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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: September 30, 2023

OR

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______ to _______.

Commission file number: 001-38612

ELECTRAMECCANICA VEHICLES CORP.

(Exact name of registrant as specified in its charter)

British Columbia, Canada

98-1485035

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification Number)

6060 Silver Drive

Third Floor

Burnaby, British Columbia, Canada, V5H 0H5

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (604) 428-7656

8057 North Fraser Way

Burnaby, British Columbia, Canada, V5J 5M8

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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

Title of each class

Trading Symbol (s)

Name of each exchange on which registered

Common Shares, without par value

SOLO

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes No

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

The registrant had 119,287,917 common shares outstanding as of November 2, 2023.

TABLE OF CONTENTS

PART I

    

FINANCIAL INFORMATION

    

Page

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

5

Condensed Consolidated Statement of Operations and Comprehensive Loss (Unaudited)

5

Condensed Consolidated Balance Sheets (Unaudited)

6

Condensed Consolidated Statement of Cash Flows (Unaudited)

7

Condensed Consolidated Statements of Equity (Unaudited)

8

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

PART II

OTHER INFORMATION

28

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 4.

Mine Safety Disclosures

30

Item 6.

Exhibits

31

Signature

32

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Report”) of ElectraMeccanica Vehicles Corp. (“we,” “us,” “our,” “ElectraMeccanica” and the “Company”) contains statements that constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Any statements that are not statements of historical facts may be deemed to be forward-looking statements. These statements appear in several different places in this 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 Report may include, but are not limited to, statements and/or information related to: our financial performance and projections, including our expectation that we will generate minimal revenues for the foreseeable future; our business prospects and opportunities; our business strategy and future operations; our exploration of strategic third-party opportunities and potential options for our business, including the prospects and timing for entering into and consummating any such strategic transaction, as well as our belief that there are opportunities to create long-term shareholder value; plans to explore the contract assembly as a service business; our expectations with respect to the Working Capital Facility (as defined in this Report); the outcome of legal proceedings; projected costs; expected production capacity; estimated costs of machinery to equip a new production facility; trends in the market in which we operate; the plans and objectives of management; our liquidity and capital requirements, including cash flows and uses of cash; trends relating to our industry; and plans and intentions to regain compliance with the listing requirements of The Nasdaq Stock Market LLC (“Nasdaq”), including, among other things, through a reverse stock split.

We have based these forward-looking statements on our current expectations about future events on information that is available as of the date of this Report, and any forward-looking statements made by us speak only as of the date on which they are made. While we believe these expectations are reasonable, such forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. Our actual future results may differ materially from those discussed or implied in our forward-looking statements for various reasons, including, our ability to change the direction of the Company; our ability to keep pace with new technology and changing market needs; our capital needs, and the competitive environment of our business. Additional factors that could contribute to such differences include, but are not limited to:

general economic and business conditions, including changes in interest rates;
the availability and cost of revenue producing strategic alternatives and the ability to close, integrate, and bring any such strategic alternatives to profitability;
the effect of an outbreak of disease or similar public health threat, such as the COVID-19 pandemic, on the Company’s business (natural phenomena, including the current COVID-19 pandemic);
the impact of political unrest, natural disasters or other crises, terrorist acts, acts of war and/or military operations, and our ability to maintain or broaden our business relationships and develop new relationships with strategic alliances, suppliers, customers, distributors or otherwise;
the ability of our information technology systems or information security systems to operate effectively;
actions by government authorities, including changes in government regulation;
uncertainties associated with legal proceedings;
changes in the size of the electric vehicle (“EV”), market;
future decisions by management in response to changing conditions;
the Company’s ability to execute prospective business plans;
misjudgments in the course of preparing forward-looking statements;
the Company’s ability to raise sufficient funds to carry out its proposed business plan;

