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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended: December 31, 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)

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

Securities registered pursuant to Section 12(b) of the 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

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

Common Shares, without par value

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes No

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to 240.10D-1(b).

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter ($0.62 on June 30, 2023) was approximately $70,056,306.

The registrant had 119,495,465 common shares outstanding as of March 07, 2024.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required by Part III of this Annual Report on Form 10-K (this “Form 10-K”) will either be incorporated into this Form 10-K by reference to the registrant’s definitive proxy statement for its 2024 annual general meeting of shareholders or will be included in an amendment to this Form 10-K, in each case, to be filed no later than 120 days after the registrant’s fiscal year ended December 31, 2023.

TABLE OF CONTENTS

PART I

Page

Item 1

Business

5

Item 1A

Risk Factors

7

Item 1B

Unresolved Staff Comments

14

Item 1C

Cybersecurity

14

Item 2

Properties

15

Item 3

Legal Proceedings

15

Item 4

Mine Safety Disclosures

16

PART II

Item 5

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

17

Item 6

[Reserved]

18

Item 7

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

18

Item 7A

Quantitative and Qualitative Disclosures About Market Risk

25

Item 8

Financial Statements and Supplementary Data

25

Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

58

Item 9A

Controls and Procedures

58

Item 9B

Other Information

59

Item 9C

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

59

PART III

Item 10

Directors, Executive Officers and Corporate Governance

60

Item 11

Executive Compensation

60

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

60

Item 13

Certain Relationships and Related Transactions, and Director Independence

60

Item 14

Principal Accountant Fees and Services

60

PART IV

Item 15

Exhibits and Financial Statement Schedules

61

Item 16

Form 10-K Summary

64

2

REFERENCES

As used in this Annual Report on Form 10-K (the “Form 10-K” or “Annual Report”): (i) the terms “Registrant”, “we”, “us”, “our”, “ElectraMeccanica” and the “Company” mean ElectraMeccanica Vehicles Corp. or, as the context requires, collectively with its consolidated subsidiaries; (ii) “SEC” refers to the Securities and Exchange Commission; (iii) “Securities Act” refers to the Securities Act of 1933, as amended; (iv) “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; and (v) all dollar amounts refer to U.S. dollars unless otherwise indicated.

FORWARD-LOOKING STATEMENTS

This Annual Report 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 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: expectations or forecasts of business, operations, financial performance, prospects, and other plans, intentions, expectations, estimates, and beliefs relating to the proposed transaction between the Company and Xos, Inc., such as statements regarding the combined operations and prospects of the combined company, growth opportunities and synergies for the combined company, federal and state regulatory tailwinds, the expected cash balance of the Company at the time of the closing of the proposed transaction and the timing and completion of the proposed transaction, including the satisfaction or waiver of all the required conditions thereto; our financial performance and projections, including our expectation that we will generate no revenue for the foreseeable future; our business prospects and opportunities; our business strategy and future operations; the outcome of legal proceedings; projected costs; plans, expectations and estimates relating to the recovery of previously paid tariffs; expected production capacity; 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 Annual Report. 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, including, our ability to change the direction of the Company, our ability to complete the Xos Arrangement (as defined below) in a timely manner or at all and challenges in achieving strategic objectives, synergies and other anticipated benefits from the Xos Arrangement. Additional factors that could contribute to such differences include, but are not limited to:

the completion of the Xos Arrangement is subject to a number of conditions precedent, some of which are outside our control;
the Xos Arrangement may be terminated in certain circumstances;
the completion of the Xos Arrangement is uncertain;
risks associated with securities litigation related to the Xos Arrangement;
general economic and business conditions, including changes in interest rates;
actions by government authorities, including changes in government regulation;
uncertainties associated with legal proceedings;
unanticipated operating costs, transaction costs and actual or contingent liabilities;
future decisions by management in response to changing conditions;
our ability to sub-lease or otherwise successfully utilize our Mesa, Arizona, facility;

3

our dependency on certain key personnel and any inability to retain and attract qualified personnel;
the ability of our information technology systems or information security systems to operate effectively;
classification of the Company 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 SEC, including but not limited to those described under “Risk Factors” in Part I, Item 1A of this Annual Report, 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. 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.

4

PART I

ITEM 1. BUSINESS

Company Overview

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 and focus its efforts and resources on a new four-wheeled electric passenger vehicle, which was referred to as “Project E4” or “E4.”

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 its customers, of which the Company has made refund payments for 392 vehicles returned by customers as of December 31, 2023.

In March 2023, the Company began exploring other strategic third-party opportunities and potential options for its business, which included, but were not limited to, mergers or acquisitions of other assets or entities, collaborations, including partnerships and joint ventures, divestitures, and other potential transactions that could complement, expand, enhance, or realign the Company’s existing know-how, technology, development efforts, and/or market presence.

In August 2023, the Company determined not to pursue its previously announced plan to develop and sell the E4 because of the significant costs to design, develop, manufacture, sell, support, and service the E4, as well as the Company’s decision to explore strategic alternatives for its business.

On August 14, 2023, the Company and Tevva Motors Limited (“Tevva”) signed an arrangement agreement (“Tevva Arrangement Agreement”) and other ancillary agreements to merge the two companies into a newly created parent company (the “Tevva Arrangement”). On October 4, 2023, the Company terminated the Tevva Arrangement Agreement as a result of multiple incurable breaches of the Tevva Arrangement Agreement by Tevva, including failures by Tevva to disclose material information about Tevva to the Company.

Following the termination of the Tevva Arrangement Agreement, the Company resumed the strategic process initiated earlier in the year. The Company considered companies that had been previously considered and also considered new potential counterparties. The Company was particularly interested in the electric commercial vehicle segment because of perceived regulatory tailwinds and suitability for electrification.

On January 11, 2024, the Company and Xos, Inc., a publicly traded Nasdaq company incorporated in Delaware (“Xos”), entered into an arrangement agreement (the “Xos Arrangement Agreement”), pursuant to which Xos will acquire all of the issued and outstanding common shares of the Company pursuant to a plan of arrangement (the “Xos Plan of Arrangement”) under the Business Corporations Act (British Columbia) (the “Xos Arrangement”). Xos is a leading manufacturer of medium-duty commercial electric vehicles for parcel delivery, uniform rental, food and beverage, and cash-in-transit fleets across the United States and Canada. The Xos Arrangement is expected to close in the first half of 2024, subject to the satisfaction or waiver of closing conditions, including, among others, required approvals of Xos’ stockholders and the Company’s shareholders, court approval of the transaction, certain third-party approvals and other customary closing conditions. There are no assurances that the proposed Xos Arrangement will be consummated or, if consummated, that any of the intended benefits from the proposed transaction will be realized by the combined company within the expected time frames or at all. As the Company works to close the proposed Xos Arrangement, the Company is focused on reducing costs to maximize the strength of its balance sheet and reduce its use of cash.

In 2023, the Company also explored assembling EVs for other EV companies in its recently commissioned and state-of-the-art 235,000 square foot facility located in Mesa, Arizona. However, the Company recently determined to no longer pursue the EV contract assembly business following management’s decision to discontinue manufacturing activities in Mesa, Arizona, and the Company has subsequently determined to sub-lease the Mesa, Arizona manufacturing facility and the Huntington Beach, California facility in 2024.

5

Government Regulation

Certain of our operations, properties and products are or were subject to stringent and comprehensive federal, state and local laws and regulations, including, but not limited to, governing matters related to environmental protection, occupational health and safety, and the release or discharge of materials into the environment, including air emissions and wastewater discharges.

Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of investigatory and remedial obligations and the issuance of orders enjoining some or all of our operations in affected areas. However, since we currently are not producing any products following our decision to cease production of the SOLO, as well as our determination not to pursue our previously announced plan to develop and sell the E4 or the EV contract assembly business, we are presently no longer subject to many of these laws and regulations that relate, for example, to the development, manufacture and sale of vehicles.  However, in the event that we successfully consummate a strategic alternative for our business in the EV industry, such as the Xos Arrangement, then we or the combined company would likely be subject to, among others, those laws and regulations as described in Part I, Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2022 under the caption “Government Regulation and Incentives.”

Intellectual Property and Trademarks

We protect, use and defend our intellectual property in support of our business objectives to increase our return on investment, enhance our competitive position and create shareholder value.

Through strategic and business assessments of our intellectual property, we rely on a combination of patents, trade secrets, copyrights, service marks, trademarks, domains, contractual terms and enforcement mechanisms across various international jurisdictions to establish and protect intellectual property rights related to our business and operations.

Despite our efforts to protect our intellectual property rights, they may not be respected in the future or may be invalidated, circumvented or challenged. As our business evolves, we may also choose to abandon certain intellectual property rights that we consider no longer core to our go-forward business.

Human Capital

As of January 31, 2024, we employed a total of 34 employees. The breakdown of full-time employees by main category of activity is as follows:

Activity

    

Number of Employees

Engineering/R&D

 

1

Sales & Marketing

 

0

General & Administration

 

27

Executive

 

6

Total Number of Employees

 

34

Corporate Information

We were incorporated on February 16, 2015, under the laws of the Province of British Columbia, Canada, and our principal executive offices are located 6060 Silver Drive, 3rd Floor, Burnaby, British Columbia, Canada V5H 0H5.

The SEC maintains a website at www.sec.gov that contains the reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. We regularly file reports with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. We make these reports available free of charge on our website located at https://www.emvauto.com as soon as reasonably practicable after such material is filed with or furnished to the SEC. You may also access these materials on EDGAR at www.sec.gov and SEDAR+ at www.sedarplus.ca. References to our website in this Annual Report are intended to be inactive textual references only, and none of the information contained our website or is part of this Annual Report or incorporated in this Annual Report by reference.

6

ITEM 1A. RISK FACTORS

In addition to the information contained in this Annual Report, we have identified the following material risks and uncertainties which reflect our outlook and conditions known to us as of the date of this Annual Report. These material risks and uncertainties should be carefully reviewed by our shareholders and any potential investors in evaluating the Company, our business, and the market value of our common shares. Furthermore, any one of these material risks and uncertainties has the potential to cause actual results, performance, achievements or events to be materially different from any future results, performance, achievements or events implied, suggested or expressed by any forward-looking statements made by us or by persons acting on our behalf. Refer to “Forward-looking Statements”.

There is no assurance that we will be successful in preventing the material adverse effects that any one or more of the following material risks and uncertainties may cause on our business, prospects, financial condition and operating results, which may result in a significant decrease in the market price of our common shares. Furthermore, there is no assurance that these material risks and uncertainties represent a complete list of the material risks and uncertainties facing us. There may be additional risks and uncertainties of a material nature that, as of the date of this Annual Report, we are unaware of or that we consider immaterial that may become material in the future, any one or more of which may result in a material adverse effect on us. You could lose all or a significant portion of your investment due to any one of these material risks and uncertainties.

Risks Related to the Xos Arrangement

The completion of the Xos Arrangement is subject to a number of conditions precedent, some of which are outside the Company’s control.

The completion of the Xos Arrangement is subject to a number of conditions precedent, some of which are outside the Company’s control. In addition, the completion of the Xos Arrangement by the Company and Xos is conditional on, among other things, no material adverse change having occurred in respect of either the Company or Xos that is continuing. There can be no certainty, nor can the Company provide any assurance, that all conditions precedent to the Xos Arrangement will be satisfied or waived, or, if satisfied or waived, when they will be satisfied or waived and, accordingly, the Xos Arrangement may not be completed. If the Xos Arrangement is not completed, the market price of the Company’s common shares may be adversely affected.  For additional information regarding the conditions precedent to the Xos Arrangement, refer to the Xos Arrangement Agreement, which is included as Exhibit 2.2 to this Annual Report.

The market price of the Company’s common shares may be materially adversely affected if the Xos Arrangement is not completed.

If, for any reason, the Xos Arrangement is not completed or its completion is materially delayed or the Xos Arrangement Agreement is terminated, the market price of the Company’s common shares may be materially adversely affected. Depending on the reasons for terminating the Xos Arrangement Agreement, the Company’s business, financial condition or results of operations could also be subject to various material adverse consequences, including as a result of paying a termination amount of $6 million in the event the Xos Arrangement Agreement is terminated by the Company in connection with entry into a superior proposal.

The Xos Arrangement may be terminated in certain circumstances.

Each of the Company and Xos has the right, in certain circumstances, in addition to termination rights relating to the failure to satisfy the conditions of closing, to terminate the Xos Arrangement. Accordingly, there can be no certainty, nor can the Company provide any assurance, that the Xos Arrangement will not be terminated by either of the Company or Xos prior to the completion of the Arrangement. In addition, if the Xos Arrangement is not completed by June 30, 2024, either the Company or Xos may choose to terminate the Xos Arrangement Agreement. The Xos Arrangement Agreement also includes termination amounts payable if the Arrangement Agreement is terminated in certain circumstances.  See “—Risks Related to the Xos Arrangement—The termination amounts provided under the Xos Arrangement Agreement may discourage other parties from attempting to acquire the Company” for additional information.  Additionally, any termination will result in the failure to realize the expected benefits of the Xos Arrangement in respect of the business of the Company.

7

The termination amounts provided under the Xos Arrangement Agreement may discourage other parties from attempting to acquire the Company.

Under the Xos Arrangement Agreement, each of the Company and Xos is required to pay to the other party a termination amount of $6 million in the event the Xos Arrangement Agreement is terminated in connection with entry into a superior proposal. This termination amount may discourage other parties from attempting to acquire the Company’s common shares or otherwise make an acquisition proposal to the Company, even if those parties would otherwise be willing to offer greater value to the Company’s shareholders than that offered by Xos under the Xos Arrangement.

The completion of the Xos Arrangement is uncertain.

As the Xos Arrangement is dependent upon receipt, among other things, of satisfaction of certain conditions, its completion is uncertain. If the Xos Arrangement is not completed for any reason, there are risks that the announcement of the Xos Arrangement and the dedication of the Company’s resources to the completion thereof could have a negative impact on their respective relationships with their stakeholders and could have a material adverse effect on the current and future operations, financial condition and prospects of the Company. Further, our Board of Directors may determine to liquidate or dissolve the Company if the Xos Arrangement is not completed. In such an event, the amount of cash available for distribution to the Company’s shareholders will depend heavily on the timing of such liquidation or dissolution, as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.

In addition, the Company will incur significant transaction expenses in connection with the Xos Arrangement, regardless of whether the Xos Arrangement is completed.

Restrictions from pursuing business opportunities under the Xos Arrangement Agreement may prevent the Company from pursuing attractive business opportunities that may arise prior to the completion of the Xos Arrangement.

The Company is subject to customary non-solicitation provisions under the Xos Arrangement Agreement, pursuant to which the Company is restricted from soliciting, initiating, encouraging or otherwise facilitating any other acquisition proposal, among other things. The Xos Arrangement Agreement also restricts the Company from taking specified actions until the Xos Arrangement is completed without the consent of Xos. These restrictions may prevent the Company from pursuing attractive business opportunities that may arise prior to the completion of the Xos Arrangement.

Another attractive take-over, merger or business combination may not be available if the Xos Arrangement is not completed.

If the Xos Arrangement is not completed and is terminated, there can be no assurance that the Company will be able to find a party willing to pay equivalent or more attractive consideration than the consideration to be provided under the Xos Arrangement or be willing to proceed at all with a similar transaction or any alternative transaction.

