.
On February 16, 2015, Mr. Reisner acquired
2,375,000 common shares at a price of $0.0004 per common share pursuant to a private placement. Mr. Reisner’s wife
and daughter acquired 525,000 common shares and 125,000 common shares, respectively, at a price of $0.0004 per common share
pursuant to a private placement.
On August 13, 2015, we granted 625,000
stock options to Mr. Reisner having an exercise price of $0.30 per common share and being exercisable until August 13, 2022.
On July 20, 2018, Mr. Reisner agreed to forfeit an aggregate of 568,182 of those stock options. As of the date hereof, Mr.
Reisner holds 56,818 of those stock options. In addition, on December 9, 2015, we granted 625,000 stock options to Mr. Reisner
having an exercise price of $0.80 per common share and being exercisable until December 9, 2022. On July 20, 2018, Mr. Reisner
agreed to forfeit an aggregate of 568,182 of those stock options. As of the date hereof, Mr. Reisner holds 56,818 of those stock
options. On February 17, 2017, we granted 5,000 stock options to Mr. Reisner having an exercise price of $2.00 per common
share and being exercisable until February 17, 2024. Furthermore, on January 5, 2018, we granted 5,000 stock options to Mr. Reisner
having an exercise price of USD$9.60 per common share and being exercisable until January 5, 2025.
On January 15, 2019, we entered into
an executive employment agreement with Mr. Reisner pursuant to which he receives a base salary in the amount of $180,000 per
year. On January 15, 2020, we replaced that agreement with the Reisner Agreement pursuant to which Mr. Reisner receives a
base salary in the amount of $225,000 per year and subject to an additional $25,000 bonus.
Bal Bhullar
On February 19, 2019, Ms. Bhullar bought
3,800 common shares at price of USD$4.59 and 100 shares at a price of USD$4.57. On March 19, 2019, we granted 400,000 stock options
to Ms. Bhullar having an exercise price of USD$3.40 per common share and being exercisable until March 19, 2026. On December 6,
2019, we granted 1,100,000 stock options to Ms. Bhullar having an exercise price of USD$1.91 per common share and being exercisable
until December 6, 2026.
On January 15, 2019, we entered into a
Consulting Agreement with BKB Management Ltd., a company under the control and direction of Ms. Bhullar, and which superseded our
Company’s prior offer letter with Ms. Bhullar, dated October 19, 2018. Bonus of $36,000 was paid at the end of 2019. On January
1, 2020, we entered into the Bhullar Agreement with Ms. Bhullar, and which superseded the Consulting Agreement, and pursuant to
which Ms. Bhullar receives $280,000 per year.
Steven Sanders
On May 5, 2018, we issued a stock option
to purchase 75,000 of our common shares at USD$9.00 to Steven Sanders in exchange for his services as a director of our Company.
The stock option vested in equal quarters every three months with the first quarter vesting on the date the options were granted,
and they have now been cancelled. On March 19, 2019, we granted 120,000 stock options to Mr. Sanders having an exercise price of
USD$3.40 per common share and being exercisable until March 19, 2026. On December 6, 2019, we granted 225,000 stock options to
Mr. Sanders having an exercise price of USD$1.91per common share and being exercisable until December 6, 2026. Mr. Sanders now
receives directors’ fees of USD$125,000 annually.
Jerry Kroll
On October 16, 2017, Jerry Kroll, our then
CEO, entered into a Share Pledge Agreement with Zongshen to guarantee our payment for the cost of the prototype tooling and molds
estimated to be $1.8 million through the pledge of 400,000 of our common shares at a deemed price of USD$4.00. We have agreed to
reimburse Mr. Kroll on a one-for-one basis for any pledged shares realized by Zongshen at a deemed issue price of USD$4.00
per common share.
From February 16, 2015 to November 13,
2015, Mr. Kroll provided us with a loan in the aggregate amount of $185,000. These loans were unsecured, non-interest bearing
and due on demand. No formal written agreements regarding these loans were signed, however, they are documented in our accounting
records. On January 20, 2016, we repaid $135,000 of these loans and $50,000 was repaid through the issuance of 62,500 post-subdivision
units of our Company at a price of $0.80 per unit.
On February 16, 2015, Mr. Kroll acquired
3,500,000 common shares of our Company and Ascend Sportmanagement Inc., a corporation under the control and direction of Mr. Kroll,
acquired 5,000,000 common shares at a price of $0.0004 per common share pursuant to a private placement. In addition, on
June 15, 2015, Mr. Kroll acquired 25,000 units of our Company at a price of $0.40 per unit pursuant to a private placement.
Each unit consisted of one common share and one common share purchase warrant. Each warrant is exercisable for one additional common
share at a price of $0.80 per common share and is exercisable until June 15, 2020. Furthermore, on January 22, 2016, Mr.
Kroll acquired 62,500 units of our Company at a price of $0.80 per unit pursuant to a private placement. Each unit consisted
of one common share and one common share purchase warrant. Each warrant is exercisable for one additional common share at a price
of $2.00 per common share and is exercisable until January 22, 2021.
On June 11, 2015, we granted
22,500,000 stock options to Mr. Kroll having an exercise price of $0.30 per common share and being exercisable until
June 11, 2022. On July 20, 2018, Mr. Kroll agreed to forfeit an aggregate of 20,454,545 of those stock options. As of the
date hereof, Mr. Kroll holds 2,045,455 of those stock options. In addition, on December 9, 2015, we granted 2,500,000 stock
options to Mr. Kroll having an exercise price of $0.80 per common share and being exercisable until December 9,
2022. On July 20, 2018, Mr. Kroll agreed to forfeit an aggregate of 2,272,777 of those stock options. As of the date
hereof, Mr. Kroll holds 227,273 of those stock options. On February 17, 2017, we granted 5,000 stock options to Mr.
Kroll having an exercise price of $2.00 per common share and being exercisable until February 17, 2024. Furthermore, on
January 5, 2018 we granted 5,000 stock options to Mr. Kroll having an exercise price of USD$9.60 per common share and being
exercisable until January 5, 2025. On August 4, 2019, Mr. Kroll was granted 1,250,000 stock options with an exercise price of
USD$2.45 per common share and is exercisable until August 4, 2026.
On January 15, 2019, we entered into the
Kroll Agreement with Mr. Kroll, which superseded our Company’s prior agreement with Mr. Kroll, dated July 1, 2016, which
had been amended in August of 2018. On August 16, 2019, we entered into the Continuing Relationship Agreement with Mr. Kroll,
which superseded the Kroll Agreement, and pursuant to which Mr. Kroll receives a fee of $300,000 over a period of 12 months.
Luisa Ingargiola
On May 5, 2018, we issued stock options
to purchase 75,000 of our common shares at USD$9.00 to Luisa Ingargiola in exchange for her services as a director of our Company.
These options vested in equal quarters every three months with the first quarter vesting on the date the options were granted and
they have now been cancelled. On March 19, 2019, we granted 120,000 stock options to Ms. Ingargiola having an exercise price of
USD$3.40 per common share and being exercisable until March 19, 2026. On December 6, 2019, we granted 225,000 stock options to
Ms. Ingargiola having an exercise price of USD$1.91per common share and being exercisable until December 6, 2026. Ms. Ingargiola
receives directors’ fees of USD$80,000 annually.
Jack Austin
On November 20, 2018 we appointed
the Honorable Jack Austin to our Board of Directors. In conjunction with such appointment Mr. Austin was granted 120,000 stock
options with an exercise price of USD$1.53, and being exercisable until November 20, 2023, and directors’ fees of $60,000
annually. On December 6, 2019, we granted 225,000 stock options to Mr. Austin having an exercise price of USD$1.91per common
share and being exercisable until December 6, 2026.
Joanne Yan
On November 7, 2016, Joanne Yan acquired
50,000 units of our Company at a price of $0.3634 per unit. Ms. Yan has only 25,000 common shares left. Each unit consisted
of one common share and one common share purchase warrant. Each warrant is exercisable for one additional common share at a price
of $4.00 per common share and is exercisable until November 7, 2021.
On February 17, 2017, we granted 2,500
stock options to Ms. Yan having an exercise price of $2.00 per common share and being
exercisable until February 17, 2024. On January 5, 2018, we granted 2,500 stock options to Ms. Yan having an exercise price
of US$9.60 per common share and being exercisable until January 5, 2025. On
March 19, 2019, we granted 120,000 stock options to Ms. Yan having an exercise price of USD$3.40 per common share and
being exercisable until March 19, 2026. On December 6, 2019, we granted 225,000 stock options to Ms. Yan having an exercise
price of USD$1.91per common share and being exercisable until December 6, 2026. Ms.
Yan receives directors’ fees of $60,000 annually.
Peter Savagian
On October 16, 2019 we appointed
Peter Savagian to our Board of Directors. In conjunction with such appointment Mr. Savagian was granted 120,000 stock options with
an exercise price of USD$1.80 per common share, and being exercisable until October
16, 2026, and directors’ fees of USD$60,000
annually. On December 6, 2019, we granted 225,000 stock options to Mr. Savagian having
an exercise price of USD$1.91 per common share and being exercisable until December
6, 2026.
Shaun Greffard
On August 13, 2015, we granted 25,000
stock options to Shaun Greffard having an exercise price of $0.30 per common share and
being exercisable until August 13, 2022. In addition, on December 9, 2015, we granted 12,500 stock options to Mr.
Greffard having an exercise price of $0.80 per common share and being
exercisable until December 9, 2022. On February 17, 2017, we granted 125,000 stock options to Mr. Greffard having an
exercise price of $2.00 per common share and being exercisable until
February 17, 2024. Furthermore, on January 5, 2018, we granted 5,000 stock options to Mr. Greffard having an exercise price
of USD$9.60 per common share and being exercisable until January 5, 2025. Mr.
Greffard was paid a directors’ fee of $60,000 for fiscal 2019 and resigned on December 6, 2019.
Isaac Moss
On January 5, 2018 we granted 125,000 stock
options to Mr. Moss having an exercise price of USD$9.60 per common share and being exercisable
until January 5, 2025, and these stock options have now been cancelled. On March 19, 2019, we granted 250,000 stock options to
Mr. Moss having an exercise price of USD$3.40 per common share and being exercisable
until March 19, 2026. On December 6, 2019, we granted 750,000 stock options to Mr. Moss having an exercise price of USD$1.91 per
common share and being exercisable until December 6, 2026.
In December of 2017 Mr. Moss entered into
the Moss Agreement with our Company which was amended in each of August of 2018 and January of 2019. A bonus of $25,000 for 2019
was paid in 2020. As at May 1, 2019the Company pays a monthly fee of $20,833 to Mr. Moss under the Moss Agreement.
Ian Ball
On August 13, 2015, we granted 250,000
stock option to Iain Ball having an exercise price of $0.30 per common share and being exercisable until August 13, 2022.
On July 20, 2018, Mr. Ball agreed to forfeit an aggregate of 227,273 of those stock options. As of the date hereof, Mr. Ball
holds 22,727 of those stock options. In addition, on December 9, 2015, we granted 375,000 stock options to Mr. Ball having an exercise
price of $0.80 per common share and being exercisable until December 9, 2022. On July 20, 2018, Mr. Ball agreed
to forfeit an aggregate of 340,909 of those stock options. On February 17, 2017, we granted 5,000 stock options to Mr. Ball having
an exercise price of $2.00 per common share and being exercisable until February 17, 2024. Furthermore, on January 5, 2018,
we granted 5,000 stock options to Mr. Ball having an exercise price of USD$9.60 per common share and being exercisable until January
5, 2025. On March 19, 2019, we granted 183,182 stock options to Mr. Ball having an exercise price of USD$3.40 per common share
and being exercisable until March 19, 2026. Mr. Ball resigned as an executive officer of our Company on June 30, 2019.
On August 19, 2015, Mr. Iain Ball acquired
31,250 units of our Company at a price of $0.80 per unit. Each unit consisted of one common share and one common share purchase
warrant, and each warrant is exercisable for one additional common share at a price of $2.00 per common share and is exercisable
until August 19, 2020.
Ed Theobald
On February 16, 2015, Ed Theobald acquired
250,000 common shares of our Company at a price of $0.0004 per common share pursuant to a private placement.
On August 13, 2015, we granted 250,000
stock options to Mr. Theobald having an exercise price of $0.30 per common share and being exercisable until August 13, 2022. On
July 20, 2018, Mr. Theobald agreed to forfeit an aggregate of 227,273 of those stock options. In addition, on December 9,
2015, we granted 375,000 stock options to Mr. Theobald having an exercise price of $0.80 per common share until December
9, 2022. On July 20, 2018, Mr. Theobald agreed to forfeit an aggregate of 340,909 of those stock options. On February
17, 2017, we granted 5,000 stock options to Mr. Theobald having an exercise price of $2.00 per common share and being exercisable
until February 17, 2024. Furthermore, on January 5, 2018, we granted 5,000 stock options to Mr. Theobald having an exercise price
of USD$9.60 per common share and being exercisable until January 5, 2025. Mr. Theobald resigned as an executive officer of our
Company on June 30, 2019.