3

the Company’s ability to successfully and profitably assemble contracted third-party products using the Company’s Mesa, Arizona, facility;
developments in alternative technologies or improvements in the internal combustion engine;
inability to keep up with advances in EV and battery technology;
inability to design, develop, market and sell new EVs and services that address additional market opportunities to generate revenue and positive cash flows;
dependency on certain key personnel and any inability to retain and attract qualified personnel;
inexperience in mass-producing EVs;
inability to succeed in establishing, maintaining and strengthening the ElectraMeccanica brand;
disruption of supply or shortage of raw materials;
the unavailability, reduction or elimination of government and economic incentives;
failure to manage future growth effectively;
there is a significant risk that we may be classified as a Passive Foreign Investment Company (“PFIC”) for U.S. federal income tax purposes; and
the other risks and uncertainties detailed from time to time in our filings with the Security and Exchange Commission (“SEC”), including but not limited to those described under “Risk Factors” in Part II, Item 1A of this Report and under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on April 17, 2023 (the “2022 Form 10-K”), as updated in our subsequent filings with the SEC.

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.

4

PART I

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ELECTRAMECCANICA VEHICLES CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

    

Three Months Ended September 30,

Nine Months Ended September 30,

    

2023

    

2022

    

2023

    

2022

Revenue

$

$

1,440,149

$

608,429

$

4,025,507

Cost of revenue

 

(521,883)

 

2,395,217

 

1,191,765

 

8,767,956

Gross profit (loss)

 

521,883

 

(955,068)

 

(583,336)

 

(4,742,449)

Operating expenses

 

 

 

 

General and administrative expenses

 

6,327,195

 

10,190,998

 

22,358,369

 

27,981,772

Acquisition related expenses

5,778,957

6,749,615

Research and development expenses

 

2,346,022

 

6,542,030

 

8,580,797

 

16,827,395

Sales and marketing expenses

 

66,405

 

3,267,620

 

2,958,201

 

9,375,945

Total operating expenses

 

14,518,579

 

20,000,648

 

40,646,982

 

54,185,112

Operating loss

 

(13,996,696)

 

(20,955,716)

 

(41,230,318)

 

(58,927,561)

Other non-operating income (expense)

 

 

 

 

Interest income

 

1,154,986

 

764,002

 

3,952,003

 

1,091,668

Impairment of loan receivable

(6,000,000)

(6,000,000)

Changes in fair value of derivative liabilities

 

 

276

 

 

191,174

Other income (expense), net

 

69,274

 

17,913

 

(1,424,143)

 

31,561

Gain on settlement of legal liabilities

858,366

Foreign exchange (loss) gain

 

(24,328)

 

30,244

 

(131,291)

 

(25,374)

Loss before taxes

 

(18,796,764)

 

(20,143,281)

 

(43,975,383)

 

(57,638,532)

Current income tax expense

 

 

 

1,000

 

847

Net loss

$

(18,796,764)

$

(20,143,281)

$

(43,976,383)

$

(57,639,379)

Other comprehensive income

 

 

 

 

Foreign currency translation adjustments

 

16,571

 

35,015

 

25,577

 

41,360

Comprehensive loss

$

(18,780,193)

$

(20,108,266)

$

(43,950,806)

$

(57,598,019)

Loss per share – basic and diluted

$

(0.16)

$

(0.18)

$

(0.37)

$

(0.49)

Weighted average number of shares outstanding – basic and diluted

 

119,287,917

 

111,720,726

 

119,287,917

 

118,638,876

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

ELECTRAMECCANICA VEHICLES CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

    

September 30, 2023

    

December 31, 2022

ASSETS

Current assets

Cash and cash equivalents

$

73,472,905

$

134,255,538

Receivables, net

 

300,780

 

273,958

Prepaid expenses and other current assets

 

3,451,745

 

11,390,850

Inventory, net

 

2,812,785

 

4,233,055

Total current assets

 

80,038,215

 

150,153,401

Restricted cash

 

1,113,859

 

515,449

Plant and equipment, net

 

14,491,253

 

16,452,477

Operating lease right-of-use assets

 

7,426,739

 

9,031,277

Other assets

 

3,923,493

 

5,093,825

Total assets

$

106,993,559

$

181,246,429

Current liabilities

 

 

  

Trade payables and accrued liabilities

$

3,826,539

19,346,470

Customer deposits

 

37,278

 

339,744

Current portion of lease liabilities

 

1,207,233

 

810,677

Contract termination liability

 

 

15,700,000

Total current liabilities

 

5,071,050

 

36,196,891

Share-based compensation liability

 