The pending Arrangement may divert the attention of the Company’s management.

The pendency of the Xos Arrangement could cause the attention of the Company’s management to be diverted from their day-to-day operations. These disruptions could be exacerbated by a delay in the completion of the Xos Arrangement and could have an adverse effect on the business, operating results or prospects of the Company regardless of whether the Xos Arrangement is ultimately completed.

There are risks associated with securities litigation related to the Xos Arrangement.

Securities litigation or shareholder derivative litigation frequently follows the announcement of certain significant business transactions. The Company may become involved in this type of litigation in connection with the Xos Arrangement. Litigation often is expensive and diverts management’s attention and resources, which could have a material adverse effect on the business and the results of operations of the Company.

8

Risks Related to the Business and Industry

We have a limited operating history and expect to continue to generate no revenue for the foreseeable future.

Our limited operating history makes evaluating our business and future prospects difficult. We historically designed and manufactured smaller, simpler and purposeful EVs primarily targeted for the U.S. commercial market through sales directly to consumers and small businesses. However, we decided to cease production of our initial three-wheel, single-seat EV vehicle, the SOLO, at the end of 2022 and to cease sales of SOLO vehicles beginning in February 2023 following an announced recall. Additionally, in August 2023, we determined not to pursue our previously announced plan to develop and sell a new four-wheeled electric passenger vehicle, which was referred to as “Project E4” or “E4,” because of the significant costs to design, develop, manufacture, sell, support, and service the E4, as well as our decision to explore other strategic third-party opportunities and potential options for our business. Additionally, we have recently determined to no longer pursue the EV contract assembly business following management’s decision to discontinue manufacturing activities in Mesa, Arizona, and we have subsequently determined to sub-lease the Mesa, Arizona manufacturing facility in 2024. As a result, we generated significantly lower revenues in 2023 compared to 2022, and we expect to generate no revenue for the foreseeable future.

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, 2023, we generated a net loss of $57.6 million. If we are to ever achieve profitability, we must successfully execute prospective business plans, which may not occur. We expect that our operating losses will continue in 2024 and thereafter, and we also expect to continue to incur operating losses and to experience negative cash flows for the next several years.

We currently have negative operating cash flows and expect negative cash flows in the future, which adversely affects our viability as an operating business.

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, and we expect to generate no revenue for the foreseeable future. If we are unable to reduce and/or maintain a sufficiently low level of costs related to our operations, our operating results, business and prospects could be materially and adversely impacted. An inability to generate positive cash flow will adversely affect our viability as an operating business.

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 our executive leadership team: Susan Docherty, our Chief Executive Officer and interim Chief Operating Officer, Stephen Johnston, our Chief Financial Officer, and Michael Bridge, our General Counsel. A number of these key employees 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.

9

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. For example, 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.  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 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 more than 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.

We face risks associated with security breaches through cyber-attacks, cyber intrusions, or otherwise, which could pose a risk to our systems, networks and services.

We face risks associated with cyber-attacks, including hacking, viruses, malware, denial of service attacks, ransomware or other data security breaches. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions around the world have increased. Our business requires the continued operation of information systems and network infrastructure. In the event of a cyber-attack that we were unable to defend against or mitigate, we could have our operations and the operations of our customers and others disrupted. We could also have our financial and other information systems and network infrastructure impaired, property damaged and customer and employee information stolen, and experience substantial loss of revenues, response costs and other financial loss and be subject to increased regulation, litigation, penalties and damage to their reputation. A security breach or other significant disruption involving computer networks and related systems could cause substantial costs and other negative effects, including litigation, remediation costs, costs to deploy additional protection strategies, compromising of confidential information and reputational damage adversely affecting investor confidence. As a result, in the event of a material cybersecurity breach, our results of operations could be materially, adversely affected.

Risks Related to Our Securities

Our common shares are listed on the Nasdaq Capital Market. As such, we must meet the Nasdaq Capital Market’s continued listing requirements and other Nasdaq rules, or we may risk delisting.

Our common shares are listed on the Nasdaq Capital Market. As such, we are required to meet the continued listing requirements of the Nasdaq Capital Market and other Nasdaq rules, including those regarding director independence and independent committee requirements, minimum shareholders’ equity, minimum share price and certain other corporate governance requirements. In particular, we are required to maintain a minimum bid price for our listed common shares of $1.00 per share. If we do not meet these continued listing requirements, our common shares could be delisted. Delisting of our common shares from the Nasdaq Capital Market would cause us to pursue eligibility for trading on other markets or exchanges, or on the pink sheets. In such case, our shareholders’ ability to trade, or obtain quotations of the market value of, our common shares would be severely limited because of lower trading volumes and transaction delays. These factors could contribute to lower prices and larger spreads in the bid and ask prices for our securities. There can be no assurance that our common shares, if delisted from the Nasdaq Capital Market in the future, would be listed on a national securities exchange, a national quotation service, the Over-The-Counter Markets or the pink sheets. Delisting from the Nasdaq Capital Market, or even the issuance of a notice of potential delisting, would also result in negative publicity, make it more difficult for us to raise additional capital, adversely affect the market liquidity of our common shares, reduce security analysts’ coverage of us and diminish investor, supplier and employee confidence. Additionally, the threat of delisting or a delisting of our common shares from the Nasdaq Capital Market could reduce the number of investors willing to hold or acquire our common shares, thereby further restricting our ability to obtain equity financing, and it could reduce our ability to retain, attract and motivate our directors, officers and employees. In addition, as a consequence of any such delisting, our share price could be negatively affected and our shareholders would likely find it more difficult to sell, or to obtain accurate quotations as to the prices of, our common shares.

10

As described in a Current Report on Form 8-K filed with the SEC on March 28, 2023, we received a deficiency letter from Nasdaq notifying us that, for the last 30 consecutive business days, the closing bid price for our common shares had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market (the “Minimum Bid Price Requirement”). In accordance with Nasdaq rules, we were provided an initial period of 180 calendar days, or until September 25, 2023, to regain compliance with the Minimum Bid Price Requirement. On September 26, 2023, we received a letter from Nasdaq granting us an additional 180 calendar day period, or until March 25, 2024, to regain compliance with the Minimum Bid Price Requirement. To regain compliance, the closing bid price for our common shares must remain above $1.00 for 10 consecutive business days.

We intend to continue actively monitoring the bid price for our common shares and will consider all available options available to us if our common shares do not trade at a level to regain compliance with the Minimum Bid Price Requirement, which includes effecting a reverse stock split, if necessary. However, there can be no assurances that a reverse stock split will be consummated or that it will achieve its intended effect of increasing the bid price of our common shares in an amount sufficient to regain compliance with the Minimum Bid Price Requirement.

If we do not regain compliance with the Minimum Bid Price Requirement by the extended compliance date provided by Nasdaq, then Nasdaq will provide written notification to us that our common shares will be subject to delisting. At that time, we may appeal their delisting determination to a Nasdaq Hearing Panel. There can be no assurance that we will regain compliance with the Minimum Bid Price Requirement or otherwise maintain compliance with any of the other Nasdaq listing requirements.

We may be classified as a PFIC for U.S. federal income tax purposes.

Current or potential investors in our common shares who are U.S. Holders (as defined below) should be aware that, based on our most recent financial statements and projections and given uncertainty regarding the composition of our future income and assets, there is a risk that we may have been classified as a “passive foreign investment company” or “PFIC” for the 2023 taxable year and may be classified as a PFIC for our current taxable year and possibly subsequent years. Each current or potential investor who is a U.S. Holder should consult his, her or its own tax advisor regarding the U.S. federal, state and local, and non-U.S. tax consequences of the acquisition, ownership, and disposition of our common shares, the U.S. federal tax consequences of the PFIC rules, and the availability of any election that may be available to the holder to mitigate adverse U.S. federal income tax consequences of holding shares of a PFIC.