Zongshen (Canada) Environtech Ltd.
On October 2, 2017, we announced a
manufacturing agreement with Zongshen to produce 75,000 SOLO all-electric vehicles, which we expect to occur in the three
full years from the commencement of production. Zongshen is an entity under common control with Zongshen (Canada) Environtech
Ltd., which is the beneficial owner of approximately 7.3% of our common shares. The production plan in the manufacturing
agreement is 75,000 SOLOs over a period of three years once mass scale production has begun. We anticipate to start
production in 2020. Under the agreement we agreed to reimburse Zongshen for the actual cost of the prototype tooling and
molds in amount of $1.8 million and the mass production tooling and molds estimated to be $6.9 million, which shall be
payable 50% when Zongshen commences manufacturing the tooling and molds. At December 31, 2019, the Company had paid 90% of
prototype tooling and molds and 89% of the mass production tooling and molds. Depreciation on the production tooling and
molds is charged on a per unit produced basis and during the period no units had been produced using the production tooling
and molds
C. Interests of Experts and Counsel
Not Applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
Financial Statements
The financial statements of the Company
for the years ended December 31, 2019, 2018 and 2017 have been prepared in accordance with IFRS, as issued by the International
Accounting Standards Board, or IASB, and are included under Item 18 of this Annual Report. The financial statements including related
notes are accompanied by the report of the Company’s independent registered public accounting firm, KPMG LLP, and by the
report of the Company’s prior independent registered public accounting firm, Dale Matheson Carr-Hilton Labonte LLP.
Legal Proceedings
As of the date of this Annual Report, in
the opinion of our management, we are not currently a party to any litigation or legal proceedings which are material, either individually
or in the aggregate, and, to our knowledge, no legal proceedings of a material nature involving us currently are contemplated by
any individuals, entities or governmental authorities.
Dividends
We have not paid any dividends on our common
shares since incorporation. Our management anticipates that we will retain all future earnings and other cash resources for the
future operation and development of our business. We do not intend to declare or pay any cash dividends in the foreseeable future.
Payment of any future dividends will be at the Board of Directors’ discretion, subject to applicable law, after taking into
account many factors including our operating results, financial condition and current and anticipated cash needs.
B. Significant Changes
We have not experienced any significant
changes since the date of the financial statements included with this Annual Report except as disclosed in this Annual Report.
ITEM 9. THE OFFER AND LISTING
A. Offer and Listing
Our common shares are traded on Nasdaq
under the symbol “SOLO”.
B. Plan of Distribution
Not applicable.
C. Markets
Please see Item 9.A above.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
The following is a summary of our Notice
of Articles and Articles. You should read those documents for a complete understanding of the rights and limitations set out therein.
Our corporation number, as assigned by the British Columbia Registry Services, is BC1027632.
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:
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(a)
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subject to paragraphs (b) and (c), the number of directors that is equal to the number of our first directors;
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(b)
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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
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(c)
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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).
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Directors
Our directors are elected annually at each
annual meeting of our Company’s shareholders. Our Articles provide that the Board of Directors 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:
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(a)
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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
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(b)
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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.
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Our Articles provide that our directors
may from time to time, on behalf of our Company, without shareholder approval:
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•
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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;
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•
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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;
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•
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if we are authorized to issue shares of a class of shares with par value;
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•
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decrease the par value of those shares;
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•
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if none of the shares of that class of shares are allotted or issued, increase the par value of those shares;
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•
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subdivide all or any of its unissued or fully paid issued shares with par value into shares of smaller par value;
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•
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consolidate all or any of its unissued or fully paid issued shares with par value into share of larger par value;
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•
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subdivide all or any of its unissued or fully paid issued shares without par value;
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•
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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;
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•
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alter the identifying name of any of its shares;
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•
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consolidate all or any of its unissued or fully paid issued shares without par value;
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•
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otherwise alter it shares or authorized share structure when required or permitted to do so by the Business Corporations Act;
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•
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borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate;
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•
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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;
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•
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guarantee the repayment of money by any other person or the performance of any obligation of any other person; and
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•
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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.
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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 of Directors held at regular intervals may be held at the place and at the time that the Board of
Directors 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 of Directors 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 of Directors.
|
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 and 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
Our Company 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 our Articles 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 nationals or permanent residents of World Trade Organization (“WTO”) member nations, a proposed investment
generally would be reviewable where the value of the acquired assets is $5 million or more.
For a proposed indirect acquisition 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 generally 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.
In the case of a direct acquisition by
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 of Industry after its determination for any
particular year. For 2020, this amount is $1.075 billion (unless the investor is controlled by persons who are nationals or permanent
residents of countries that are party to one of a list of certain free trade agreements, in which case the amount is $1.613 billion);
each January 1 both thresholds are adjusted 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:
|
(a)
|
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;
|
|
(b)
|
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
|
|
(c)
|
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.
|
C. Material Contracts
The following summary of our material agreements,
all of which have been previously filed with the SEC, does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of those agreements. There are no material contracts, other than those contracts entered
into in the ordinary course of business, currently in place or to which we or any member of our group is a party, from the two
years immediately preceding the publication of this Annual Report, except as follows:
SOLO Manufacturing Agreement
On October 2, 2017, we announced a manufacturing
agreement with Zongshen to produce 75,000 SOLO all-electric vehicles. We anticipate the production will commence in 2020 and that
the 75,000 SOLOs under the agreement will be completed in the three years from the commencement of production. Under the agreement
we agreed to reimburse Zongshen for: (i) the cost of the prototype tooling and molds estimated to be $1.8 million, which was due
on or before March 18, 2018 and which has been postponed we anticipate until the second quarter of 2019 due to Zongshen not then
completing the prototype of the tooling and molds; and (ii) the mass production tooling and molds estimated to be $7.8 million,
which shall be payable 50% when Zongshen commences manufacturing the tooling and molds, 40% when Zongshen completes manufacturing
the tooling and molds and 10% upon delivery to the Company of the first production vehicle. At December 31, 2019, the Company has
completed the prototype tooling and molds with an actual cost of $1.9 million, as assessed by the Company, the prototype tooling
and molds will be used for the mass production and the mass production tooling and molds cost is estimated to be $6.9 million.
The Company had paid 90% of prototype tooling and molds and 89% of the mass production tooling and molds.
Share Pledge Agreement
In connection with the manufacturing agreement
with Zongshen, on October 16, 2017, Jerry Kroll, our then CEO, entered into a Share Pledge Agreement to guarantee the payment by
us for the cost of the prototype tooling and molds estimated to be $1.8 million to Zongshen through the pledge of 400,000 of our
common shares at a deemed price of USD$4.00 per share. We have agreed to reimburse Mr. Kroll on a one-for-one basis for any pledged
shares realized by Zongshen under the Share Pledge Agreement.
Share Purchase Agreement
On October 18, 2017 we entered into the
SPA to acquire InterMeccanica, which replaced our then Joint Operating Agreement with the same. Under the SPA, we agreed to purchase
all the shares of InterMeccanica for $2,500,000. In addition to an initial payment of $100,000 in 2016, during the nine months
ended September 30, 2017, an additional $200,000 was paid. On October 18, 2017, we paid $700,000, and entered into a Note
for the balance of $1,500,000 of the purchase price. On January 28, 2018, we paid off all of the principal and interest due
on the Note for $1,520,548.
D. Exchange Controls
We are 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 “Certain Canadian Federal Income Tax Information
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 nonresident 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
is not a so-called WTO transaction and 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 (a) the value of the Canadian assets acquired in the transaction
is $50 million or more, or (b) the value of the Canadian assets is greater than 50% of the value of all of the assets acquired
in the transaction and the value of the Canadian assets is $5 million or more.
In the case of a direct acquisition by
or from a “WTO investor”, the threshold is significantly higher. The 2016 threshold is $600 million, which threshold
will be increased to $800 million in April 2017 for a two-year period. Other than the exception noted below, an indirect acquisition
involving a WTO investor is not reviewable under the Investment Act.
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 Industry Minister has reasonable
grounds to believe that an investment by a non-Canadian “could be injurious to national security,” the Industry Minister
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 Canada 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:
|
(a)
|
acquisition of common shares of the Company by a person in the ordinary course of that person’s business as a trader or dealer in securities,
|
|
(b)
|
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
|
|
(c)
|
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.
|
E. Taxation
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 (the “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.
F. Dividends and Paying Agents
Not Applicable.
G. Statements by Experts
Not Applicable.
H. Documents on Display
The documents concerning us which are referred
to in this Annual Report may be inspected at our offices located at 102 East 1st Avenue, Vancouver, British Columbia, Canada, V5T
1A4.
In addition, we have filed with the
SEC a registration statement on Form F-1 under the Securities Act and the documents referred to in this Annual Report have
been filed as exhibits to such Form F-1 with the SEC and may be inspected and copied at the public reference facility
maintained by the SEC at 100F. Street NW, Washington, D.C. 20549. In addition, the SEC maintains a website at www.sec.gov
that contains copies of documents that we have filed with the SEC using its EDGAR system.
I. Subsidiary Information
We have four subsidiaries: InterMeccanica,
a British Columbia, Canada, corporation; EMV Automotive USA Inc., a Nevada corporation; SOLO EV LLC, a Michigan corporation; and
EMV Automotive (Chongqing) Technology Inc., a PRC corporation. We own 100% of the voting and dispositive control over all subsidiaries.
ITEM 11. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
We are exposed in varying degrees to a
variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive
of controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as
follows:
Credit Risk
Credit risk is the risk that one party
to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Our primary
exposure to credit risk is on our cash held in bank accounts. The majority of cash is deposited in bank accounts held with major
banks in Canada. As most of our cash is held by one bank there is a concentration of credit risk. This risk is managed by using
major banks that are high credit quality financial institutions as determined by rating agencies. Our secondary exposure to risk
is on its other receivables. This risk is minimal as receivables consist primarily of government grant, refundable government value
added taxes and interest receivable from the major financial institution with high credit rating.
Liquidity Risk
Liquidity risk is the risk that we will
not be able to meet our financial obligations as they fall due. We have a planning and budgeting process in place to help determine
the funds required to support our normal operating requirements on an ongoing basis. We ensure that there are sufficient funds
to meet our short-term business requirements, taking into account our anticipated cash flows from operations and our holdings of
cash and cash equivalents.
Historically, our source of funding has
been shareholder loans and the issuance of equity securities for cash, primarily through private placements. Our access to financing
is always uncertain. There can be no assurance of continued access to significant equity funding.
The following is an analysis of the contractual
maturities of our non-derivative financial liabilities as at December 31, 2019, 2018 and 2017 (amounts payable to related parties
is included with trade payables in the tables below):
At December 31, 2019
|
|
Within one
year
|
|
|
Between
one
and five
years
|
|
|
More
than
five
years
|
|
Trade payables
|
|
$
|
693,502
|
|
|
|
-
|
|
|
|
-
|
|
Accrued liabilities
|
|
|
1,159,212
|
|
|
|
-
|
|
|
|
|
|
Due to related parties
|
|
|
275,512
|
|
|
|
-
|
|
|
|
-
|
|
Shareholder loan
|
|
|
2,076
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
2,130,302
|
|
|
$
|
-
|
|
|
$
|
-
|
|
At December 31, 2018
|
|
Within one
year
|
|
|
Between
one
and five
years
|
|
|
More
than
five
years
|
|
Trade payables
|
|
$
|
635,622
|
|
|
|
-
|
|
|
|
-
|
|
Accrued liabilities
|
|
|
543,908
|
|
|
|
-
|
|
|
|
|
|
Due to related parties
|
|
|
83,331
|
|
|
|
-
|
|
|
|
-
|
|
Shareholder loan
|
|
|
6,230
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
1,269,091
|
|
|
$
|
-
|
|
|
$
|
-
|
|
At December 31, 2017
|
|
Within one
year
|
|
|
Between
one
and five
years
|
|
|
More
than
five
years
|
|
Bank loan
|
|
$
|
123,637
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Trade payables
|
|
|
457,520
|
|
|
|
-
|
|
|
|
-
|
|
Accrued liabilities
|
|
|
649,456
|
|
|
|
-
|
|
|
|
-
|
|
Due to related parties
|
|
|
16,814
|
|
|
|
-
|
|
|
|
-
|
|
Shareholder loan
|
|
|
10,383
|
|
|
|
|
|
|
|
|
|
Promissory note
|
|
|
1,500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
2,757,810
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Foreign Exchange Risk
Foreign currency risk is the risk that
the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ
from the respective functional currency. We are exposed to currency risk as we incur expenditures that are denominated in US dollars
while our functional currency is the Canadian dollar. We do not hedge our exposure to fluctuations in foreign exchange rates.