186,571

 

76,476

Lease liabilities

 

15,864,421

 

17,528,282

Deferred revenue

 

 

119,253

Total liabilities

 

21,122,042

 

53,920,902

Commitments and contingencies (Note 20)

 

 

  

Shareholders’ equity

 

 

  

Share capital - without par value, unlimited shares authorized; 119,287,917 shares issued and outstanding as of September 30, 2023 and December 31, 2022

 

398,061,266

 

395,564,470

Accumulated other comprehensive income

 

4,591,802

 

4,566,225

Accumulated deficit

 

(316,781,551)

 

(272,805,168)

Total shareholders’ equity

 

85,871,517

 

127,325,527

Total liabilities and shareholders’ equity

$

106,993,559

$

181,246,429

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

ELECTRAMECCANICA VEHICLES CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

    

Nine Months Ended September 30,

    

2023

    

2022

Cash flows from operating activities

 

  

 

  

Net loss

$

(43,976,383)

$

(57,639,379)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

Depreciation and amortization

 

2,583,046

 

3,942,326

Stock-based compensation expense

 

2,623,033

 

4,053,851

Inventory provision

 

1,653,912

 

3,118,581

Loss on disposal of long-lived asset

1,563,224

Gain on settlement of legal liabilities

(858,366)

Change in estimate for recall provision

(500,000)

Impairment of loan receivable

6,000,000

Change in fair value of derivative liabilities

(191,174)

Unrealized currency translation gain

 

(31,552)

 

17,084

Changes in operating assets and liabilities:

 

 

Receivables, net

 

(26,822)

 

266,850

Prepaid expenses and other assets

 

872,604

 

(7,823,668)

Inventory, net

 

(283,745)

 

(9,079,654)

Trade payables and accrued liabilities

 

(15,068,431)

 

(1,936,112)

Operating lease liabilities

 

223,818

 

884,148

Customer deposits

 

(302,686)

 

(341,078)

Contract termination liability

(8,000,000)

Net cash used in operating activities

 

(53,528,348)

 

(64,728,225)

Cash flows from investing activities

 

 

Expenditures on plant and equipment

 

(930,047)

 

(3,296,400)

Proceeds from disposal of plant and equipment

293,604

Loan receivable to Tevva

(6,000,000)

Net cash used in investing activities

 

(6,636,443)

 

(3,296,400)

Cash flows from financing activities

 

  

 

  

Payment for issuance of common shares for RSU settlement

 

 

(104,139)

Payment for DSU settlement

 

(16,143)

 

Proceeds from issuance of common shares for options exercised

 

 

349,843

Net cash provided by (used in) financing activities

 

(16,143)

 

245,704

Decrease in cash and cash equivalents and restricted cash

 

(60,180,934)

 

(67,778,921)

Effect of exchange rate changes on cash and cash equivalents and restricted cash

 

(3,289)

 

(43,957)

Cash and cash equivalents and restricted cash, beginning

 

134,770,987

 

222,219,684

Cash and cash equivalents and restricted cash, ending

$

74,586,764

$

154,396,806

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7

ELECTRAMECCANICA VEHICLES CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

Accumulated

Other

Share capital

Comprehensive

Accumulated 

    

Number of shares

    

Amount

    

Income

    

Deficit

    

Total Equity

Balance at December 31, 2022

 

119,287,917

$

395,564,470

$

4,566,225

$

(272,805,168)

$

127,325,527

Stock-based compensation

 

 

876,965

 

 

 

876,965

Net loss

 

 

 

 

(12,311,634)

 

(12,311,634)

Foreign currency translation

 

 

 

37,307

 

 

37,307

Balance at March 31, 2023

119,287,917

$

396,441,435

$

4,603,532

$

(285,116,802)

$

115,928,165

Stock-based compensation

843,096

843,096

Net loss

(12,867,985)

(12,867,985)

Foreign currency translation

(28,301)

(28,301)

Balance at June 30, 2023

 

119,287,917

$

397,284,531

$

4,575,231

$

(297,984,787)

$

103,874,975

Stock-based compensation

776,735

776,735

Net loss

(18,796,764)

(18,796,764)