The rules governing PFICs can have adverse tax effects on U.S. shareholders, which effects may be mitigated by making certain elections for U.S. federal income tax purposes, which elections may or may not be available. If we are a PFIC in any year, a U.S. shareholder in such year will be required to file an annual information return with the IRS-on-IRS Form 8621 regarding distributions received on their common shares, any gain realized on disposition of such common shares and any other information required by such form. Additionally, if we are classified as a PFIC in any taxable year with respect to which a U.S. shareholder owns common shares, we generally will continue to be treated as a PFIC with respect to such U.S. shareholder in all succeeding taxable years, regardless of whether we continue to meet the tests described above, unless the U.S. shareholder makes a “deemed sale election.”

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 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.

11

The market price of our common shares has been volatile and may further 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 starting in September 2017. The historical volume of trading has been low (within the past fiscal year, the fewest number of our shares that were traded on the Nasdaq Capital Market was 129,000 shares daily), and the share price has fluctuated significantly (since trading began on Nasdaq our closing price has been as low as US$0.23 on March 6, 2024, and as high as $10.81 on October 20, 2020). The share price for our common shares could decline due to the impact of any of the following factors:

sales or potential sales of substantial amounts of our common shares;
litigation and other developments relating to our patents or other proprietary rights or those of our competitors;
conditions in the automobile industry;
governmental regulation and legislation;
variations in our anticipated or actual operating results;
change in securities analysts’ estimates of our performance, or our failure to meet analysts’ expectations;
change in general economic trends; and
investor perception of our industry or our prospects.

Many of these factors are beyond our control. The stock markets in general, and the market for automobile companies, 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.  Additionally, our announcements relating to our previously contemplated transaction with Tevva and the currently contemplated Xos Arrangement have led to an increase in the volatility of the share price for our common shares.  Any future announcements or developments relating to the Xos Arrangement may lead to further such volatility.  

In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted against that company. Any lawsuit to which we are a party, with or without merit, may result in an unfavorable judgment. We also may decide to settle lawsuits on unfavorable terms. Any such negative outcome could result in payments of substantial damages or fines, damage to our reputation or adverse changes to our business practices. Such litigation may also cause us to incur other substantial costs to defend such claims and divert management’s attention and resources. Furthermore, negative public announcements of the results of hearings, motions or other interim proceedings or developments could have a negative effect on the market price of our common shares.

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.

12

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. Consequently, 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.

Risks Related to Government Laws and Regulations

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.

13

Any failure by us to comply with a variety of U.S. and international privacy and consumer protection laws may harm us.

Any failure by us or our vendor or other business partners to comply with our public privacy notice or with federal, or state privacy, data protection or security laws or regulations relating to the processing, collection, use, retention, security and transfer of personally identifiable information could result in regulatory or litigation-related actions against us, legal liability, fines, damages, ongoing audit requirements and other significant costs. Substantial expenses and operational changes may be required in connection with maintaining compliance with such laws, and even an unsuccessful challenge by customers or regulatory authorities of our activities could result in adverse publicity and could require a costly response from and defense by us. In addition, certain emerging privacy laws are still subject to a high degree of uncertainty as to their interpretation, application and impact, and may require extensive system and operational changes, be difficult to implement, increase our operating costs, adversely impact the cost or attractiveness of the products or services we offer, or result in adverse publicity and harm our reputation. For example, the California Consumer Privacy Act imposes certain legal obligations on our use and processing of personal information related to California residents. Notwithstanding our efforts to protect the security and integrity of our customers’ personal information, we may be required to expend significant resources to comply with data breach requirements if, for example, third parties improperly obtain and use the personal information of our customers or we otherwise experience a data loss with respect to customers’ personal information. A major breach of our network security and systems may result in fines, penalties and damages and harm our brand, prospects and results of operations.

General Risk Factor

We incur significant costs as a result of being a public company.

We incur significant legal, accounting, and other expenses as a public company. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and the Nasdaq Capital Market, impose various requirements on the corporate governance practices of public companies.

Compliance with these rules and regulations increases our legal and financial compliance costs and makes some corporate activities more time-consuming and costlier. Since we are no longer an “emerging growth company”, as defined in the JOBS Act, 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 cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 1C. Cybersecurity

Risk Management and Strategy

The Company recognizes the critical importance of developing, implementing, and maintaining good cybersecurity measures to safeguard its information systems and protect its data's confidentiality, integrity, and availability.

As part of the Company’s overall risk management system, the Company has diligently protected and secured physical, virtual, and cloud assets. To defend against cybersecurity incidents, the Company has implemented cybersecurity monitoring tools for its virtual and cloud environments to monitor network traffic within the Company for abnormalities and for any potential intrusions. For the Company’s user devices, the Company has implemented a software-based Zero-Trust virtual private network (VPN) and a software-based firewall to ensure the Company’s data is protected. Additionally, the Company has deployed monitoring systems, multifactor authentication (MFA), and single-sign-on (SSO) to ensure user accounts are protected from external cybersecurity threats. The Company regularly monitors third-party service providers, such as those that provide cloud-based and VPN services, to identify and mitigate risks from cybersecurity threats.

14

Risks from Cybersecurity Threats

As of the date of this filing, the Company has not encountered any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations or financial condition. The Company’s strategy is to mitigate risks preventatively; however, no assurances can be provided that there will not be incidents in the future or that they will not materially affect the Company.

Governance

The Company’s Board of Directors is responsible for identifying the principal risks of the Company’s business and ensuring that those risks are effectively managed. The Company’s Chief Information Officer is responsible for assessing and managing the Company’s risks from cybersecurity threats and has approximately 15 years of prior work experience in roles involving information technology. The Chief Information Officer is informed about, and monitors the prevention, detection, mitigation and remediation of, cybersecurity incidents through his management of, and participation in, the monitoring systems and processes described above. The Chief Information Officer reports information about such risks to the Company’s Chief Executive Officer, Chief Financial Officer and General Counsel, who then would report information to the Company’s Board of Directors. When appropriate, the Chief Information Officer would be invited by management to present information to the Company’s Board of Directors.

ITEM 2. PROPERTIES

Our executive office is located in Burnaby, British Columbia, Canada. Our manufacturing facility in Mesa, Arizona, is expected to be sub-leased in 2024 following management’s decision to discontinue manufacturing activities in Mesa, Arizona. We do not own any real property. We currently lease the following properties:

    

Area

    

2023 Gross Monthly

    

    

Location

(In square feet)

    

Rent

Lease Expiration Date

Use

Burnaby, BC, Canada

    

1,000

    

$

5,680

    

CAD

    

30-Apr-24

    

Head office

Mesa, Arizona, USA

 

235,000

$

189,720

 

USD

28-Feb-33

 

Engineer & Manufacturing Facility

Huntington Beach, CA, USA

 

17,980

$

25,711

 

USD

31-Jan-27

 

Service & distribution center

Management believes that our existing facilities are adequate to meet our current requirements and comparable space is readily available.

ITEM 3. LEGAL PROCEEDINGS

In the ordinary course of business, we may from time to time become subject to legal proceedings and claims arising in connection with ongoing business activities. Based on our current knowledge, there are no legal proceedings as of the date of this Annual Report to which we are, or any of our subsidiaries is, a party, or which any of our property is the subject, that in the opinion of management might have a material adverse effect on our results of operations, financial condition or cash flows, or that are otherwise required to be disclosed under the rules of the SEC. However, the results of litigation and claims cannot be predicted with certainty, and unfavorable resolutions are possible and could materially affect our results of operations, financial condition, or cash flows. In addition, regardless of the outcome, litigation could have an adverse impact on us as a result of legal fees, the diversion of management’s time and attention and other factors.