The following is an analysis of Canadian
dollar equivalent of financial assets and liabilities that are denominated in US dollars:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Cash and cash equivalents
|
|
$
|
10,555,007
|
|
|
$
|
18,048,270
|
|
|
$
|
5,596,635
|
|
Restricted cash
|
|
$
|
81,981
|
|
|
$
|
54,602
|
|
|
$
|
-
|
|
Receivables
|
|
$
|
192,998
|
|
|
$
|
51,164
|
|
|
$
|
-
|
|
Trade payables and accrued liabilities
|
|
$
|
(105,896
|
)
|
|
$
|
(382,087
|
)
|
|
$
|
(138,794
|
)
|
|
|
$
|
10,724,090
|
|
|
$
|
17,771,949
|
|
|
$
|
5,457,841
|
|
Interest Rate Risk
Interest rate risk is the risk that the
fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. We are exposed
to interest rate risk on our cash equivalents as these instruments have original maturities of three months or less and are therefore
exposed to interest rate fluctuations on renewal. A 1% change in market interest rates would have an impact on our net loss of
$18,950 for the period ended December 31, 2017. A 1% change in market interest rates would have an impact on the Company’s
net loss of $164,830 for the year ended December 31, 2018. A 1% change in market interest rates would have an impact on the Company’s
net loss of $84,250 for the year ended December 31, 2019.
Classification of Financial Instruments
Financial assets included in the statement of financial position
are as follows:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Cash and receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,095,848
|
|
|
$
|
18,926,933
|
|
|
$
|
8,610,996
|
|
Restricted cash
|
|
$
|
184,314
|
|
|
$
|
110,707
|
|
|
$
|
-
|
|
Receivables
|
|
$
|
144,391
|
|
|
$
|
237,507
|
|
|
$
|
243,639
|
|
|
|
$
|
11,424,553
|
|
|
$
|
19,275,147
|
|
|
$
|
8,854,635
|
|
Financial liabilities included in the statement of financial
position are as follows:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Non-derivative financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank Loan
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
123,637
|
|
Trade payable and accrued liabilities
|
|
$
|
2,128,226
|
|
|
$
|
1,262,861
|
|
|
$
|
1,123,790
|
|
Shareholder loan
|
|
$
|
2,076
|
|
|
$
|
6,230
|
|
|
$
|
10,383
|
|
Promissory Note
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,500,000
|
|
Derivative liability
|
|
$
|
7,072,134
|
|
|
$
|
4,752,875
|
|
|
$
|
3,655,686
|
|
|
|
$
|
9,202,436
|
|
|
$
|
6,021,966
|
|
|
$
|
6,413,496
|
|
Fair Value
The fair value of the Company’s financial
assets and liabilities, other than the derivative liability which is measured at fair value, approximates the carrying amount.
Financial instruments measured at fair
value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used
to estimate the fair values. The three levels of the fair value hierarchy are:
|
·
|
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
|
|
·
|
Level 2 – Inputs other than quoted prices that are observable for the asset or liability
either directly or indirectly; and
|
|
·
|
Level 3 – Inputs that are not based on observable market data.
|
Financial liabilities measured at fair
value at December 31, 2019 consisted of the derivative liability, which includes transferrable warrants and non-transferrable warrants.
Transferrable warrants are measured using level 1 inputs and non-transferrable warrants are measured using level 2 inputs.
The fair value of the derivative liability
relating to the transferrable warrants was calculated using the quoted market price on the NASDAQ exchange.
The fair value of the derivative liability
relating to the non-transferrable warrants was calculated using the Black-Scholes Option Pricing Model using historical volatility
of comparable companies as an estimate of future volatility
The following is an analysis of derivative
liabilities as at December 31, 2019, 2018 and 2017:
|
|
As at December 31, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative liabilities
|
|
$
|
1,577,700
|
|
|
$
|
5,494,434
|
|
|
|
Nil
|
|
|
|
As at December 31, 2018
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative liabilities
|
|
$
|
2,726,757
|
|
|
$
|
2,026,119
|
|
|
|
Nil
|
|
|
|
As at December 31, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative liabilities
|
|
|
Nil
|
|
|
$
|
3,655,690
|
|
|
|
Nil
|
|
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
Our financial statements were prepared
in accordance with IFRS, as issued by the IASB, and are presented in Canadian dollars.
Financial statements filed as part of this
Annual Report:
[to be included upon finalization of financial statements]
Electrameccanica Vehicles Corp.
Consolidated Financial Statements
Year Ended December 31, 2019 and 2018
Expressed in Canadian Dollars
KPMG LLP
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604) 691-3000
Fax (604) 691-3031
Report of Independent Registered
Public Accounting Firm
To the Shareholders and Board of Directors
Electrameccanica Vehicles Corp.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements
of financial position of Electrameccanica Vehicles Corp. (the Company) as of December 31, 2019 and 2018, the related consolidated
statements of comprehensive loss, changes in equity, and cash flows for each of the years in the two-year period ended December 31,
2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the
results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity
with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Going Concern
The accompanying consolidated financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial
statements, the Company’s principal activity, the development and manufacture of electric vehicles, is in the development
stage and the Company has suffered recurring losses from operations that raise substantial doubt about its ability to continue
as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Change in accounting principle
As discussed in Note 2 to the consolidated financial
statements, the Company has changed its accounting policies for leases as of January 1, 2019 due to the adoption of IFRS 16 –
Leases.
Basis for Opinion
These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to
obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audits provides a reasonable basis for our opinion.
/s/ KPMG LLP
Chartered Professional Accountants
We have served as the Company’s auditor since
2018.
Vancouver, Canada
March 25, 2020
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Electrameccanica
Vehicles Corp.
We have audited the accompanying consolidated
financial statements of Electrameccanica Vehicles Corp. which comprise the consolidated statements of comprehensive loss, changes
in equity and cash flows for the year ended December 31, 2017, and a summary of significant accounting policies and other explanatory
information.
Management's Responsibility for the
Consolidated Financial Statements
Management is responsible for the preparation
and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary
to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or
error.
Auditor’s Responsibility
Our responsibility is to express an opinion
on these consolidated financial statements based on our audit. We conducted our audits in accordance with Canadian generally accepted
auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures
to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend
on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An
audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have
obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial performance and the cash flows of Electrameccanica Vehicles
Corp. for the year ended December 31, 2017 in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board.
Emphasis of Matter
Without qualifying our opinion, we draw
attention to Note 1 in the consolidated financial statements which describes certain conditions that indicate the existence of
a material uncertainty that cast significant doubt about Electrameccanica Vehicles Corp.’s ability to continue as a going
concern. The consolidated financial statements do not include any adjustments that might result from this uncertainty.
DALE MATHESON CARR-HILTON LABONTE LLP
CHARTERED PROFESSIONAL ACCOUNTANTS
Vancouver, Canada
April 2, 2018
ElectraMeccanica Vehicles Corp.
Consolidated Statements of Financial Position
(Expressed in Canadian dollars)
|
|
Note
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
3
|
|
|
$
|
11,095,848
|
|
|
$
|
18,926,933
|
|
Receivables
|
|
|
4
|
|
|
|
440,930
|
|
|
|
1,190,689
|
|
Prepaid expenses
|
|
|
|
|
|
|
6,580,976
|
|
|
|
2,268,776
|
|
Inventory
|
|
|
|
|
|
|
750,151
|
|
|
|
420,737
|
|
|
|
|
|
|
|
|
18,867,905
|
|
|
|
22,807,135
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
|
|
|
|
184,314
|
|
|
|
110,707
|
|
Plant and equipment
|
|
|
5
|
|
|
|
9,990,542
|
|
|
|
5,323,766
|
|
Goodwill and other intangible assets
|
|
|
6
|
|
|
|
1,239,131
|
|
|
|
1,239,123
|
|
TOTAL ASSETS
|
|
|
|
|
|
$
|
30,281,892
|
|
|
$
|
29,480,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables and accrued liabilities
|
|
|
7
|
|
|
|
2,128,226
|
|
|
|
1,262,861
|
|
Customer deposits
|
|
|
|
|
|
|
411,479
|
|
|
|
303,076
|
|
Construction contract liability
|
|
|
|
|
|
|
199,465
|
|
|
|
99,707
|
|
Shareholder loan
|
|
|
|
|
|
|
2,076
|
|
|
|
6,230
|
|
Deferred income tax
|
|
|
9
|
|
|
|
42,855
|
|
|
|
149,794
|
|
Current portion of lease liabilities
|
|
|
8
|
|
|
|
604,886
|
|
|
|
-
|
|
|
|
|
|
|
|
|
3,388,987
|
|
|
|
1,821,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability1
|
|
|
10
|
|
|
|
7,072,134
|
|
|
|
4,752,875
|
|
Lease liabilities
|
|
|
8
|
|
|
|
858,790
|
|
|
|
-
|
|
TOTAL LIABILITIES
|
|
|
|
|
|
|
11,319,911
|
|
|
|
6,574,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
11
|
|
|
|
66,574,255
|
|
|
|
46,622,299
|
|
Deficit
|
|
|
|
|
|
|
(62,116,008
|
)
|
|
|
(31,373,697
|
)
|
Reserves
|
|
|
|
|
|
|
14,503,734
|
|
|
|
7,657,586
|
|
TOTAL EQUITY
|
|
|
|
|
|
|
18,961,981
|
|
|
|
22,906,188
|
|
TOTAL LIABILITIES AND EQUITY
|
|
|
|
|
|
$
|
30,281,892
|
|
|
$
|
29,480,731
|
|
Nature and continuance of operations (Note 1)
Commitments (Notes 5)
On behalf of the Board of Directors.
1
Footnote: The warrant derivative liability is valued at fair value in accordance with International Financial Reporting
Standards (“IFRS”). There are no circumstances in which the Company would be required to pay cash upon exercise or
expiry of the warrants. See Note 11.
The accompanying notes are an integral part of these consolidated
financial statements
ElectraMeccanica Vehicles Corp.
Consolidated Statements of Comprehensive Loss
(Expressed in Canadian dollars)
|
|
|
|
|
Year ended
|
|
|
|
Note
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Revenue
|
|
|
|
|
|
$
|
775,821
|
|
|
$
|
777,302
|
|
|
$
|
109,173
|
|
Cost of revenue
|
|
|
|
|
|
|
646,441
|
|
|
|
575,172
|
|
|
|
63,950
|
|
Gross profit
|
|
|
|
|
|
|
129,380
|
|
|
|
202,130
|
|
|
|
45,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
5
|
|
|
|
1,066,906
|
|
|
|
278,621
|
|
|
|
124,134
|
|
General and administrative expenses
|
|
|
13
|
|
|
|
8,088,529
|
|
|
|
5,490,938
|
|
|
|
2,373,251
|
|
Research and development expenses
|
|
|
14
|
|
|
|
9,514,520
|
|
|
|
5,566,036
|
|
|
|
4,430,386
|
|
Sales and marketing expenses
|
|
|
15
|
|
|
|
1,743,855
|
|
|
|
1,386,901
|
|
|
|
631,381
|
|
Stock-based compensation expense
|
|
|
11
|
|
|
|
6,816,321
|
|
|
|
3,228,508
|
|
|
|
889,511
|
|
Share-based payment expense
|
|
|
11
|
|
|
|
213,720
|
|
|
|
1,109,531
|
|
|
|
1,085,716
|
|
|
|
|
|
|
|
|
27,443,851
|
|
|
|
17,060,535
|
|
|
|
9,534,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
|
|
|
|
(27,314,471
|
)
|
|
|
(16,858,405
|
)
|
|
|
(9,489,156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
(99,477
|
)
|
|
|
-
|
|
|
|
-
|
|
Accretion interest expense
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
69,562
|
|
Changes in fair value of warrant derivative
|
|
|
10
|
|
|
|
2,926,392
|
|
|
|
(7,707,051
|
)
|
|
|
186,269
|
|
Finder’s fee on convertible loan
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
258,542
|
|
Impairment of goodwill
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,342,794
|
|
Issue costs allocated to derivative liability
|
|
|
10
|
|
|
|
-
|
|
|
|
1,493,554
|
|
|
|
-
|
|
Other income
|
|
|
|
|
|
|
(89,448
|
)
|
|
|
-
|
|
|
|
-
|
|
Foreign exchange loss (gain)
|
|
|
|
|
|
|
795,172
|
|
|
|
(605,096
|
)
|
|
|
20,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes
|
|
|
|
|
|
|
(30,847,110
|
)
|
|
|
(10,039,812
|
)
|
|
|
(11,366,372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax recovery
|
|
|
|
|
|
|
(104,799
|
)
|
|
|
(1,667
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
(30,742,311
|
)
|
|
|
(10,038,145
|
)
|
|
|
(11,366,372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income/(loss)
|
|
|
|
|
|
|
66,210
|
|
|
|
(10,005
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss
|
|
|
|
|
|
$
|
(30,676,101
|
)
|
|
$
|
(10,048,150
|
)
|
|
$
|
(11,366,372
|
)
|
Loss per share – basic and fully diluted
|
|
|
|
|
|
$
|
(0.85
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding – basic and fully diluted
|
|
|
11
|
|
|
|
35,998,152
|
|
|
|
26,582,664
|
|
|
|
21,818,315
|
|
The accompanying notes are an integral part of these consolidated
financial statements
ElectraMeccanica Vehicles Corp.