Foreign currency translation

16,571

16,571

Balance at September 30, 2023

119,287,917

$

398,061,266

$

4,591,802

$

(316,781,551)

$

85,871,517

Accumulated

Other

Share capital

Comprehensive

Accumulated 

    

Number of shares

    

Amount

    

Income

    

Deficit

    

Total Equity

Balance at December 31, 2021

 

117,338,964

$

390,290,103

$

4,501,800

$

(149,106,655)

$

245,685,248

Shares issued pursuant to exercise of options

 

1,245,455

 

295,516

 

 

 

295,516

Shares issued pursuant to settlement of RSU

27,077

(20,786)

(20,786)

Stock-based compensation

1,109,266

1,109,266

Net loss

 

 

 

 

(17,965,607)

 

(17,965,607)

Foreign currency translation

 

 

 

(5,850)

 

 

(5,850)

Balance at March 31, 2022

118,611,496

$

391,674,099

$

4,495,950

$

(167,072,262)

$

229,097,787

Shares issued pursuant to exercise of options

113,636

48,550

48,550

Stock-based compensation

1,548,437

1,548,437

Net loss

(19,530,491)

(19,530,491)

Foreign currency translation

12,195

12,195

Balance at June 30, 2022

 

118,725,132

$

393,271,086

$

4,508,145

$

(186,602,753)

$

211,176,478

Shares issued pursuant to exercise of options

25,000

5,777

5,777

Shares issued pursuant to exercise of RSU

137,976

(83,353)

(83,353)

Stock-based compensation

1,294,008

1,294,008

Net loss

(20,143,281)

(20,143,281)

Foreign currency translation

35,015

35,015

Balance at September 30, 2022

118,888,108

$

394,487,518

$

4,543,160

$

(206,746,034)

$

192,284,644

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8

ELECTRAMECCANICA VEHICLES CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Nature and continuance of operations

ElectraMeccanica Vehicles Corp. was incorporated on February 16, 2015, under the laws of the province of British Columbia, Canada, and its principal activity has historically been the development and manufacturing of EVs.

The head office and principal address of the Company are located at 6060 Silver Drive, Third Floor, Burnaby, British Columbia, Canada, V5H 0H5. The operational headquarters of the Company are located 8127 E. Ray Road, Mesa, AZ 85212.

These unaudited condensed consolidated financial statements have been prepared on the assumption that the Company will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations.  The Company’s continuation is dependent upon its ability to identify and successfully consummate strategic alternatives from which the Company obtains a business model within the broad electrification sector.

The Company has historically designed and manufactured smaller, simpler and purposeful EVs primarily targeted for the U.S. market through direct marketing and sales to consumers and small businesses. The Company’s initial product was the three-wheel, single-seat, SOLO. However, given the significant challenges experienced by customers in purchasing, financing, insuring and after-sale servicing of a three-wheel autocycle, such as the SOLO, at the end of 2022, the Company made the strategic decision to cease production of the SOLO.

In February 2023, the Company announced a voluntary recall of the SOLO due to an unidentified technical issue that resulted in loss of propulsion while driving in certain vehicles at certain times. In April 2023, the Company decided to offer to repurchase all 429 previously retailed SOLO vehicles to ensure the safety of our customers, of which the Company has made payments for 391 vehicles returned by customers as of September 30, 2023.

On August 15, 2023, the Company and Tevva Motors Limited (“Tevva”) signed an arrangement agreement (“Arrangement Agreement”) and other ancillary agreements to merge the two companies into a newly created parent company. The Arrangement Agreement included customary representations, covenants, and closing conditions. On October 4, 2023, the Company terminated the Arrangement Agreement as a result of multiple incurable breaches of the Arrangement Agreement by Tevva, including failures by Tevva to disclose material information about Tevva to the Company.

The Company is currently exploring other strategic third-party opportunities and potential options for its business primarily within the electrification sector, which may include, but are not limited to, mergers or acquisitions of other assets or entities, collaborations, including partnerships and joint ventures, divestitures, and other potential transactions that may complement, expand, enhance, or realign the Company’s existing know-how, technology, development efforts, facilities, and/or market presence.  There are no assurances that the Company will be successful in effecting any such transactions or realizing any of the intended benefits.