On November 3, 2023, Tevva filed a complaint (the “Complaint”) in the United States District Court for the District of Arizona against the Company, 1432952 B.C. Ltd. (“Holdco”), 1432957 B.C. Ltd. (“Parentco”) and Susan E. Docherty, the Company’s Chief Executive Officer and Interim Chief Operating Officer. The Complaint alleged breach of contract, defamation and tortious interference by the defendants, as applicable, in connection with the Tevva Arrangement Agreement and the transactions contemplated therein. The Complaint sought actual damages of $75 million, unspecified punitive damages and attorneys’ fees and costs. Additionally, the Complaint sought preliminary and permanent injunctive relief (i) preliminarily prohibiting the Company from completing a merger with any other merger partner pending resolution of the Complaint; (ii) preventing the Company from dissipating its cash reserves through dividend or otherwise; (iii) requiring the Company to complete the Tevva Arrangement; and (iv) otherwise requiring effectuation of the Tevva Arrangement.

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On November 7, 2023, the Arizona District Court issued an order (the “Order”) dismissing the Complaint due to the Arizona District Court’s lack of subject-matter jurisdiction as a result of (i) the Company, Holdco and Parentco being Canadian corporations and (ii) Tevva’s failure to establish Arizona as Ms. Docherty’s state of domicile in the Complaint. Pursuant to the Order, Tevva had until November 21, 2023 to file an amended complaint seeking to cure the deficiencies identified in the Order. On November 7, 2023, Tevva subsequently filed a substantially similar complaint in the Maricopa County Superior Court, State of Arizona.

On November 28, 2023, the Company announced that it entered into a settlement agreement (the “Settlement Agreement”) by and among the Company, Tevva, Holdco, Parentco and Ms. Docherty, relating to the termination of the Tevva Arrangement Agreement. Pursuant to the terms of the Settlement Agreement, the parties agreed to, among other things, the following: (i) Tevva would dismiss, with prejudice, its previously filed federal and state court complaints relating to the Tevva Arrangement Agreement and the transactions contemplated therein; (ii) the Company would forgive the approximately $6.1 million due from Tevva under the Working Capital Facility (as defined below) (inclusive of $0.1 million of accrued interest) and would enter into a release of the debenture securing Tevva’s obligations under the Working Capital Facility; (iii) a general release and waiver between the Company, Parentco, Holdco and Ms. Docherty, on the one hand, and Tevva on the other hand, in favor of the other party; and (iv) the Company would pay Tevva $380,000 in connection with the Settlement Agreement.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Common Shares

Our common shares are traded on the Nasdaq Capital Market under the symbol “SOLO”. Volume in our shares may be sporadic and the price could experience volatility.

Transfer Agent for Common Shares

Our common shares are recorded in registered form on the books of our transfer agent, VStock Transfer, LLC, located 18 Lafayette Place, Woodmere, New York 11598.

Holders of Common Shares

As of March 07, 2024, there were 298 holders of record of our common shares, which does not include shareholders whose shares are held in street name by brokers or other nominees.

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, contractual arrangements and current and anticipated cash needs.

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities

None.

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ITEM 6. [RESERVED]

Not applicable.

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with the consolidated financial statements and related notes included in this Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed under “Forward - Looking Statements” and Part I, Item 1A. “Risk Factors” or in other parts of this Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

For an overview of the Company’s business, see “Company Overview” in Part I, Item 1 of this Form 10-K.

Recent Events

On February 17, 2023, the Company announced a voluntary recall of the SOLO. The Company paused deliveries and sales of the SOLO while investigating the issue. The recall was made due to the vehicle potentially experiencing a loss of propulsion while driving and the Company was required to remedy the issue within a specific timeframe from the date of the recall announcement. After a thorough investigation, the Company was not able to determine the root cause and fix of the said issue and, therefore, initiated a buy-back program on April 14, 2023 for all 429 SOLO EVs sold since its release in 2021. As of December 31, 2022, the Company recorded a recall provision of approximately $8.9 million as an estimate of the cost to buy back all retailed vehicles and during the second quarter of 2023 began processing customer buy-backs of the SOLO. During the year ended December 31, 2023, the Company made refund payments for 392 vehicles returned by customers and reversed $440,000 of the recall provision, which reduced the recall provision balance to $315,988 as of December 31, 2023.

On March 3, 2023, the Company entered into a Design and Supply Agreement (the “Design Agreement”) with GLV, LLC (“GLV”) whereby the Company engaged GLV to provide certain design, development and manufacturing services to the Company for Project E4.

On March 29, 2023, the Company entered into Contract Assembly Agreements (the “Assembly Agreements”) with GLV, LLC (“GLV”) to assemble the Volcon Stag electric Utility Terrain Vehicle (UTV), as well as the Grunt and Runt, both of which are electric motorbikes. The Assembly Agreements called for the Company to perform contract assembly services to GLV for one year in the Company’s Mesa facility and GLV to ship materials and parts to the plant. Upon termination, GLV would pay the Company all committed, non-cancellable costs and expenses and the Company would return in-process products as well as all GLV materials and parts.

On May 8, 2023, the Company entered into a settlement deed (the “Zongshen Settlement Agreement”) with Chongqing Zongshen Automobile Industry Co., Ltd. (“Zongshen”), effective as of May 4, 2023. The Settlement Agreement resolved all outstanding claims relating to that certain manufacturing agreement previously entered into with Zongshen to manufacture the Company’s SOLO vehicles (as amended, the “Zongshen Manufacturing Agreement”) and the related cancellation notice and defective notice provided by the Company to Zongshen.

As discussed elsewhere in this Form 10-K, on August 14, 2023, the Company and Tevva signed the Tevva Arrangement Agreement and other ancillary agreements to merge the two companies into a newly created parent company. On October 4, 2023, the Company terminated the Tevva Arrangement Agreement as a result of multiple incurable breaches of the Tevva Arrangement Agreement by Tevva, including failures by Tevva to disclose material information about Tevva to the Company.  As a result of the Company’s termination of the Tevva Arrangement Agreement, all amounts due (including any accrued interest and other sums due) under the term loan facility (the “Working Capital Facility”) provided by the Company to Tevva became repayable in full 90 days from and including the date on which the Tevva Arrangement Agreement was terminated (i.e., January 2, 2024). 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 loan receivable advanced under the Working Capital Facility was fully impaired and recorded an impairment loss of $6,000,000 in the condensed consolidated statement of operations and comprehensive loss for the year ended December 31, 2023.

18

On August 17, 2023, the Company delivered notice to GLV to terminate each of the Design Agreement and the Assembly Agreements, effective as of September 16, 2023. The decision to terminate the agreements with GLV was due to the Company entering into the Tevva Arrangement Agreement. The Company paid GLV a total of $4,107,600 under the Design Agreement. The Company has no further payment obligations under the Design Agreement, effective as of September 16, 2023.

On November 28, 2023, the Company entered into a settlement agreement (the “Tevva Settlement Agreement”) with Tevva relating to the termination of the Tevva Arrangement Agreement. Pursuant to the terms of the Tevva Settlement Agreement, Tevva agreed to dismiss its previously filed federal and state court complaints relating to the Tevva Arrangement Agreement and the transactions contemplated therein, and the Company agreed to forgive the approximately $6.1 million due from Tevva under the Working Capital Facility (inclusive of $0.1 million of accrued interest) and to pay Tevva $380,000 in connection with the Tevva Settlement Agreement. As of December 31, 2023, payment of $380,000 was made to Tevva and recorded in gain / (loss) on settlement of legal liabilities in the consolidated statements of operations and comprehensive loss.