Consolidated Statements of Changes in Equity
(Expressed in Canadian dollars)
Years ended December 31, 2019, 2018 and 2017
|
|
|
|
|
Share
capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
|
Number
of shares
|
|
|
Amount
net of share issue cost
|
|
|
Share
subscription
|
|
|
Share-based
payment reserve
|
|
|
Equity
component reserve
|
|
|
Foreign
Currency Translation Reserve
|
|
|
Deficit
|
|
|
Total
|
|
Balance
at December 31, 2016
|
|
|
|
|
|
|
20,891,794
|
|
|
|
11,383,996
|
|
|
|
101,500
|
|
|
|
2,351,144
|
|
|
|
39,130
|
|
|
|
-
|
|
|
|
(9,969,180
|
)
|
|
|
3,906,590
|
|
Shares
issued for cash
|
|
|
|
|
|
|
1,910,250
|
|
|
|
10,640,866
|
|
|
|
(101,500
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,539,366
|
|
Adjustment
for warrant derivative liability
|
|
|
|
|
|
|
-
|
|
|
|
(2,410,255
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(2,410,255
|
)
|
Issuance
of convertible debt
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
130,439
|
|
|
|
-
|
|
|
|
|
|
|
|
130,439
|
|
Shares
issued for finders fees
|
|
|
|
|
|
|
107,005
|
|
|
|
709,522
|
|
|
|
-
|
|
|
|
3,223
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
712,745
|
|
Shares
issued upon conversion of convertible debt
|
|
|
|
|
|
|
810,057
|
|
|
|
1,657,845
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(169,569
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,488,276
|
|
Shares
and warrants issued for services
|
|
|
|
|
|
|
75,000
|
|
|
|
811,308
|
|
|
|
-
|
|
|
|
274,408
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,085,716
|
|
Stock-based
compensation
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
889,511
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
889,511
|
|
Share subscription
|
|
|
|
|
|
|
-
|
|
|
|
(75,000
|
)
|
|
|
750,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
675,000
|
|
Net
and comprehensive loss for the year
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,366,372
|
)
|
|
|
(11,366,372
|
)
|
Balance at December
31, 2017
|
|
|
|
|
|
|
23,794,106
|
|
|
|
22,718,282
|
|
|
|
750,000
|
|
|
|
3,518,286
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(21,335,552
|
)
|
|
|
5,651,016
|
|
Shares
issued for cash, net of derivative liability
|
|
|
|
|
|
|
8,028,521
|
|
|
|
21,175,610
|
|
|
|
(750,000
|
)
|
|
|
940,071
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,365,681
|
|
Shares
issued for finders fees
|
|
|
|
|
|
|
2,286
|
|
|
|
23,678
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,678
|
|
Shares issued pursuant
to exercise of warrants
|
|
|
|
|
|
|
294,232
|
|
|
|
1,639,449
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,639,449
|
|
Shares
issued for stock option exercised
|
|
|
|
|
|
|
6,198
|
|
|
|
31,669
|
|
|
|
-
|
|
|
|
(19,274
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,395
|
|
Shares
issued for services
|
|
|
|
|
|
|
207,000
|
|
|
|
1,033,611
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,033,611
|
|
Stock-based
compensation
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,228,508
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,228,508
|
|
Net
loss for the year
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
--
|
|
|
|
(10,038,145
|
)
|
|
|
(10,038,145
|
)
|
Foreign
currency translation reserve
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,005
|
)
|
|
|
-
|
|
|
|
(10,005
|
)
|
Balance at December
31, 2018
|
|
|
|
|
|
|
32,332,343
|
|
|
|
46,622,299
|
|
|
|
-
|
|
|
|
7,667,591
|
|
|
|
-
|
|
|
|
(10,005
|
)
|
|
|
(31,373,697
|
)
|
|
|
22,906,188
|
|
Shares
issued for cash
|
|
|
|
|
|
|
3,333,334
|
|
|
|
14,699,097
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,699,097
|
|
Shares issued pursuant
to exercise of warrants
|
|
|
11
|
|
|
|
1,116,323
|
|
|
|
4,802,419
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,802,419
|
|
Shares
issued for stock option exercised
|
|
|
11
|
|
|
|
137,304
|
|
|
|
110,484
|
|
|
|
-
|
|
|
|
(36,383
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74,101
|
|
Shares
issued for services
|
|
|
11
|
|
|
|
140,070
|
|
|
|
390,148
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
390,148
|
|
Shares cancelled
|
|
|
11
|
|
|
|
(10,000
|
)
|
|
|
(50,192
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(50,192
|
)
|
Stock-based
compensation
|
|
|
11
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,816,321
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,816,321
|
|
Net
loss for the year
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(30,742,311
|
)
|
|
|
(30,742,311
|
)
|
Foreign
currency translation reserve
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
66,210
|
|
|
|
-
|
|
|
|
66,210
|
|
Balance
at December 31, 2019
|
|
|
|
|
|
|
37,049,374
|
|
|
$
|
66,574,255
|
|
|
$
|
-
|
|
|
$
|
14,447,529
|
|
|
$
|
-
|
|
|
$
|
56,205
|
|
|
$
|
(62,116,008
|
)
|
|
$
|
18,961,981
|
|
On May 15, 2018 the Company completed a reverse share split
on a 2:1 basis, all references to number of shares have been retroactively adjusted throughout these consolidated financial statements.
The accompanying notes are an integral part of these consolidated
financial statements
ElectraMeccanica Vehicles Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
|
|
Year ended
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year
|
|
$
|
(30,742,311
|
)
|
|
$
|
(10,038,145
|
)
|
|
$
|
(11,366,372
|
)
|
Adjustments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
1,066,906
|
|
|
|
278,621
|
|
|
|
124,134
|
|
Stock-based compensation expense
|
|
|
6,816,321
|
|
|
|
3,228,508
|
|
|
|
889,511
|
|
Share-based payment expense
|
|
|
213,720
|
|
|
|
1,109,531
|
|
|
|
1,085,716
|
|
Accretion interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
69,562
|
|
Interest income
|
|
|
(99,477
|
)
|
|
|
-
|
|
|
|
-
|
|
Finder’s fee on convertible loan
|
|
|
-
|
|
|
|
-
|
|
|
|
258,542
|
|
Impairment of goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
1,342,794
|
|
Impairment of trademark and patents
|
|
|
-
|
|
|
|
-
|
|
|
|
19,174
|
|
Changes in fair value of warrant derivative
|
|
|
2,926,392
|
|
|
|
(7,707,051
|
)
|
|
|
186,269
|
|
Deferred income tax recovery
|
|
|
(106,939
|
)
|
|
|
-
|
|
|
|
-
|
|
Changes in non-cash working capital items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
865,323
|
|
|
|
(946,552
|
)
|
|
|
93,210
|
|
Prepaid expenses
|
|
|
(4,312,200
|
)
|
|
|
(1,343,745
|
)
|
|
|
(657,713
|
)
|
Inventory
|
|
|
(329,414
|
)
|
|
|
(183,444
|
)
|
|
|
(44,092
|
)
|
Trade payables and accrued liabilities
|
|
|
991,601
|
|
|
|
62,975
|
|
|
|
568,850
|
|
Customer deposits and construction contract liability
|
|
|
208,161
|
|
|
|
(44,288
|
)
|
|
|
110,335
|
|
Net cash flows used in operating activities
|
|
|
(22,501,917
|
)
|
|
|
(15,583,590
|
)
|
|
|
(7,320,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in restricted cash
|
|
|
(73,607
|
)
|
|
|
(110,707
|
)
|
|
|
-
|
|
Expenditures on plant and equipment
|
|
|
(3,642,838
|
)
|
|
|
(4,172,700
|
)
|
|
|
(1,264,265
|
)
|
Purchase of Intermeccanica International Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
(900,000
|
)
|
Cash received on business combination
|
|
|
-
|
|
|
|
-
|
|
|
|
59,449
|
|
Expenditures on intangible assets
|
|
|
(5,008
|
)
|
|
|
(8,042
|
)
|
|
|
-
|
|
Net cash flows used in investing activities
|
|
|
(3,721,453
|
)
|
|
|
(4,291,449
|
)
|
|
|
(2,104,816
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds/(repayment) of bank loan
|
|
|
-
|
|
|
|
(123,637
|
)
|
|
|
123,637
|
|
Proceeds from convertible loans
|
|
|
-
|
|
|
|
-
|
|
|
|
2,441,225
|
|
Interest received
|
|
|
122,287
|
|
|
|
-
|
|
|
|
-
|
|
Interest paid
|
|
|
(482
|
)
|
|
|
-
|
|
|
|
-
|
|
Interest on lease payments
|
|
|
(137,892
|
)
|
|
|
-
|
|
|
|
-
|
|
Repayment of shareholder loans
|
|
|
(4,154
|
)
|
|
|
(4,153
|
)
|
|
|
(33,155
|
)
|
Repayment of promissory note
|
|
|
-
|
|
|
|
(1,500,000
|
)
|
|
|
-
|
|
Repayment of leases
|
|
|
(622,168
|
)
|
|
|
-
|
|
|
|
-
|
|
Proceeds from share subscription
|
|
|
-
|
|
|
|
-
|
|
|
|
750,000
|
|
Proceeds on issuance of common shares – net of issue costs
|
|
|
14,699,097
|
|
|
|
31,845,439
|
|
|
|
10,837,902
|
|
Proceeds from issuance of common shares for options exercised
|
|
|
74,101
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds from issuance of common shares for warrants exercised
|
|
|
4,195,286
|
|
|
|
-
|
|
|
|
-
|
|
Net cash flows from financing activities
|
|
|
18,326,075
|
|
|
|
30,217,649
|
|
|
|
14,119,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease) in cash and cash equivalents
|
|
|
(7,897,295
|
)
|
|
|
10,342,610
|
|
|
|
4,694,713
|
|
Effect of exchange rate changes on cash
|
|
|
66,210
|
|
|
|
(26,673
|
)
|
|
|
-
|
|
Cash and cash equivalents, beginning
|
|
|
18,926,933
|
|
|
|
8,610,996
|
|
|
|
3,916,283
|
|
Cash and cash equivalents, ending
|
|
$
|
11,095,848
|
|
|
$
|
18,926,933
|
|
|
$
|
8,610,996
|
|
Supplemental schedule of non-cash financing and investing
transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services
|
|
|
213,720
|
|
|
|
1,109,531
|
|
|
|
1,085,716
|
|
Issuance of promissory note for acquisition of Intermeccanica
|
|
|
-
|
|
|
|
-
|
|
|
|
1,500,000
|
|
The accompanying notes are an integral
part of these consolidated financial statements
1.
Nature and continuance of operations
Electrameccanica Vehicles Corp (the “Company”)
was incorporated on February 16, 2015, under the laws of the province of British Columbia, Canada, and its principal activity is
the development and manufacturing of electric vehicles. The Company acquired Intermeccanica International Inc. (“Intermeccanica”)
on October 18, 2017 whose principal activity is the development and manufacturing of high-end custom-built vehicles. On January
22, 2018, the Company incorporated a wholly-owned subsidiary EMV Automotive USA Inc. in Nevada, USA. On October 15, 2019, the Company
incorporated a wholly-owned subsidiary EMV Automotive Technology (Chongqing) Inc. in Chongqing, China. On November 22, 2019, the
Company incorporated SOLO EV, LLC, a wholly-owned subsidiary of EMV Automotive USA Inc., in Michigan, USA.
The head office and principal address of
the Company are located at 102 East 1st Avenue, Vancouver, British Columbia, Canada, V5T 1A4.
These consolidated financial statements
have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for
the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. As at
December 31, 2019, the Company’s principal activity, the development and manufacture of electric vehicles, is in the development
stage, and the Company’s continuation as a going concern is dependent upon the successful results from its electric vehicle
development and manufacturing activities and its ability to attain profitable operations and generate funds there from and/or raise
equity capital or borrowings sufficient to meet current and future obligations. It is anticipated that significant additional funding
will be required. These factors indicate the existence of a material uncertainty that cast substantial doubt about the Company’s
ability to continue as a going concern. Management primarily intends to finance its operations over the next twelve months through
private placement and/or public offerings of equity capital. Should the Company be unable to continue as a going concern, the net
realizable value of its assets may be materially less than the amounts on its consolidated statement of financial position.
2.
Significant accounting policies and basis of preparation
The consolidated financial statements were
authorized for issue on March 25, 2020 by the directors of the Company.
Statement of compliance with International
Financial Reporting Standards
These consolidated financial statements
have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International
Accounting Standards Board (“IASB”) and including interpretations of the International Financial Reporting Interpretations
Committee (“IFRIC”) as applicable to the preparation of annual financial statements.