Management intends to finance its operations over the next twelve months using existing cash on hand. Management may seek additional funding through private placements and/or public offerings of equity capital or debt, provided that such funding can be obtained on terms that are commercially competitive and on terms acceptable to the Company.

2.Basis of presentation and summary of significant accounting policies

Basis of presentation and consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of ElectraMeccanica Vehicles Corp. and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual audited financial statements. All inter-company balances and transactions have been eliminated.

9

The unaudited condensed consolidated financial statements presented in this Report on Form 10-Q for the three months ended September 30, 2023 should be read in conjunction with the consolidated financial statements and accompanying notes included in the 2022 Form 10-K. The unaudited condensed consolidated balance sheet as of December 31, 2022, was derived from audited consolidated financial statements included in the 2022 Form 10-K but does not include all disclosures required by U.S. GAAP for complete financial statements. The unaudited condensed consolidated financial statements include all adjustments, which consist of normal recurring adjustments and transactions or events discretely impacting the interim periods, considered necessary by management to fairly state the Company’s results of operations, financial position, and cash flows. The operating results for the quarter ended September 30, 2022 reflect the retrospective adoption of U.S. GAAP which was reflected in the 2022 Form 10-K. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. Other than the new accounting policy for loan receivable detailed below, there have been no other changes to the Company’s significant accounting policies described in Note 2 to the consolidated financial statements included in the 2022 Form 10-K. All financial information in this Report is presented in U.S. dollars, unless otherwise indicated.

During the three months ended September 30, 2023, the Company advanced cash to Tevva in the form of a loan receivable of $6.0 million (see Note 15). When we record receivables, we record an allowance for credit losses for the current expected credit losses (CECL) inherent in the asset over its expected life. The allowance for credit losses is a valuation account deducted from the amortized cost basis of the assets to present their net carrying value at the amount expected to be collected. Each period, the allowance for credit losses is adjusted through earnings to reflect expected credit losses over the remaining lives of the assets. We evaluate debt securities with unrealized losses to determine whether any of the losses arise from concerns about the issuer’s credit or the underlying collateral and record an allowance for credit losses, if required. We estimate expected credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Changes in the relevant information may significantly affect the estimates of expected credit losses. After assessing the expected proceeds to be received at loan maturity and the potential value of related collateral to secured obligations, the Company determined that the $6.0 million loan receivable was fully impaired and recorded an impairment loss of $6.0 million in the condensed consolidated statement of operations and comprehensive loss.

Use of estimates

The preparation of interim unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these unaudited condensed consolidated financial statements include, but are not limited to, estimating the write down of inventory to net realizable value, assessing the collectability of the loan receivable from Tevva, estimating the recall provision, and estimating contingent liabilities for contract termination. Management estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from the Company’s estimates.

Segment reporting

The Company continually monitors and reviews its segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact its reportable operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating performance. The chief operating decision maker (“CODM”) is the Company’s Chief Executive Officer. Up until the fourth quarter of 2022, the Company managed, reported and evaluated its business in the following two reportable operating segments: (i) Electric Vehicles and (ii) Custom Built Vehicles. During the fourth quarter of 2022, the CODM changed how she makes operating decisions, assesses the performance of the business and allocates resources in a manner that caused the Company’s operating segments to change as a result of the Company having ceased receiving orders for custom built vehicles. In consideration of Financial Accounting Standards Board’s Accounting Standards Codification 280, Segment Reporting, the CODM determined that the Company is not organized around specific products and services, geographic regions or regulatory environments. Accordingly, beginning with the fourth quarter of 2022, the Company realigned its reporting structure, resulting in a single reportable segment, Electric Vehicles, in the United States.

10

3.Cash and cash equivalents and restricted cash

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the Company’s condensed consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows.

    

September 30, 2023

    

December 31,2022

Cash and cash equivalents

$

73,472,905

$

134,255,538

Restricted cash

 

1,113,859

 

515,449

Total cash and cash equivalents and restricted cash

$

74,586,764

$

134,770,987

The Company’s restricted cash as of September 30, 2023 and December 31, 2022, consists of certificates of deposits related to the Company’s corporate credit card program and a bank issued letter of credit.