As discussed elsewhere in this Form 10-K, on January 11, 2024, the Company and Xos entered into the Xos Arrangement Agreement, pursuant to which Xos will acquire all of the issued and outstanding common shares of the Company pursuant to the Xos Plan of Arrangement.  Subject to the terms and conditions set forth in the Xos Arrangement Agreement and the Xos Plan of Arrangement, each issued common share of the Company outstanding immediately prior to the effective time of the Xos Arrangement (other than the shares held by the Company’s shareholders who have exercised rights of dissent in respect of the Xos Arrangement) will be transferred to Xos in exchange for such number of shares of Xos common stock, $0.0001 par value per share (the “Consideration Shares”), as is provided for in the Xos Arrangement Agreement. Upon completion of the Xos Arrangement, Xos stockholders and the Company’s shareholders will own approximately 79% and 21% of the combined company, respectively, subject to certain adjustments set forth in the Xos Arrangement Agreement. The exact number of Consideration Shares to be issued to the Company’s shareholders will be determined prior to the closing of the Xos Arrangement.

Operating Results - Results of Operations for the Year ended December 31, 2023 as Compared to the Year Ended December 31, 2022

Revenue

The historical revenue of the Company principally represents sales of the SOLO vehicles and batteries. Revenue for the SOLO was recognized when the Company transferred control to the customer which generally occurred upon delivery.

Revenue for the year ended December 31, 2023 was $608,429 compared to $6,812,446 for the corresponding period in 2022, primarily reflecting a decrease in SOLO unit deliveries in 2023 to 29 compared with 339 unit deliveries in the prior year. The decrease in units delivered in 2023 was a result of the Company’s decision to cease the sale of SOLO vehicles beginning in February 2023 following the announced recall.

Cost of Revenue and Gross Loss

In 2023, the cost of revenue amounted to $1,549,621, in contrast to $33,067,782 for the year ended December 31, 2022, resulting in a gross loss of $941,192 for the year ended December 31, 2023. This is compared to a gross loss of $26,255,336 for the corresponding period in 2022. The decreased cost of revenue and gross loss from 2022 to 2023 was primarily attributable to:

a decrease of the write-down of SOLO inventory to net realizable value of $267,750 for the year ended December 31, 2023 compared with approximately $13.8 million in the prior year;
the reverse of a recall provision of approximately $440,000 for the year ended December 31, 2023 compared with the recognition of a recall provision of approximately $8.9 million for the year ended December 31, 2022;
a decrease in other cost of revenue, including third-party contracted unit cost, assembly labor and other manufacturing overhead costs of approximately $10.3 million for the year ended December 31, 2023 resulting from the significant decrease in SOLO unit deliveries in 2023 when compared with 2022 in conjunction with the termination of the Zongshen Manufacturing Agreement in December 2022; and

19

an increase of the write-down of parts inventory of approximately $1.5 million for the year ended December 31, 2023 compared with approximately $300,000 in the prior year;

Operating Expenses

General and administrative expenses

For the year ended December 31, 2023, general and administrative expenses were $32,450,361, compared to $39,755,257 for the year ended December 31, 2022. The year over year decrease of $7,304,896 was primarily a result of the following:

amortization expense decreased by approximately $2.87 million as a result of decreased long-lived asset balances following the recognition of impairment expenses in 2022;
consulting expense decreased by approximately $1.56 million as a result of less consulting activities as the Company reduced spending on SOLO related activities and focused on strategic business development activities;
capital markets and investor support and investor relation expense decreased by approximately $1.28 million as a result of less investor relation activities;
office expenses decreased by approximately $982,000 as a result of lower IT costs and travel activities;
stock-based compensation expense decreased by approximately $538,000;
salaries and personnel related costs decreased by approximately $500,000 as a result of a decrease in headcount; and
professional fee increased by approximately $552,000 due to increased legal activities and expenses for implementation of internal controls.

Acquisition related expenses

For the year ended December 31, 2023, the Company incurred acquisition related expenses of $7,562,652. These primarily consist of financial advisor, legal and other professional fees, incurred in connection with the Company’s process of exploring strategic third-party opportunities and potential options for its business.  Such activities included the previously contemplated Tevva Arrangement and the currently contemplated Xos Arrangement. No such comparable expenses were incurred in the prior year period.

20

Research and development expenses

Research and development expenses decreased to $9,154,084 for the year ended December 31, 2023, from $22,031,212 for the corresponding year ended December 31, 2022. The decrease in research and development expenses was primarily attributable to a reduction in headcount and internal engineering project costs as the Company pivoted its focus and resources from the SOLO, partially offset by an increase of $4,185,100 related to Project E4.

Sales and marketing expenses

Sales and marketing expenses decreased to $2,962,900 for the year ended December 31, 2023, from $14,663,968 for the corresponding year ended December 31, 2022. The decrease in sales and marketing expenses was primarily attributable to the reduction in headcount and decreased sales and marketing activities due to the Company’s decision to cease production of the SOLO at the end of 2022, as well as the Company’s subsequent determination to not pursue its previously announced plan to develop and sell the E4 in August 2023.

Impairment

The Company recorded an impairment loss of $1,929,410 for the year ended December 31, 2023, comprised of a $1,534,410 impairment charge for assets to be disposed through auction and sales, including furniture and equipment and computer hardware, and a $395,000 impairment charge for SOLO vehicles based on the estimated amount that can be recovered from claiming previously paid tariffs and disposing of the vehicles. The Company recorded an impairment loss of $7,592,641 for the year ended December 31, 2022, mainly attributable to $3,819,519 for impairment of property and equipment, $2,804,032 for impairment of prepaid batteries dedicated to the SOLO, $549,760 for impairment of goodwill and $400,628 for impairment of intangible assets associated with the Company’s previous acquisition of Intermeccanica International Inc.

Other Items

Interest Income

Interest income increased from $2,301,218 to $4,908,398 in 2023, primarily as a result of increases in interest rates, partially offset by declining cash balances.

Impairment of loan receivable

The Company recorded an impairment of loan receivable of $6,000,000 for the year ended December 31, 2023 relating to the Working Capital Facility.  As a result of the Company’s termination of the Tevva Arrangement Agreement in October 2023, all amounts due from (including any accrued interest and other sums due) under the Working Capital Facility became repayable in full 90 days from and including the date on which the Tevva Arrangement Agreement was terminated (i.e., January 2, 2024). 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 loan receivable advanced under the Working Capital Facility was fully impaired.

Gain / (loss) on settlement of legal liabilities

During the year ended December 31, 2022, the Company recorded a $15.7 million termination provision relating to the termination of the Zongshen Manufacturing Agreement. During the year ended December 31, 2023, in fulfillment of all obligations under the Zongshen 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. During the year ended December 31, 2023, the Company recorded a $380,000 loss for the amount paid to Tevva pursuant to the Tevva Settlement Agreement relating to the termination of the Tevva Arrangement Agreement.

Other Expense, Net

During the year ended December 31, 2023, the Company terminated the lease for its Burnaby, British Columbia, Canada headquarters, and concurrently disposed of plant and equipment. The loss on this disposal was $1,063,425, net of cash proceeds received of $112,757, and was recorded in other expense, net in the consolidated statements of operations and comprehensive loss.

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Additionally, during the year ended December 31, 2023, production tooling and molds of $536,741 were written off due to the Company’s determination to not complete the asset and the loss on derecognition was recorded in other expense, net in the consolidated statements of operations and comprehensive loss. For the year ended December 31, 2022, amounts recorded to other expense, net were immaterial.

Net Loss

During the year ended December 31, 2023, the Company incurred a net loss of $57,582,200 compared to a net loss of $123,698,513 for the corresponding period in 2022. The decrease in net loss from 2022 to 2023 was primarily attributable to the decrease in gross loss, decrease in operating expenses and decrease in legal liabilities settlement expense, partially offset by the impairment of loan receivable relating to the Working Capital Facility during the year ended December 31, 2023.