These consolidated financial statements
were prepared using the same accounting policies and methods as those used in the Company’s consolidated financial statements
for the year ended December 31, 2018, with the exception of new accounting policies that were adopted on January 1, 2019 as described
in this Note.
Basis of preparation
The consolidated financial statements of
the Company have been prepared on an accrual basis and are based on historical costs except for derivative liabilities which are
measured at fair value. The Company’s functional and presentation currency is Canadian dollars.
Consolidation
The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries, EMV Automotive USA Inc., Intermeccanica from the date of its acquisition
on October 18, 2017 (Note 6), EMV Automotive Technology (Chongqing) Inc. from the date of its incorporation on October 15, 2019,
and SOLO EV, LLC from the date of its incorporation on November 22, 2019 . Inter-company balances and transactions, including unrealized
income and expenses arising from inter-company transactions, are eliminated on consolidation.
Significant estimates and assumptions
The preparation of financial statements
in accordance with IFRS requires the Company to make estimates and assumptions concerning the future. The Company’s management
reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively
in the period in which the estimates are revised.
ElectraMeccanica Vehicles Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
Estimates and assumptions where there is
significant risk of material adjustments to assets and liabilities in future accounting periods include the estimated recoverable
amount of goodwill, intangible assets and other long-lived assets, the useful lives of plant and equipment, the estimated amount
of scientific research and experimental development (SR&ED) tax credits, fair value measurements for financial instruments
and share-based payments, and the recoverability and measurement of deferred tax assets.
Significant judgments
The preparation of financial statements in accordance with IFRS
requires the Company to make judgments, apart from those involving estimates, in applying accounting policies. The most significant
areas that require judgment in the Company’s consolidated financial statements include:
|
-
|
The assessment of the Company’s ability to continue as a going concern and whether there
are events or conditions that may give rise to significant uncertainty;
|
|
-
|
the classification of financial instruments; and
|
|
-
|
the calculation of income taxes require judgement in interpreting tax rules and regulations.
|
Foreign currency translation
The Company’s functional and presentation currency is
Canadian dollars. The functional currency of EMV Automotive USA Inc. is US dollars and EMV Automotive Technology (Chongqing) Inc.
is Chinese RMB.
(i) Transactions in foreign currency
Each entity within the consolidated group
records transactions using its functional currency, being the currency of the primary economic environment in which it operates.
Foreign currency transactions are translated into the respective functional currency of each entity using the foreign currency
rates prevailing at the date of the transaction. Period-end balances of monetary assets and liabilities in foreign currency are
translated to the respective functional currencies using period-end foreign currency rates. Foreign currency gains and losses arising
from settlement of foreign currency transactions are recognized in profit or loss.
(ii) Foreign operations translation
The assets and liabilities of foreign operations are translated
into Canadian dollars at period-end foreign currency rates. Revenues and expenses of foreign operations are translated into Canadian
dollars at average rates for the period. Foreign currency translation gains and losses are recognized in other comprehensive loss.
Segment reporting
The Company’s operations currently consist of two operating
segments, which are its reportable segments.
Financial Instruments
The Company classifies its financial instruments
in the following categories: at fair value through profit or loss (“FVTPL”), or at amortized cost. The Company determines
the classification of financial assets at initial recognition. The classification of financial assets is driven by the Company’s
business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held
for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable
election (on an instrument-by-instrument basis) to designate them as at fair value through other comprehensive income (loss) (“
FVTOCI”). Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as
instruments held for trading or derivatives) or if the Company has opted to measure them at FVTPL.
The following table shows the classification
of the Company’s financial assets and liabilities
Financial assets/liabilities
Cash and cash equivalents
|
Amortized cost
|
Receivables
|
Amortized cost
|
Trade payables and accrued liabilities
|
Amortized cost
|
Shareholder loan
|
Amortized cost
|
Derivative liability
|
FVTPL
|
Financial assets and liabilities at amortized
cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized
cost less any impairment.
ElectraMeccanica Vehicles Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
Financial assets and liabilities carried
at FVTPL are initially recorded at fair value and transaction costs are expensed in the consolidated statements of comprehensive
loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held
at FVTPL are included in the consolidated statements of comprehensive loss in the period in which they arise.
The Company recognizes a loss allowance
for expected credit losses on financial assets that are measured at amortized cost. At each reporting date, the Company measures
the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses if the financial risk on the
financial asset has increased significantly since initial recognition. If at the reporting date, the financial asset has not increased
significantly since initial recognition, the Company measures the loss allowance for the financial asset at an amount equal to
the twelve month expected credit losses. The Company shall recognize in the consolidated statements of comprehensive loss, as an
impairment gain or loss, the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the
reporting date to the amount that is required to be recognized.
The Company derecognizes financial assets
only when the contractual rights to cash flows from the financial assets expire, or when it transfers the financial assets and
substantially all of the associated risks and rewards of ownership to another entity. Gains and losses on derecognition are generally
recognized in the consolidated statements of comprehensive loss.
Revenue from contracts with customers
Revenue is recognized to the extent that
the amount of revenue can be measured reliably and collection is probable.
Part sales:
Sales of parts are recognized when the
Company has transferred control to the customer which generally occurs upon shipment.
Services, repairs and support services:
Services, repairs and support services
are recognized in the accounting period when the services are rendered.
Sales of custom build vehicles:
The Company manufactures and sells custom
built vehicles typically on fixed fee arrangements with its customers. Revenue is recognized when the Company has transferred control
to the customer which generally occurs upon shipment.
Sales of electric vehicles:
The Company will be manufacturing and selling
electric powered one-seater vehicles (“SOLO”), which has not yet been commercialized. At this time, proceeds of these
sales are considered to be incidental revenue and are not being made with the expectation of profit. These are sold to ‘beta’
customers who provide real-world testing and feedback on the vehicles. The revenue generated from sales are recorded against research
and development expenses.
Cash and cash equivalents
Cash and cash equivalents include cash and short-term investments
with original maturities of less than 90 days and are presented at cost, which approximates market value.
Customer deposits
Customer deposits consist primarily of advance payments from
customers who order the SOLO vehicles. The deposit will be recognized as revenue when the Company starts commercial production
and transfers control to the customer which generally occurs upon delivery.
Construction contract liabilities
Construction contract liabilities consist primarily of advance
payments from customers who order custom-built vehicles. The deposit is recognized as revenue when the Company has transferred
control to the customer which generally occurs upon shipment.
Inventory
Inventory consists of parts held for resale
or for use in fixed fee contracts and is valued at the lower of cost and net realizable value. Cost is determined on the first-in,
first-out basis.
Trademarks and patents
The Company expenses legal fees and filing
costs associated with the development of its trademarks and patents.
ElectraMeccanica Vehicles Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
Plant and equipment
Plant and equipment are stated at historical
cost less accumulated depreciation and accumulated impairment losses.
Subsequent costs are included in the asset’s
carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated
with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced asset
is derecognized. All other repairs and maintenance are charged to the consolidated statements of comprehensive loss during the
financial period in which they are incurred.
Gains and losses on disposals are determined
by comparing the proceeds with the carrying amount and are recognized in the consolidated statements of comprehensive loss.
Amortization is calculated on a straight-line
method to write off the cost of the assets to their residual values over their estimated useful lives. The amortization rates applicable
to each category of plant and equipment are as follows:
Class of plant and equipment
|
Amortization rate
|
Furniture and equipment
|
20%
|
Computer hardware
|
33%
|
Computer software
|
50%
|
Vehicles
|
33%
|
Leasehold improvements
|
over term of lease
|
Right of use assets
|
over term of lease
|
Production tooling and molds
|
per unit produced
|
Share-based payments
Share-based compensation expenses are measured
at the fair value of the instruments issued and amortized over the vesting periods. Share-based payment expenses to non-employees
are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined
the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received.
The corresponding amounts are recorded to the share-based payment reserve. The fair value of options is determined using a Black–Scholes
pricing model. The number of options expected to vest is reviewed and adjusted at the end of each reporting period such that the
amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity
instruments that eventually vest.
Loss per share
Basic loss per share is calculated by dividing
the loss attributable to common shareholders by the weighted average number of common shares outstanding in the period. For all
periods presented, the loss attributable to common shareholders equals the reported loss attributable to owners of the Company.
Fully diluted loss per share is calculated by the treasury stock method. Under the treasury stock method, the weighted average
number of common shares outstanding for the calculation of fully diluted loss per share assumes that the proceeds to be received
on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during
the period.
Research and development expenses
Research costs are expensed when incurred
and are stated net of government grants. Development costs including direct material, direct labour and contract service costs
are capitalized as intangible assets when the Company can demonstrate that the technical feasibility of the project has been established;
the Company intends to complete the asset for use or sale and has the ability to do so; the asset can generate probable future
economic benefits; the technical and financial resources are available to complete the development; and the Company can reliably
measure the expenditure attributable to the intangible asset during its development. After initial recognition, internally generated
intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses. These capitalized costs
are amortized on a straight-line basis over the estimated useful life. To date, the Company did not have any development costs
that met the capitalization criteria.
Derivative Liability
The Company accounts for its warrants
as either equity or liabilities based upon the characteristics and provisions of each instrument. Warrants classified as
equity are recorded at fair value as of the date of issuance on the Company’s consolidated statements of financial
position and no further adjustments to their valuation are made. Warrants classified as derivative liabilities that require
separate accounting as liabilities are recorded on the Company’s consolidated statement of financial position at their
fair value on the date of issuance and will be revalued on each subsequent statements of financial position date until such
instruments are exercised or expire, with any changes in the fair value between reporting periods recorded as other income or
expense. Management estimates the fair value of these liabilities using option pricing models and assumptions that are based
on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for future
financings, expected volatility, expected life, yield, and risk-free interest rate.
ElectraMeccanica Vehicles Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
Change in accounting policy - Leases
In January 2016, the IASB issued IFRS 16
Leases (“IFRS 16”), which replaced IAS 17 Leases (“IAS 17”) and related interpretations. IFRS 16 introduces
a single lessee accounting model eliminating the previous distinction between finance and operating leases. IFRS 16 requires the
recognition of lease-related assets and liabilities on the statements of financial position, except for short-term leases and leases
of low value underlying assets. Lessor accounting remained substantially unchanged.
The Company adopted IFRS 16 on January
1, 2019. The Company transitioned to IFRS 16 in accordance with the modified retrospective approach. The comparative information
has not been restated and continues to be reported under IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease.
In calculating the lease liability at this date, the Company has chosen to apply practical expedients in IFRS 16, which include:
|
(i)
|
recognition exemption of short-term leases;
|
|
(ii)
|
recognition exemption of low-value leases;
|
|
(iii)
|
application of a single discount rate to a portfolio of leases with similar characteristics on transition;
|
|
(iv)
|
exclusion of initial direct costs from the measurement of the right-of-use assets upon transition;
|
|
(v)
|
application of hindsight in determining the applicable lease term at the date of transition; and
|
|
(vi)
|
election to not separate non-lease components from lease components, and instead account for each lease component and any associated
non-lease components as a single lease component.
|
The adoption of IFRS 16 resulted in an
increase of $2.1 million in total assets and total liabilities each for recognition of right-of-use assets and lease liabilities,
respectively, and had no impact to opening retained earnings as at January 1, 2019. The majority of our property leases, which
were previously treated as operating leases, were impacted by IFRS 16. The adoption of IFRS 16 has resulted in:
|
(i)
|
higher non-current assets related to the initial recognition of the present value of our unavoidable future lease payments
as right-of-use assets under property, plant and equipment, adjusted by the amount of any prepaid or accrued lease payments relating
to the lease recognized in the balance sheet as at January 1, 2019;
|
|
(ii)
|
higher current and non-current liabilities related to the concurrent recognition of lease liabilities, which are measured at
the present value of the remaining fixed lease payments, discounted by our weighted average incremental borrowing rate of 5% -
10% as of January 1, 2019;
|
|
(iii)
|
replacement of rent expense previously recorded in operating expenses with depreciation expense of these right-of-use assets
and higher finance costs related to the accretion and interest expense of the corresponding lease liabilities; and
|
|
(iv)
|
variable lease payments and non-lease components are expensed as incurred.
|
The new standard does not change the amount of cash transferred
between the lessor and lessee but impacts the presentation of the operating and financing cash flows presented on the Company’s
consolidated statement of cash flows by decreasing operating cash flows and increasing financing cash flows.
ElectraMeccanica Vehicles Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
When measuring lease liabilities, the Company
discounted lease payments using its incremental borrowing rate at January 1, 2019 of 5%-10%.