4.Prepaid expenses and other current assets

    

September 30, 2023

    

December 31,2022

SOLO vehicle deposit (at supplier)

$

$

7,133,451

Battery cell deposit

 

 

300,000

Prepaid insurance

 

1,401,114

 

1,095,152

Prepaid rent and security deposit

 

361,359

 

495,112

Cloud computing assets

 

1,373,387

 

1,234,039

Other prepaid expenses

 

315,885

 

1,133,096

Total prepaid expenses and other current assets

$

3,451,745

$

11,390,850

The Company’s prepaid expenses and other current assets as of September 30, 2023 decreased compared with December 31, 2022 as a result of the settlement agreement with Chongqing Zongshen Automobile Industry Co., Ltd. (“Zongshen”), as further described in Note 10, which was partially offset by an increase in third party transaction prepaid expenses.

5.Inventory, net

The Company’s inventory consisted of the following:

    

September 30, 2023

    

December 31, 2022

Parts and batteries

$

1,546,047

$

1,242,055

Vehicles

 

2,920,650

 

18,022,771

Inventory provision

 

(1,653,912)

 

(15,031,771)

Total inventory, net

$

2,812,785

$

4,233,055

For the three and nine months ended September 30, 2023, $nil and $1,653,912, respectively, was recognized as inventory write-downs (September 30, 2022 – $306,085 and $3,118,581 for the three and nine months, respectively). These charges are reflected in cost of revenue.

6.Plant and equipment, net

    

September 30, 2023

    

December 31, 2022

Furniture and equipment

$

3,240,576

$

2,117,901

Computer hardware and software

 

1,242,904

 

1,381,786

Vehicles

 

687,490

 

1,046,817

Leasehold improvements

 

11,654,292

 

12,862,333

Production tooling and molds

 

747,674

 

1,956,743

Total plant and equipment

 

17,572,936

 

19,365,580

Less: accumulated depreciation

 

(3,081,683)

 

(2,913,103)

Total plant and equipment, net

$

14,491,253

$

16,452,477

11

During the three and nine months ended September 30, 2023, depreciation expense of $529,543 and $1,552,062, respectively, was included in general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss (September 30, 2022 – $1,243,746 and $3,382,712 for the three and nine months, respectively).

During the three and nine months ended September 30, 2023, $nil and $1,498,130 of production tooling was transferred to equipment upon completion of the asset ($nil for both the three and nine months ended September 30, 2022).

During the nine months ended September 30, 2023, the Company terminated the lease for its Burnaby, British Columbia, Canada headquarters, and concurrently disposed of plant and equipment with the following net book values on the date of disposal: furniture and equipment of $153,482, leasehold improvements of $978,230, computer hardware of $42,599, and vehicles of $1,871. The loss on this disposal was $1,063,425, net of cash proceeds received of $112,757, and was recorded in other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.

7.Other assets

    

September 30, 2023

    

December 31, 2022

Security deposit

$

1,161,000

$

1,161,000

Cloud computing assets

 

2,750,537

 

3,920,869

Intangible assets

11,956

11,956

Total other assets

$

3,923,493

$

5,093,825

During the three and nine months ended September 30, 2023, amortization of $343,661 and $1,030,983, respectively, was recorded for capitalized cloud computing assets within general and administrative expenses in the condensed consolidated statement of operations and comprehensive loss (September 30, 2022 – $253,221 and $556,670 for the three and nine months, respectively).

8.Trade payables and accrued liabilities

    

September 30, 2023

    

December 31, 2022

Trade payables

$

1,778,535

$

3,795,992

Recall provision

 

306,735

 

8,915,044

Accrued liabilities

 

1,741,269

 

6,635,434

Total trade payables and accrued liabilities

$

3,826,539

$

19,346,470

On February 17, 2023, the Company announced a voluntary recall of the SOLO. On April 14, 2023, the Company issued a stop-drive and stop-sell notice and notified customers of a vehicle buy-back program for all 429 SOLO vehicles sold since the release in 2021. The basis of the recall was a result of the vehicle potentially experiencing a loss of propulsion while driving.  As of December 31, 2022, a recall provision of $8,915,044 was recorded as an estimate of the cost to buy-back all retailed vehicles. During the three months ended September 30, 2023, the Company reassessed the recall provision estimation and reversed $500,000 of the recall provision, which was recorded in cost of revenue in the condensed consolidated statements of operations and comprehensive loss.  During the nine months ended September 30, 2023, the Company made payments of  $8,108,309 for 391 vehicles returned by customers.  Accordingly, the recall provision balance was reduced to $306,735 as of September 30, 2023, which was included in trade payables and accrued liabilities within the condensed consolidated balance sheets.