Liquidity and Capital Resources

Liquidity

The Company had $65,550,366 of net working capital, (i.e., current assets minus current liabilities), compared to $113,956,510 of net working capital as of December 31, 2022. The decrease in net working capital primarily resulted from cash used in operations of $61,669,794 (2022: $84,410,328), cash used in investing activities of $6,447,873 (2022: $3,398,974) primarily related to the loan made to Tevva under the Working Capital Facility, and cash used in financing activities of $91,911 (2022: cash provided by financing activities of $380,867).

The Company’s historical capital needs have been met by sales of its equity securities. If the Company does raise additional capital through public or private equity offerings, the ownership interest of the Company’s existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the Company’s stockholders’ rights. If the Company raises additional capital through debt financing, the Company may be subject to covenants limiting or restricting its ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Further, the Company may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If the Company fails to raise capital or enter into such agreements as, and when, needed, the Company may have to significantly delay, scale back or discontinue the development of its business plans.

Additionally, if the Company is unable to successfully consummate a strategic alternative for its business, such as the contemplated Xos Arrangement, the Company will consider further significant cost reduction measures to reduce the current cash use rate. As of December 31, 2023, the Company has $65,454,810 of cash and cash equivalents on hand, and the Company believes that it has sufficient cash to carry on its operations for at least the next 12 months following the issuance of this Annual Report.

As of December 31, 2023, the Company had 119,292,132 issued and outstanding common shares and 135,534,525 common shares on a fully-diluted basis.

These financial statements have been prepared on a 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.

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Summary of Cash Flows

    

Years Ended December 31,

    

2023

    

2022

Cash Flows:

Cash flows used in operating activities

$

61,669,794

$

84,410,328

Cash flows used in investing activities

$

6,447,873

$

3,398,974

Cash flows (used in) / provided by financing activities

$

(91,911)

$

380,867

Decrease in cash and cash equivalents and restricted cash

$

68,209,578

$

87,428,435

Operating Activities

During the year ended December 31, 2023, cash used in operating activities was $61,669,794, compared with $84,410,328 for the year ended December 31, 2022. Cash used in operating activities decreased in 2023 principally as a result of a decrease in cash-based losses, partially offset by a decrease in accounts payable and accrued liabilities of $14,713,085, which included the payment of $8.1 million for the repurchase of SOLO vehicles in connection with the voluntary recall, and a decrease of contract termination liability of $8 million relating to the termination of the Zongshen Manufacturing Agreement.

Investing Activities

During the year ended December 31, 2023, cash used in investing activities was $6,447,873, compared with $3,398,974 for the year ended December 31, 2022. Cash used in investing activities increased primarily due to the $6 million loan provided to Tevva under the Working Capital Facility, partially offset by the reduction of capital expenditures in 2023, including a reduction in capital improvements made to the Company’s Mesa, Arizona facility.

Financing Activities

During the year ended December 31, 2023, cash used in financing activities was $91,911 for the settlement of deferred share units (“DSUs”), compared to $380,867 cash provided by financing activities for the year ended December 31, 2022 primarily due to proceeds from the issuance of common shares for stock options exercised.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Capital Resources

As at December 31, 2023, the Company had cash and cash equivalents of $65,454,810 (2022: $134,255,538). The Company has no material commitments for capital expenditures or the purchase of materials or products. The Company’s remaining commitments are primarily related to lease obligations for the Mesa and Huntington Beach locations. Please refer to Note 10 of the Company’s consolidated financial statements for further details.

Accounting Policies

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. These are based on the best information available at the time utilizing generally accepted industry standards.

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Critical Accounting Policies and Significant Judgements and Estimates

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Preparation of the financial statements requires the Company to make judgments, estimates and assumptions that impact the reported amount of net sales and expenses, assets and liabilities and the disclosure of contingent assets and liabilities. The Company considers an accounting judgment, estimate or assumption to be critical when the estimate or assumption is complex in nature or requires a high degree of judgment and when the use of different judgments, estimates and assumptions could have a material impact on the Company’s consolidated financial statements. While the Company’s significant accounting policies are described in more detail in Note 2 of the Company’s consolidated financial statements, the Company believes that the following accounting policies are those most critical to the judgments and estimates used in the preparation of its financial statements.

Estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Inventory Valuation: The Company reviews its inventory to ensure that the carrying value does not exceed net realizable value (“NRV”), with NRV based on the estimated selling price of inventory, less disposal and transportation costs. When the carrying value of inventory exceeds its NRV, the Company performs an exercise to calculate the approximate amount by which carrying value is greater than NRV and record additional cost of the revenue for the difference. Once a write-off occurs, a new, lower cost basis is established. In estimating the net realizable value of the vehicle inventory at December 31, 2023, the Company has concluded that it is able to recover the inventory value through crushing the vehicles to recover tariffs already paid (referred to as duty draw back). The vehicle inventory’s net realizable value recognized at December 31, 2023 and 2022 represents the estimated amount that can be recovered from claiming the tariff. As of December 31, 2023, Company estimates aggregate tariff recovery of approximately $2.4 million upon related destruction of SOLO vehicles and submission of the related claim documents.

Impairment of Assets: Long-lived assets, such as plant, and equipment, finite-lived intangible assets, and operating lease right-of-use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Estimates are used in the execution of such impairment testing. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group exceeds the undiscounted cash flows, an impairment is recognized to the extent that the carrying amount exceeds the fair value. Fair value can be determined through various valuation techniques including estimated discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Any impairment loss recognized is not reversed in future periods.

For the purpose of impairment testing, the Company has grouped the long-lived assets into below groups:

assets to be disposed through auction and sales, including furniture and equipment and computer hardware;
SOLO vehicles to be removed from commerce by crushing in order to recover previously paid tariffs;
operating lease right-of-use assets, and leasehold improvements assets to be held and used (including potential plans to sublease related properties); and
cloud computing assets to be held and used.

The Company estimated the fair values of the individual assets using a combination of methods. The fair values of right-of-use assets and leasehold improvements were determined using a discounted cash flows approach, where the significant inputs included the estimated market rent and discount rate for each leased property. Fair value of the SOLO vehicles are calculated based on the estimated amount that can be recovered from claiming the previously paid tariffs. The Company used a combination of a market approach and cost approach to determine the fair values of the other plant and equipment and other assets. The significant input in the determination of the fair value of the cloud computing assets was the obsolescence factor applied to determine the depreciated replacement cost.

For the year ended December 31, 2023, the Company recorded a $1,534,410 impairment charge for the assets to be disposed through auction and sales, a $395,000 impairment charge for SOLO vehicles and $nil impairment for operating lease right-of-use assets, leasehold improvements and cloud computing assets.

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Recently Adopted and Issued Accounting Pronouncements

None.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company” (as defined in Rule 12b-2 under the Exchange Act), the Company is not required to provide the information required by this Item 7A.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements

The consolidated financial statements and related information as listed below for the fiscal year ended December 31, 2023, are included in this Annual Report beginning on page F-1:

Reports of Independent Registered Public Accounting Firm: KPMG LLP, Vancouver, B.C., Canada, Auditor Firm ID: 85;
Consolidated Statements of Balance Sheets;
Consolidated Statements of Operations and Comprehensive Loss;
Consolidated Statements of Cash Flows;
Consolidated Statements of Changes in Stockholders’ Equity; and
Notes to the Consolidated Financial Statements.

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ElectraMeccanica Vehicles Corp.

Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

Expressed in United States Dollars

26

Graphic

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 balance sheets of ElectraMeccanica Vehicles Corp. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.