Operating lease commitment at December 31, 2018 as disclosed in the Company’s financial statement
|
|
$
|
2,148,834
|
|
Discounting effect using the incremental borrowing rate at January 1, 2019
|
|
|
379,371
|
|
|
|
|
1,769,463
|
|
Extension options reasonably certain to be exercised
|
|
|
349,078
|
|
Lease liabilities recognized at January 1, 2019
|
|
$
|
2,118,541
|
|
Impairment of assets
The carrying amount of the Company’s
long-lived assets with finite useful lives (which include plant and equipment and intangible assets) is reviewed at each reporting
date to determine whether there is any indication of impairment. If such indication exists, the recoverable amount of the asset
is estimated in order to determine the extent of the impairment loss. An impairment loss is recognized whenever the carrying amount
of an asset or its cash generating unit (CGU) assets exceeds its recoverable amount. The Company has identified two CGUs including
electric vehicles, which develop and manufacture electric vehicles for mass markets, and custom-built vehicles which develop and
manufacture high-end custom-built vehicles. Impairment losses are recognized in the consolidated statements of comprehensive loss.
The recoverable amount of assets is the
greater of an asset’s fair value less cost to sell and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time
value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those
from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
An impairment loss is only reversed if
there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine
the recoverable amount. Any reversal of impairment cannot increase the carrying value of the asset to an amount higher than the
carrying amount that would have been determined had no impairment loss been recognized in previous years.
Goodwill and other intangible assets that
have an indefinite useful life are not subject to amortization and are tested annually for impairment at both CGU assets level
and total assets level, or more frequently if indicators of impairment exist.
Income taxes
Current income tax:
Current income tax assets and liabilities
for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates
and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries
where the Company operates and generates taxable income. Current income tax relating to items recognized directly in other comprehensive
income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates
positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation
and establishes provisions where appropriate.
Tax Credits:
The Company earns scientific research
and experimental development activity (“SR&ED”) tax credits with respect to its research and development expenses.
The benefit of these SR&ED tax credits is recorded as a reduction of research and development expenses when their recoverability
is reasonably expected. The SR&ED tax credits earned while the Company was Canadian Controller Private Corporation as defined
by Canadian income tax legislation are refundable to the Company and are recorded as a receivable, while the tax credits earned
now the Company is a public company (as defined under Canadian tax laws) can be used to reduce future Canadian income taxes payable.
Deferred income tax:
Deferred income tax is recognized,
using the liability method, on temporary differences at the reporting date arising between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes. The carrying amount of deferred income tax assets is
reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable
profit will be available to allow all or part of the deferred income tax asset to be utilized. Deferred income tax assets and
liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability
is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting
period. Deferred income tax assets and deferred income tax liabilities are offset if a deferred income taxes relate to the
same taxable entity and the same taxation authority.
ElectraMeccanica Vehicles Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
3.
Cash and cash equivalents
For the purposes of the cash flow statement,
cash and cash equivalents comprise the following balances with original term to maturity of 90 days or less:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Cash
|
|
$
|
2,670,877
|
|
|
$
|
2,443,938
|
|
Cash equivalent
|
|
|
8,424,971
|
|
|
|
16,482,995
|
|
|
|
$
|
11,095,848
|
|
|
$
|
18,926,933
|
|
4.
Receivables
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Trade receivable
|
|
$
|
14,986
|
|
|
$
|
209,869
|
|
GST receivable
|
|
|
47,428
|
|
|
|
278,182
|
|
SR&ED tax credits receivable
|
|
|
249,111
|
|
|
|
675,000
|
|
Other receivables
|
|
|
129,405
|
|
|
|
27,638
|
|
|
|
$
|
440,930
|
|
|
$
|
1,190,689
|
|
5.
Plant and equipment
|
|
Furniture
and
equipment
|
|
|
Computer
hardware
and
software
|
|
|
Vehicles
|
|
|
Leasehold
Improvements
|
|
|
Right-of-
use assets
|
|
|
Production
tooling and
molds
|
|
|
Total
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017
|
|
|
290,843
|
|
|
|
73,654
|
|
|
|
390,050
|
|
|
|
101,200
|
|
|
|
-
|
|
|
|
914,060
|
|
|
|
1,769,807
|
|
Additions
|
|
|
203,644
|
|
|
|
59,749
|
|
|
|
-
|
|
|
|
283,141
|
|
|
|
-
|
|
|
|
3,635,888
|
|
|
|
4,182,422
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,001
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,001
|
)
|
December 31, 2018
|
|
|
494,487
|
|
|
|
133,403
|
|
|
|
388,049
|
|
|
|
384,341
|
|
|
|
-
|
|
|
|
4,549,948
|
|
|
|
5,950,228
|
|
Additions
|
|
|
73,691
|
|
|
|
139,863
|
|
|
|
-
|
|
|
|
129,327
|
|
|
|
|
|
|
|
3,310,971
|
|
|
|
3,653,852
|
|
Adoption of IFRS 16
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,061,469
|
|
|
|
-
|
|
|
|
2,061,469
|
|
Disposals
|
|
|
-
|
|
|
|
(2,150
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,150
|
)
|
December 31, 2019
|
|
|
568,178
|
|
|
|
271,116
|
|
|
|
388,049
|
|
|
|
513,668
|
|
|
|
2,061,469
|
|
|
|
7,860,919
|
|
|
|
11,663,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017
|
|
|
188,606
|
|
|
|
27,147
|
|
|
|
85,764
|
|
|
|
74,607
|
|
|
|
-
|
|
|
|
-
|
|
|
|
376,124
|
|
Charge for the year
|
|
|
42,192
|
|
|
|
38,542
|
|
|
|
129,487
|
|
|
|
40,117
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250,338
|
|
At December 31, 2018
|
|
|
230,798
|
|
|
|
65,689
|
|
|
|
215,251
|
|
|
|
114,724
|
|
|
|
-
|
|
|
|
-
|
|
|
|
626,462
|
|
Additions
|
|
|
77,975
|
|
|
|
65,600
|
|
|
|
117,326
|
|
|
|
121,951
|
|
|
|
664,797
|
|
|
|
-
|
|
|
|
1,047,649
|
|
Disposals
|
|
|
-
|
|
|
|
(1,254
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,254
|
)
|
December 31, 2019
|
|
|
308,773
|
|
|
|
130,035
|
|
|
|
332,577
|
|
|
|
236,675
|
|
|
|
664,797
|
|
|
|
-
|
|
|
|
1,672,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
|
$
|
263,689
|
|
|
$
|
67,714
|
|
|
$
|
172,798
|
|
|
$
|
269,617
|
|
|
$
|
-
|
|
|
$
|
4,549,948
|
|
|
$
|
5,323,766
|
|
At December 31, 2019
|
|
$
|
259,405
|
|
|
$
|
141,081
|
|
|
$
|
55,472
|
|
|
$
|
276,993
|
|
|
$
|
1,396,672
|
|
|
$
|
7,860,919
|
|
|
$
|
9,990,542
|
|
ElectraMeccanica Vehicles Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
On September 29, 2017, the Company entered
into a manufacturing agreement with Chongqing Zongshen Automobile Co., Ltd. (“Zongshen”). Under the agreement, the
Company agrees to reimburse Zongshen for the cost of prototype tooling and molds estimated to be CNY ¥9.5 million ($1.8 million),
which was payable on or before March 18, 2018, subject to a 10% holdback, and mass production tooling and molds estimated to be
CNY ¥37 million ($6.9 million) as at December 31, 2019, which shall be payable 50% when Zongshen commences manufacturing the
tooling and molds, 40% when Zongshen completes manufacturing the tooling and molds, and 10% upon delivery to the Company of the
first production vehicle. At December 31, 2019, the Company has completed the prototype tooling and molds with actual cost of CNY
¥10.1 million ($1.9 million), as assessed by the Company, the prototype tooling and molds will be used for the mass production.
The Company had paid 90% of prototype tooling and molds and 89% of the mass production tooling and molds. Depreciation on the production
tooling and molds is charged on a per unit produced basis. No depreciation on the production tooling and molds is charged for year
ended December 31, 2019 since no units had been produced using the production tooling and molds.
On October 16, 2017, the CEO of the Company
(“Pledgor”) entered into a Share Pledge Agreement (“Share Pledge”) to guarantee the payment by the Company
for the cost of the prototype tooling and molds estimated to be CNY ¥9.5 million ($1.8 million) to Zongshen through the pledge
of 400,000 common shares of the Company. The Company approved its obligations under the Share Pledge and has agreed to reimburse
the Pledgor on a one for one basis for any pledged shares realized by Zongshen.
6.
Goodwill and Intangible Assets
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Identifiable intangibles on acquisition of Intermeccanica
|
|
$
|
524,067
|
|
|
$
|
529,067
|
|
Goodwill on acquisition of Intermeccanica
|
|
|
699,844
|
|
|
|
699,844
|
|
Other intangibles
|
|
|
15,220
|
|
|
|
10,212
|
|
|
|
$
|
1,239,131
|
|
|
$
|
1,239,123
|
|
7.
Trade payables and accrued liabilities
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Trade payables
|
|
$
|
693,502
|
|
|
$
|
635,622
|
|
Due to related parties (Note 17)
|
|
|
275,512
|
|
|
|
83,331
|
|
Accrued liabilities
|
|
|
1,159,212
|
|
|
|
543,908
|
|
|
|
$
|
2,128,226
|
|
|
$
|
1,262,861
|
|
8.
Lease liabilities
Lease obligations relate to the Company’s
rent of office space and warehouse spaces. The term of the lease related to office space expires on November 1, 2020 and the term
of leases related to warehouse spaces expire on August 1, 2020, August 1, 2021 and August 1, 2022 with the Company holding an option
to renew two of the warehouse leases for a further five years.
The Company incurred $36,665 lease expenses
for the year ended December 31, 2019 for short-term lease and low-value lease which are not included in the measurement of lease
liabilities.
As at December 31, 2019, the contractual
undiscounted cash flows related to leases were as follows:
|
|
Future minimum
lease payments
|
|
|
Interest
|
|
|
Present value of
minimum lease
payments
|
|
Less than one year
|
|
$
|
702,498
|
|
|
$
|
97,612
|
|
|
$
|
604,886
|
|
Between one and five years
|
|
|
734,642
|
|
|
|
127,441
|
|
|
|
607,201
|
|
More than five years
|
|
|
275,801
|
|
|
|
24,212
|
|
|
|
251,589
|
|
|
|
$
|
1,712,941
|
|
|
$
|
249,265
|
|
|
|
1,463,676
|
|
Current portion of lease liabilities
|
|
|
|
|
|
|
|
|
|
|
604,886
|
|
Non-current portion of lease liabilities
|
|
|
|
|
|
|
|
|
|
$
|
858,790
|
|
ElectraMeccanica Vehicles Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
9.
Income tax recovery and deferred tax assets and liabilities
A reconciliation of the expected income
tax recovery to the actual income tax recovery is as follows:
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Loss before tax
|
|
$
|
(30,847,110
|
)
|
|
$
|
(10,039,812
|
)
|
|
$
|
(11,366,372
|
)
|
Statutory tax rate
|
|
|
27
|
%
|
|
|
27
|
%
|
|
|
26
|
%
|
Expected income tax recovery at the statutory tax rate
|
|
|
(8,328,720
|
)
|
|
|
(2,710,749
|
)
|
|
|
(2,955,257
|
)
|
Lower rate on foreign subsidiaries
|
|
|
18,451
|
|
|
|
-
|
|
|
|
-
|
|
Change in estimates
|
|
|
187,481
|
|
|
|
-
|
|
|
|
-
|
|
Non-deductible items
|
|
|
2,543,667
|
|
|
|
(1,209,207
|
)
|
|
|
279,703
|
|
Share issue costs and other
|
|
|
(373,412
|
)
|
|
|
(969,673
|
)
|
|
|
256,445
|
|
Effect of change in tax rate
|
|
|
-
|
|
|
|
-
|
|
|
|
(149,561
|
)
|
SR&ED expenditures
|
|
|
-
|
|
|
|
-
|
|
|
|
183,351
|
|
Temporary differences not recognized
|
|
|
5,847,734
|
|
|
|
4,887,962
|
|
|
|
2,385,319
|
|
Income tax recovery
|
|
$
|
(104,799
|
)
|
|
$
|
(1,667
|
)
|
|
$
|
-
|
|
The Company has the following deductible
(taxable) temporary differences:
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Non-capital loss carry-forwards
|
|
$
|
46,462,417
|
|
|
$
|
25,284,214
|
|
|
$
|
11,436,565
|
|
Plant and equipment
|
|
|
440,214
|
|
|
|
330,963
|
|
|
|
141,271
|
|
Share issue costs
|
|
|
4,869,721
|
|
|
|
4,969,038
|
|
|
|
1,983,154
|
|
SR&ED expenditures
|
|
|
3,150,863
|
|
|
|
2,331,495
|
|
|
|
1,397,672
|
|
ROU assets
|
|
|
(1,396,674
|
)
|
|
|
-
|
|
|
|
-
|
|
Lease liabilities
|
|
|
1,463,675
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
(350,473
|
)
|
|
|
(411,487
|
)
|
|
|
(558,000
|
)
|
|
|
|
54,639,743
|
|
|
|
32,504,223
|
|
|
|
14,400,662
|
|
Deferred tax assets not recognized
|
|
|
(54,798,464
|
)
|
|
|
(33,059,017
|
)
|
|
|
(14,955,454
|
)
|
Deferred tax liability
|
|
|
(158,721
|
)
|
|
|
(554,794
|
)
|
|
|
(554,794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Deferred tax liability (tax effected at 27%)
|
|
$
|
(42,855
|
)
|
|
$
|
(149,794
|
)
|
|
$
|
(149,794
|
)
|
The non-capital losses expire between 2024 and 2039.