12

9.Leases

The Company has operating leases for its offices and manufacturing warehouse facilities. These leases span a period of five to eleven years.

The components of lease expense, included within general and administrative expenses and sales and marketing expenses in the condensed consolidated statements of operations and comprehensive loss are as follows:

    

Three months ended

    

Three months ended

Nine months ended

    

Nine months ended

    

September 30, 2023

    

September 30, 2022

    

September 30, 2023

    

September 30, 2022

Operating lease expense

 

  

 

  

  

 

  

Operating lease expense

$

468,552

$

822,750

$

1,867,931

$

1,649,078

Short-term lease expense

 

34,419

 

275,408

 

354,098

 

1,037,180

$

502,971

$

1,098,158

$

2,222,029

$

2,686,258

    

September 30, 2023

    

December 31, 2022

 

Weighted average remaining operating lease term (in years)

 

8.91

 

9.41

Weighted average operating lease discount rate

 

10.46

%  

10.28

%

As of September 30, 2023, the maturities of the Company’s operating lease liabilities (excluding short-term leases) are as follows:

    

September 30, 2023

2023 (remaining three months)

$

819,369

2024

 

2,860,671

2025

 

2,789,540

2026

 

2,847,403

2027

 

2,598,847

Thereafter

 

15,230,663

Total minimum lease payments

 

27,146,493

Less: interest

 

10,074,838

Present value of lease obligations

 

17,071,654

Less: Current portion

 

1,207,233

Long-term portion of lease obligations

$

15,864,421

During the nine months ended September 30, 2023, the Company terminated the lease of its previous Burnaby, British Columbia, Canada headquarters, and derecognized the right-of-use assets of $828,193 and lease liability of $936,029. The gain on this disposal was $107,836 and is recorded within other income (expense), net in the condensed consolidated statement of operations and comprehensive loss.

10.Contract termination liability

On September 29, 2017, the Company entered into a manufacturing agreement with Zongshen, which was amended on June 23, 2021 (as amended, the “Manufacturing Agreement”).  Pursuant to the Manufacturing Agreement, Zongshen agreed to manufacture the Company’s SOLO vehicles, and the Company agreed to certain target purchase volumes for the period from June 1, 2021, to November 30, 2023.

On December 20, 2022, the Company gave notice to Zongshen to immediately cease all production of SOLO vehicles due to the economic hardship and issues noted with the vehicles. As a result, Zongshen claimed $22.8 million in relation to the termination of the Manufacturing Agreement.  As of December 31, 2022, the Company estimated a $15.7 million termination provision, representing the Company’s best assessment of the settlement amount, which is presented as a contract termination liability within the Company’s condensed consolidated balance sheets.

On May 8, 2023, the Company entered into a settlement deed (the “Settlement Agreement”) with Zongshen, effective as of May 4, 2023. The Settlement Agreement resolves all outstanding claims relating to the Manufacturing Agreement and the related cancellation notice and defective notice provided by the Company to Zongshen (collectively, the "Agreement and Notices").

13

As of September 30, 2023, in fulfillment of all obligations under the Settlement Agreement and in settlement of the existing contract termination liability of $15.7 million, the Company paid  $8.0 million in cash to Zongshen, de-recognized existing prepaid deposits of $7,167,340 and accounts payable to Zongshen of $281,462, and recognized 129 SOLO vehicle inventories received from Zongshen valued at $44,244, resulting in a gain on settlement of legal liabilities of $858,366.

11.Share capital and other components of equity

Share capital

The Company is authorized to issue an unlimited number of common shares without par value.

The Company is authorized to issue an unlimited number of preferred shares without par value.

As of both September 30, 2023 and December 31, 2022, the Company had 119,287,917 issued and outstanding common shares and nil preferred shares.