10.
Derivative liability
The exercise price of certain warrants
is denominated in US dollars; however, the functional currency of the Company is the Canadian dollar. Consequently, the value of
the proceeds on exercise is not fixed and will vary based on foreign exchange rate movements. The warrants when issued other than
as compensation for goods and services are therefore a derivative for accounting purposes and are required to be recognized as
a derivate liability and measured at fair value at each reporting period. Any changes in fair value from period to period are recorded
as non-cash gain or loss in the consolidated statements of comprehensive loss. Upon exercise, the holders will pay the Company
the respective exercise price for each warrant exercised in exchange for one common share of the Company and the fair value at
the date of exercise and the associated non-cash liability will be reclassified to share capital. The non-cash liability associated
with any warrants that expire unexercised will be recorded as a gain in the consolidated statements of comprehensive loss. There
are no circumstances in which the Company would be required to pay any cash upon exercise or expiry of the warrants (See Note 11
for further information on warrants issued and outstanding).
During the year ended December 31, 2019,
warrants for 646,300 shares at USD $4.25 were exercised, warrants for 625,000 shares at USD $15 and warrants for 25,000 shares
at USD $24 were expired. The non-cash liability value for the warrants expired unexercised on expiring date is Nil.
ElectraMeccanica Vehicles Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
A reconciliation of the changes in fair
values of the derivative liability is below:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Balance, beginning
|
|
$
|
4,752,875
|
|
|
$
|
3,655,690
|
|
Warrants issued
|
|
|
-
|
|
|
|
8,935,289
|
|
Warrants exercised
|
|
|
(607,133
|
)
|
|
|
(131,053
|
)
|
Changes in fair value of derivative liabilities
|
|
|
2,926,392
|
|
|
|
(7,707,051
|
)
|
Balance, ending
|
|
$
|
7,072,134
|
|
|
$
|
4,752,875
|
|
The fair value of the transferrable warrants
was calculated using the warrant price of USD $0.50 at issuance and USD $0.32 at December 31, 2019 as quoted on the NASDAQ exchange.
11.
Share capital
Authorized share capital
Unlimited number of common shares without
par value.
At December 31, 2019, the Company had
37,049,374 issued and outstanding common shares (December 31, 2018 – 32,332,343).
During the year ended December 31, 2019,
the Company issued a total of 3,333,334 (December 31, 2018 – 8,028,521) common shares and Nil (December 31, 2018 –
5,411,900) transferrable warrants for gross proceeds of $16,090,029 (December 31, 2018 – 24,091,775), and 140,070 (December
31, 2018 – 207,000) common shares for service with fair value of $390,148 (December 31, 2018 – 1,033,611). Share issue
costs related to these issuances was $1,390,932 (December 31, 2018 – 2,916,165). Upon the exercise of warrants, the Company
issued 1,116,323 (December 31, 2018 – 294,232) common shares and received proceeds of $4,802,419 (December 31, 2018 –
1,639,449). Upon the exercise of stock options, the Company issued 137,304 (December 31, 2018 – 6,198) common shares and
received proceeds of $74,101 (December 31, 2018 – 12,395). The Company cancelled 10,000 (December 31, 2018 – Nil)
common shares with value of $50,192 (December 31, 2018 – Nil).
Basic and fully diluted loss per share
The calculation of basic and fully diluted
loss per share for the year ended December 31, 2019 was based on the loss attributable to common shareholders of $30,742,311 (2018
- $10,038,145) and the weighted average number of common shares outstanding of 35,998,152 (2018- 26,582,664). Fully diluted loss
per share did not include the effect of stock options and warrants as the effect would be anti-dilutive.
Stock options
The Company has adopted an incentive stock
option plan, which provides that the Board of Directors of the Company may from time to time, in its discretion, grant to directors,
officers, employees and technical consultants to the Company, non-transferable stock options to purchase common shares, provided
that the number of common shares reserved for issuance will not exceed 30,000,000. Such options will be exercisable for a period
of up to 7 years from the date of grant. Options may be exercised no later than 90 days following cessation of the optionee’s
position with the Company unless specific exercise extension approved by the Board.
Options granted vest based on terms and
conditions set up in the option agreements.
On exercise, each option allows the holder
to purchase one common share of the Company.
ElectraMeccanica Vehicles Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
The changes in options during the years
ended December 31, 2019 and 2018 are as follows:
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Number of
options
|
|
|
Weighted
average exercise
price
|
|
|
Number of
options
|
|
|
Weighted
average exercise
price
|
|
Options outstanding, beginning
|
|
|
4,756,174
|
|
|
$
|
2.73
|
|
|
|
28,598,750
|
|
|
$
|
0.40
|
|
Options granted
|
|
|
8,755,000
|
|
|
|
3.00
|
|
|
|
1,307,424
|
|
|
|
9.29
|
|
Options exercised
|
|
|
(137,304
|
)
|
|
|
0.54
|
|
|
|
(6,198
|
)
|
|
|
2.00
|
|
Options expired and forfeited
|
|
|
(190,555
|
)
|
|
|
7.28
|
|
|
|
(143,802
|
)
|
|
|
3.03
|
|
Options cancelled
|
|
|
(275,000
|
)
|
|
|
11.75
|
|
|
|
(25,000,000
|
)
|
|
|
0.37
|
|
Options outstanding, ending
|
|
|
12,908,315
|
|
|
$
|
2.07
|
|
|
|
4,756,174
|
|
|
$
|
2.73
|
|
Details of options outstanding as at December
31, 2019 are as follows:
Exercise price
|
|
Weighted average
contractual life
|
|
Number of options
outstanding
|
|
|
Number of options
exercisable
|
|
$0.30
|
|
2.45 years
|
|
|
2,045,455
|
|
|
|
2,045,455
|
|
$0.30
|
|
2.62 years
|
|
|
229,545
|
|
|
|
229,545
|
|
$0.80
|
|
2.94 years
|
|
|
621,013
|
|
|
|
621,013
|
|
$0.80
|
|
3.18 years
|
|
|
12,500
|
|
|
|
11,979
|
|
$2.00
|
|
3.47 years
|
|
|
12,500
|
|
|
|
11,197
|
|
$2.00
|
|
4.13 years
|
|
|
344,576
|
|
|
|
323,527
|
|
$2.00
|
|
4.61 years
|
|
|
50,000
|
|
|
|
30,212
|
|
$9.60 USD
|
|
5.02 years
|
|
|
189,892
|
|
|
|
109,828
|
|
$6.18 USD
|
|
5.61 years
|
|
|
175,000
|
|
|
|
126,565
|
|
$1.53 USD
|
|
3.89 years
|
|
|
120,000
|
|
|
|
120,000
|
|
$5.00 USD
|
|
3.92 years
|
|
|
352,834
|
|
|
|
352,834
|
|
$3.40 USD
|
|
6.22 years
|
|
|
1,228,182
|
|
|
|
1,198,182
|
|
$2.62 USD
|
|
2.48 years
|
|
|
700,000
|
|
|
|
-
|
|
$2.45 USD
|
|
6.60 years
|
|
|
1,250,000
|
|
|
|
520,834
|
|
$2.53 USD
|
|
6.61 years
|
|
|
181,818
|
|
|
|
54,920
|
|
$1.80 USD
|
|
6.80 years
|
|
|
120,000
|
|
|
|
20,000
|
|
$1.91 USD
|
|
6.94 years
|
|
|
5,275,000
|
|
|
|
157,945
|
|
|
|
|
|
|
12,908,315
|
|
|
|
5,934,036
|
|
The weighted average grant date fair value
of options granted during the year ended December 31, 2019 was $1.46 (2018 - $2.27). The fair value was calculated using the Black-Scholes
option pricing model using the following weighted average assumptions:
|
|
Year
ended December 31, 2019
|
|
|
Year
ended December 31, 2018
|
|
Expected
life of options
|
|
|
3-5
years
|
|
|
|
5
years
|
|
Annualized
volatility
|
|
|
62.29%
|
|
|
|
60%
|
|
Risk-free
interest rate
|
|
|
1.25%
- 1.58%
|
|
|
|
1.91%
- 2.9%
|
|
Dividend
rate
|
|
|
0%
|
|
|
|
0%
|
|
During the year ended December 31, 2019,
the Company recognized stock-based compensation expense of $6,816,321 (2018 - $3,228,508; 2017 - $889,511).
ElectraMeccanica Vehicles Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
Warrants
On exercise, each warrant allows the holder
to purchase one common share of the Company.
The changes in warrants during the years
ended December 31, 2019 and 2018 are as follows:
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Number of warrants
|
|
|
Weighted average exercise price
|
|
|
Number of warrants
|
|
|
Weighted average exercise price
|
|
Warrants outstanding, beginning
|
|
|
22,369,718
|
|
|
$
|
5.03
|
|
|
|
11,856,857
|
|
|
$
|
4.70
|
|
Warrants issued
|
|
|
-
|
|
|
|
-
|
|
|
|
10,807,093
|
|
|
|
5.36
|
|
Warrants exercised
|
|
|
(1,116,322
|
)
|
|
|
3.26
|
|
|
|
(294,232
|
)
|
|
|
5.08
|
|
Warrants expired
|
|
|
(650,000
|
)
|
|
|
19.93
|
|
|
|
|
|
|
|
|
|
Warrants outstanding, ending
|
|
|
20,603,396
|
|
|
$
|
4.64
|
|
|
|
22,369,718
|
|
|
$
|
5.03
|
|
At December 31, 2019, all warrants outstanding, except for 212,500
placement agents’ warrants, were exercisable. Details of warrants outstanding as at December 31, 2019 are as follows:
Exercise Price
|
|
Weighted average
contractual life
|
|
Number of warrants
outstanding
|
|
Non-Transferable Warrants
|
|
|
|
|
|
|
$0.80 CAD - $16.00 CAD
|
|
1.81 years
|
|
|
11,010,059
|
|
$2.00 USD - $24.00 USD
|
|
4.15 years
|
|
|
5,091,969
|
|
Transferable Warrants
|
|
|
|
|
|
|
$4.25 USD
|
|
3.61 years
|
|
|
4,501,368
|
|
12.
Share Based Reserves
The share-based payment reserve records
items that are recognized as stock-based compensation expense and other share-based payments until such time that the stock options
are exercised, at which time the corresponding amount will be transferred to share capital. If the options expire unexercised,
the amount remains in the share-based payment reserve account.
13.
General and administrative expenses
|
|
December 31,
2019
|
|
|
December 31, 2018
|
|
|
December 31,
2017
|
|
Rent
|
|
$
|
425,450
|
|
|
$
|
488,273
|
|
|
$
|
269,716
|
|
Office expenses
|
|
|
1,581,266
|
|
|
|
944,771
|
|
|
|
345,986
|
|
Legal and professional
|
|
|
1,846,695
|
|
|
|
1,491,818
|
|
|
|
912,347
|
|
Consulting fees
|
|
|
2,004,616
|
|
|
|
1,191,593
|
|
|
|
405,176
|
|
Investor relations
|
|
|
330,524
|
|
|
|
614,803
|
|
|
|
113,256
|
|
Salaries
|
|
|
1,899,978
|
|
|
|
759,680
|
|
|
|
326,770
|
|
|
|
$
|
8,088,529
|
|
|
$
|
5,490,938
|
|
|
$
|
2,373,251
|
|
14.
Research and development expenses
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Labour
|
|
$
|
5,834,938
|
|
|
$
|
3,581,970
|
|
|
$
|
1,971,945
|
|
Materials
|
|
|
4,311,686
|
|
|
|
3,393,295
|
|
|
|
2,763,355
|
|
Government grants
|
|
|
(632,104
|
)
|
|
|
(1,409,229
|
)
|
|
|
(304,914
|
)
|
|
|
$
|
9,514,520
|
|
|
$
|
5,566,036
|
|
|
$
|
4,430,386
|
|
ElectraMeccanica Vehicles Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
15.
Sales and marketing expenses
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Consulting
|
|
$
|
439,230
|
|
|
$
|
531,810
|
|
|
$
|
143,275
|
|
Marketing
|
|
|
534,558
|
|
|
|
461,731
|
|
|
|
182,723
|
|
Salaries
|
|
|
770,067
|
|
|
|
393,360
|
|
|
|
305,383
|
|
|
|
$
|
1,743,855
|
|
|
$
|
1,386,901
|
|
|
$
|
631,381
|
|
16.
Segmented information
The Company operates in two reportable
business segments in Canada.
The two reportable business segments offer
different products, require different production processes, and are based on how the financial information is produced internally
for the purposes of making operating decisions. The following summary describes the operations of each of the Company’s reportable
business segments:
|
·
|
Electric Vehicles – development
and manufacture of electric vehicles for mass markets, and
|
|
·
|
Custom build vehicles – development
and manufacture of high-end custom-built vehicles.
|
Sales between segments are accounted for
at prices that approximate fair value. No business segments have been aggregated to form the above reportable business segments.
|
|
Year ended Dec 31, 2019
|
|
|
Year ended December 31, 2018
|
|
|
|
Electric Vehicles
|
|
|
Custom Built
Vehicles
|
|
|
Electric Vehicles
|
|
|
Custom Built
Vehicles
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
775,821
|
|
|
$
|
-
|
|
|
$
|
777,302
|
|
Gross profit
|
|
|
-
|
|
|
|
129,380
|
|
|
|
-
|
|
|
|
202,130
|
|
Operating expenses
|
|
|
26,959,167
|
|
|
|
484,684
|
|
|
|
16,604,687
|
|
|
|
455,848
|
|
Other items
|
|
|
3,511,958
|
|
|
|
20,681
|
|
|
|
(6,841,211
|
)
|
|
|
22,618
|
|
Income tax
|
|
|
2,140
|
|
|
|
(106,939
|
)
|
|
|
-
|
|
|
|
(1,667
|
)
|
Net loss
|
|
|
30,473,265
|
|
|
|
269,046
|
|
|
|
9,763,476
|
|
|
|
274,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
307,225
|
|
|
$
|
442,926
|
|
|
$
|
189,182
|
|
|
$
|
231,555
|
|
Plant and equipment
|
|
|
9,580,326
|
|
|
|
410,216
|
|
|
|
5,299,857
|
|
|
|
23,909
|
|
|
17.
|
Related party transactions
|
Related party balances
The following amounts are due to related
parties:
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Shareholder loan
|
|
$
|
2,076
|
|
|
$
|
6,230
|
|
Due to related parties (Note 7)
|
|
|
275,512
|
|
|
|
83,331
|
|
|
|
$
|
277,588
|
|
|
$
|
89,561
|
|
These amounts are unsecured, non-interest
bearing and have no fixed terms of repayment.
Key management personnel compensation
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Consulting fees
|
|
$
|
584,603
|
|
|
$
|
335,114
|
|
|
$
|
185,000
|
|
Salary
|
|
|
806,937
|
|
|
|
459,440
|
|
|
|
280,167
|
|
Directors fees
|
|
|
405,175
|
|
|
|
165,336
|
|
|
|
-
|
|
Stock-based compensation
|
|
|
5,696,960
|
|
|
|
1,497,881
|
|
|
|
659,228
|
|
|
|
$
|
7,493,675
|
|
|
$
|
2,457,771
|
|
|
$
|
1,124,395
|
|
ElectraMeccanica Vehicles Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
18.
Financial instruments and financial risk management
The Company is exposed in varying degrees
to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes,
inclusive of controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided
as follows:
Credit risk
Credit risk is the risk that one party
to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s
primary exposure to credit risk is on its cash and cash equivalents held in bank accounts. The majority of cash is deposited in
bank accounts held with major financial institutions in Canada. As most of the Company’s cash is held by one financial institution
there is a concentration of credit risk. This risk is managed by using major financial institutions that are high credit quality
financial institutions as determined by rating agencies. The Company’s secondary exposure to risk is on its receivables.
This risk is minimal as receivables consist primarily of refundable government goods and services taxes and interest receivable
from the major financial institution with high credit rating.
Liquidity risk
Liquidity risk is the risk that the Company
will not be able to meet its financial obligations as they fall due. The Company has a planning and budgeting process in place
to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis. The Company
ensures that there are sufficient funds to meet its short-term business requirements, taking into account its anticipated cash
flows from operations and its holdings of cash and cash equivalents.
Historically, the Company's source of funding
has been shareholder loans and the issuance of equity securities for cash, primarily through private placements and public offerings.
The Company’s access to financing is always uncertain. There can be no assurance of continued access to significant equity
funding.
The following is an analysis of the contractual
maturities of the Company’s non-derivative financial liabilities as at December 31, 2019 and 2018:
At December 31, 2019
|
|
Within one
year
|
|
|
Between one
and five years
|
|
|
More than
five years
|
|
Trade payables
|
|
$
|
693,502
|
|
|
|
-
|
|
|
|
-
|
|
Accrued liabilities
|
|
|
1,159,212
|
|
|
|
-
|
|
|
|
-
|
|
Due to related parties
|
|
|
275,512
|
|
|
|
-
|
|
|
|
-
|
|
Shareholder loan
|
|
|
2,076
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
2,130,302
|
|
|
$
|
-
|
|
|
$
|
-
|
|
At December 31, 2018
|
|
Within one
year
|
|
|
Between one
and five years
|
|
|
More than
five years
|
|
Trade payables
|
|
$
|
635,622
|
|
|
|
-
|
|
|
|
-
|
|
Accrued liabilities
|
|
|
543,908
|
|
|
|
-
|
|
|
|
-
|
|
Due to related parties
|
|
|
83,331
|
|
|
|
-
|
|
|
|
-
|
|
Shareholder loan
|
|
|
6,230
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
1,269,091
|
|
|
$
|
-
|
|
|
$
|
-
|
|
See Note 8 for information on maturity
schedule for lease liabilities.
Foreign exchange risk
Foreign currency risk is the risk that
the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ
from the respective functional currency. The Company is exposed to currency risk as it incurs expenditures that are denominated
in US dollars while its functional currency is the Canadian dollar. The Company does not hedge its exposure to fluctuations in
foreign exchange rates.
ElectraMeccanica Vehicles Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
The following is an analysis of Canadian
dollar equivalent of financial assets and liabilities that are denominated in US dollars:
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Cash and cash equivalents
|
|
$
|
10,555,007
|
|
|
$
|
18,048,270
|
|
Restricted cash
|
|
|
81,981
|
|
|
|
54,602
|
|
Receivables
|
|
|
192,998
|
|
|
|
51,164
|
|
Trade payables and accrued liabilities
|
|
|
(105,896
|
)
|
|
|
(382,087
|
)
|
|
|
$
|
10,724,090
|
|
|
$
|
17,771,949
|
|
Based on the above net exposures, as at
December 31, 2019, a 10% change in the US dollars to Canadian dollar exchange rate would impact the Company’s net loss by
$1,072,409 (2018 - $1,777,195).
Interest rate risk
Interest rate risk is the risk that the
fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company
is exposed to interest rate risk on its cash equivalents as these instruments have original maturities of twelve months or less
and are therefore exposed to interest rate fluctuations on renewal. A 1% change in market interest rates would have an impact on
the Company’s net loss of $84,250 for the year ended December 31, 2019 (2018 - $164,830).
Classification of financial instruments
Financial assets included in the consolidated
statements of financial position are as follows:
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Amortized cost:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,095,848
|
|
|
$
|
18,926,933
|
|
Restricted cash
|
|
|
184,314
|
|
|
|
110,707
|
|
Receivables
|
|
|
144,391
|
|
|
|
237,507
|
|
|
|
$
|
11,424,553
|
|
|
$
|
19,275,147
|
|
Financial liabilities included in the consolidated
statements of financial position are as follows:
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Non-derivative financial liabilities:
|
|
|
|
|
|
|
|
|
Trade payable and accrued liabilities
|
|
$
|
2,128,226
|
|
|
$
|
1,262,861
|
|
Shareholder loan
|
|
|
2,076
|
|
|
|
6,230
|
|
|
|
|
|
|
|
|
|
|
Derivative financial liabilities:
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
|
7,072,134
|
|
|
|
4,752,875
|
|
|
|
$
|
9,202,436
|
|
|
$
|
6,021,966
|
|
Fair value
The fair value of the Company’s financial
assets and liabilities, other than the derivative liability which is measured at fair value, approximates the carrying amount.
Financial instruments measured at fair
value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used
to estimate the fair values. The three levels of the fair value hierarchy are:
|
·
|
Level 1 – Unadjusted quoted prices
in active markets for identical assets or liabilities;
|
|
·
|
Level 2 – Inputs other than quoted
prices that are observable for the asset or liability either directly or indirectly; and
|
|
·
|
Level 3 – Inputs that are not based
on observable market data.
|
Financial liabilities measured at fair
value at December 31, 2019 consisted of the derivative liability, which includes transferrable warrants and non-transferrable warrants.
Transferrable warrants are measured using level 1 inputs and non-transferrable warrants are measured using level 2 inputs.
The fair value of the derivative liability
relating to the transferrable warrants was calculated using the quoted market price on the NASDAQ exchange.
ElectraMeccanica Vehicles Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
The fair value of the derivative liability
relating to the non-transferrable warrants was calculated using the Black-Scholes Option Pricing Model using historical volatility
of comparable companies as an estimate of future volatility. At December 31, 2019, if the volatility used was increased by 10%
the impact would be an increase to the derivate liability of $540,285 with a corresponding increase in comprehensive loss.
19. Capital
management
The Company’s policy is to maintain
a strong capital base so as to safeguard the Company’s ability to maintain its business and sustain future development of
the business. The capital structure of the Company consists of equity. There were no changes in the Company’s approach to
capital management during the year. The Company is not subject to any externally imposed capital requirements.
ITEM 19. EXHIBITS
The following exhibits are filed as part of this Annual Report
on Form 20-F:
3.1
|
|
Notice of Articles(1)
|
|
|
|
3.2
|
|
Articles(1)
|
|
|
|
4.1
|
|
Share Certificate – Common Shares(1)
|
|
|
|
4.2
|
|
Description of Registrant’s Securities*
|
|
|
|
10.1
|
|
Executive Employment Agreement between the Company and Jerry Kroll, dated January 1, 2019(4)
|
|
|
|
10.2
|
|
Executive Services Agreement between the Company and Ian Ball, dated July 1, 2016(1)
|
|
|
|
10.3
|
|
Executive Services Agreement between the Company and Ed Theobald, dated July 1, 2016(1)
|
|
|
|
10.4
|
|
Consulting Agreement between the Company and BKB Management Ltd., dated January 1, 2019(4)
|
|
|
|
10.5
|
|
Executive Employment Agreement between the Company and Henry Reisner, dated January 1, 2019(4)
|
|
|
|
10.6
|
|
Independent Contractor Agreement between the Company and Isaac Moss, dated January 1, 2019(4)
|
|
|
|
10.7
|
|
Manufacturing Agreement between Chongqing Zongshen Automobile Co., Ltd. and the Company, dated September 29, 2017(2)+
|
|
|
|
10.8
|
|
Share Pledge Agreement between the Company and Jerry Kroll, dated October 16, 2017(3)
|
|
|
|
12.1
|
|
Section 302(a) Certification of CEO*
|
|
|
|
12.2
|
|
Section 302(a) Certification of CFO*
|
|
|
|
13.1
|
|
Section 906 Certifications of CEO*
|
|
|
|
13.1
|
|
Section 906 Certifications of CFO*
|
|
|
|
14.1
|
|
Code of Conduct and Ethics(2)
|
|
|
|
15.1
|
|
Consent of KPMG LLP, Chartered Professional Accountants*
|
|
|
|
15.2
|
|
Consent of Dale Matheson Carr-Hilton Labonte LLP, Chartered Professional Accountants*
|
|
|
|
21.1
|
|
List of Subsidiaries*
|
|
|
|
99.1
|
|
2015 Stock Option Plan(1)
|
|
|
|
99.2
|
|
Audit Committee Charter(2)
|
|
|
|
99.3
|
|
Nominating Committee Charter(2)
|
|
|
|
99.4
|
|
Compensation Committee Charter(2)
|
|
|
|
99.5
|
|
Corporate Governance and Human Resources Committee Charter(2)
|
|
|
|
99.6
|
|
Enterprise Risk Oversight Committee Charter(2)
|
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99.7
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Social Media Committee Charter(2)
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101.INS
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XBRL Instance*
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101.SCH
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XBRL Taxonomy Extension Schema*
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101.CAL
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XBRL Taxonomy Extension Calculation*
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101.DEF
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XBRL Taxonomy Extension Definition*
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101.LAB
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XBRL Taxonomy Extension Labels*
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101.PRE
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XBRL Taxonomy Extension Presentation*
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Notes:
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+
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Portions of this exhibit
have been omitted pursuant to a request for confidential treatment. Confidential information has been omitted from the exhibit
in places marked “****”and has been filed separately with the SEC.
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(1)
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Filed as an exhibit to
our registration statement on Form F-1 as filed with the SEC on October 12, 2016 and incorporated herein by reference.
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(2)
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Filed as an exhibit to
our annual report on Form 20-F as filed with the SEC on April 19, 2018 and incorporated herein by reference.
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(3)
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Filed as an exhibit to
our registration statement on Form F-1 as filed with the SEC on February 1, 2018 and incorporated herein by reference.
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(4)
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Filed as an exhibit to
our registration statement on Form F-3 as filed with the SEC on February 2, 2019 and incorporated herein by reference.
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