Share options exercised

During the nine months ended September 30, 2023, the Company issued no common shares for options exercised by option holders. During the nine months ended September 30, 2022, the Company issued 1,384,091 shares for proceeds of $349,843.

RSUs exercised

During the nine months ended September 30, 2023, no restricted share units (“RSUs) vested. During the nine months ended September 30, 2022, the Company issued 165,053 common shares in connection with the vesting of RSUs and decreased share capital by $104,139.

Warrants

On exercise, each warrant allows the holder to purchase one common share of the Company, including on a cashless basis, based on the formula as set forth in the applicable warrant agreement.

Warrants of the Company classified as equity are composed of the following as of September 30, 2023:

    

Number of warrants 

    

Number of warrants

    

    

Date of issuance

outstanding

 exercisable

Exercise price

Expiry date

October 31, 2017

125,000

125,000

$

15.00

October 31, 2024

November 9, 2018

 

7,440

 

7,440

$

3.20

November 9, 2023

November 9, 2018

 

749,788

 

749,788

$

2.56

May 9, 2024

 

882,228

 

882,228

12.Stock-based compensation

Under the Company’s share-based payment arrangements, total stock-based compensation of $893,655 and $2,623,033 was recognized in the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023, respectively (September 30, 2022 – $1,334,360 and $4,174,820 for the three and nine months, respectively).

Three months ended

Three months ended

Nine months ended

Nine months ended

Share-based compensation expense recorded in

    

September 30, 2023

    

September 30, 2022

    

September 30, 2023

    

September 30, 2022

General and administrative expenses

$

907,174

$

1,165,026

$

2,493,524

$

3,491,445

Research and development expenses

 

(2,616)

 

142,589

 

68,218

 

601,821

Sales and marketing expenses

 

(10,903)

 

26,745

 

61,291

 

81,554

$

893,655

$

1,334,360

$

2,623,033

$

4,174,820

14

Stock options

The Company adopted its 2020 Stock Incentive Plan (the “Stock Incentive Plan”) on July 9, 2020, which provides that the Board of Directors of the Company may from time to time, in its discretion, grant to directors, officers, employees and consultants of the Company certain stock-based compensation awards including 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 stock options may be exercisable for a period of up to 10 years from the date of grant. Stock options may be exercised no later than 90 days following cessation of the optionee’s position with the Company unless any exercise extension has been approved in advance by the administrator of the Stock Incentive Plan.

Stock options granted may vest based on the terms and conditions set out in the applicable stock option agreement. On exercise, each stock option allows the holder to purchase one common share of the Company, including on a cashless basis, based on the formula as set forth in the applicable stock option agreement.

During the nine months ended September 30, 2023 and 2022, the Company issued 1,266,454 and 2,908,849 options, respectively.

Details of stock options outstanding as of September 30, 2023 were as follows:

    

Weighted average

    

Number of options 

    

Number of options 

Exercise price

contractual life

outstanding

exercisable

$2.00 CAD

0.68

65,000

65,000

$0.535

6.48

500,000

$0.57

6.61

42,427

27,428

$0.59

6.71

400,000

$0.99

6.31

135,496

83,702

$1.08

 

6.06

 

42,556

 

20,385

$1.11

 

6.19

 

3,750,000

 

$1.50

 

5.90

 

506,335

 

350,788

$1.91

 

2.30

 

2,955,000

 

2,893,890

$1.94

 

5.55

 

78,163

 

47,233

$2.13

 

5.35

 

21,120

 

13,640

$2.45

 

2.85

 

1,250,000

 

1,250,000

$2.53

 

1.48

 

50,000

 

50,000

$3.01

 

1.18

 

750,000

 

750,000

$3.40

 

1.62

 

1,035,000

 

1,035,000

$3.41

 

2.03

 

520,000

 

520,000

$3.55

 

4.79

 

5,000

 

3,645

$3.56

 

5.12

 

99,097

 

70,204

$3.77

 

1.18

 

50,000

 

50,000

$4.15

 

1.18

 

750,000

 

750,000

$5.00

 

0.17

 

193,629

 

193,629

$7.75

 

4.39

 

30,000

 

26,875

$9.60

 

9.60