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 provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

27

Valuation of long-lived assets

As discussed in Note 2 to the consolidated financial statements, the Company assesses long-lived assets, such as plant and equipment, finite-lived intangible assets, and operating lease right-of-use assets for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for impairment and the carrying amount of the long-lived asset or asset group exceeds the undiscounted cash flows, an impairment is recognized to the extent that the carrying amount of the assets exceeds their fair value. As discussed in Note 8 to the consolidated financial statements, for the purpose of impairment testing as of December 31, 2023, the Company has grouped the long-lived assets into asset groups. The asset groups include the Company’s operating lease right-of-use assets and leasehold improvements and the Company’s cloud computing assets. As of December 31, 2023, the right-of-use and leasehold improvements asset group included a portion of the $11,090,868 in plant and equipment, net related to leasehold improvements and $7,336,243 in operating lease right-of-use assets. As discussed in Notes 4 and 7 to the consolidated financial statements, as of December 31, 2023 the cloud computing asset group has $2,405,964 and $1,374,299 in cloud computing assets included in other assets, and prepaid expenses and other current assets, respectively.

We identified the assessment of the valuation of the operating lease right-of use assets, leasehold improvements, and cloud computing assets as a critical audit matter. Subjective auditor judgment was required to evaluate the selection of the market rent and discount rate inputs used in determining the fair values of the operating lease right-of-use assets and leasehold improvements. Subjective auditor judgment was also required to evaluate the selection of the method applied and the obsolescence factor used in determining the fair value of the cloud computing assets. The estimation of market rents and discount rates is subject to significant measurement uncertainty. Changes in these assumptions or the use of a different valuation method to value the cloud computing assets could have had a significant impact on the fair values of the leasehold improvements, operating lease right-of-use assets, and cloud computing assets.

The following are the primary procedures we performed to address this critical audit matter.  We performed sensitivity analysis and assessed the impact of possible changes to the market rents and discount rates on the fair values of the operating lease right-of-use assets and leasehold improvements. With the assistance of valuation professionals with specialized skills and knowledge, we:

compared the selected market rents and discount rates to third-party industry data for premises with similar characteristics, including type and location.
evaluated the valuation model selected to determine the fair value of the cloud computing assets by inspecting documentation obtained from the Company and the Company’s external valuation specialists.
compared the selected obsolescence factor for the cloud computing assets to third-party industry data for similar assets.

/s/ KPMG LLP

Chartered Professional Accountants

We have served as the Company’s auditor since 2018.

Vancouver, Canada

March 8, 2024

28

ElectraMeccanica Vehicles Corp.

Consolidated Balance Sheets

(Expressed in United States dollars)

    

December 31, 2023

    

December 31, 2022

ASSETS

Current assets

Cash and cash equivalents

$

65,454,810

$

134,255,538

Receivables, net

 

142,109

 

273,958

Prepaid expenses and other current assets

 

2,887,808

 

11,390,850

Inventory, net

 

2,370,000

 

4,233,055

Total current assets

 

70,854,727

 

150,153,401

Restricted cash

 

1,116,456

 

515,449

Plant and equipment, net

 

11,090,868

 

16,452,477

Operating lease right-of-use assets

 

7,336,243

 

9,031,277

Other assets

 

3,711,816

 

5,093,825

Total assets

$

94,110,110

$

181,246,429

Current liabilities

 

  

 

  

Trade payables and accrued liabilities

 

4,241,888

 

19,346,470

Customer deposits

 

33,797

 

339,744

Current portion of lease liabilities

 

1,028,676

 

810,677

Contract termination liability

 

 

15,700,000

Total current liabilities

 

5,304,361

 

36,196,891

Share-based compensation liability

 

250,694

 

76,476

Lease liabilities

 

15,492,841

 

17,528,282

Deferred revenue

 

 

119,253

Total liabilities

 

21,047,896

 

53,920,902

Commitments and contingencies (Note 19)

 

  

 

  

Shareholders’ equity

 

  

 

  

Share capital - without par value, unlimited shares authorized; 119,292,132 and 119,287,917 shares issued and outstanding as of December 31, 2023 and 2022, respectively

 

398,868,610

 

395,564,470

Accumulated other comprehensive income

 

4,580,972

 

4,566,225

Accumulated deficit

 

(330,387,368)

 

(272,805,168)

Total shareholders’ equity

 

73,062,214

 

127,325,527

Total liabilities and shareholders’ equity

$

94,110,110

$

181,246,429

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

29

ElectraMeccanica Vehicles Corp.

Consolidated Statements of Operations and Comprehensive Loss

(Expressed in United States dollars)

    

Years Ended

    

December 31, 2023

    

December 31, 2022

Revenue

$

608,429

$

6,812,446

Cost of revenue

 

1,549,621

 

33,067,782

Gross loss

 

(941,192)

 

(26,255,336)

Operating expenses

 

 

  

General and administrative expenses

 

32,450,361

 

39,755,257

Acquisition related expenses

7,562,652

Research and development expenses

 

9,154,084

 

22,031,212

Sales and marketing expenses

 

2,962,900

 

14,663,968

Impairment

 

1,929,410

 

7,592,641

 

54,059,407

 

84,043,078

Operating loss

 

(55,000,599)

 

(110,298,414)

Other non-operating income (expense)

 

 

  

Interest income

 

4,908,398

 

2,301,218

Impairment of loan receivable

(6,000,000)

Changes in fair value of derivative liabilities

 

 

191,202

Gain / (loss) on settlement of legal liabilities

712,715

(15,700,000)

Other (expense), net

 

(2,133,266)

 

(44,764)

Foreign exchange loss

 

(68,448)

 

(124,201)

Loss before taxes

 

(57,581,200)

 

(123,674,959)

Current income tax expense

 

1,000

 

23,554

Net loss

$

(57,582,200)

$

(123,698,513)

Other comprehensive income

 

 

  

Foreign currency translation adjustments

 

14,747

 

64,425

Comprehensive loss

$

(57,567,453)

$

(123,634,088)

Loss per share – basic and diluted

$

(0.48)

$

(1.04)

Weighted average number of shares outstanding – basic and diluted

 

119,288,852

 

118,739,410

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

30

ElectraMeccanica Vehicles Corp.

Consolidated Statements of Cash Flows

(Expressed in United States dollars)

    

Years Ended

    

December 31, 2023

    

December 31, 2022

Cash flows from operating activities

 

  

 

  

Net loss

$

(57,582,200)

$

(123,698,513)

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

 

 

Depreciation and amortization

 

3,447,008

 

5,822,999

Stock-based compensation expense

 

3,570,269

 

4,985,953

Inventory provision

 

1,795,420

 

13,829,497

Loss on disposal of long-lived asset

2,246,046

Impairment

 

1,929,410

 

7,592,641

(Gain) / loss on settlement of legal liabilities

(1,092,715)

15,700,000

Change in estimate for recall provision

 

(440,000)

 

8,915,044

Change in fair value of derivative liabilities

 

 

(191,202)

Impairment of loan receivable

6,000,000

Unrealized currency translation (gain) / loss

 

(55,591)

 

16,498

Changes in operating assets and liabilities:

 

 

Receivables, net

 

131,849

 

79,361

Prepaid expenses and other assets

 

1,414,503

 

(5,594,460)

Inventory, net

 

(36,017)

 

(14,664,270)

Trade payables and accrued liabilities

 

(14,713,085)

 

1,873,380

Operating lease liabilities

 

21,476

 

1,233,699

Customer deposits

 

(306,167)

 

(310,955)

Contract termination liability

(8,000,000)

Net cash used in operating activities

 

(61,669,794)

 

(84,410,328)

Cash flows in investing activities

 

 

Expenditures on plant and equipment

 

(745,416)

 

(3,398,974)

Proceeds from disposal of plant and equipment

297,543

Loan receivable to Tevva

(6,000,000)

Net cash used in investing activities

 

(6,447,873)

 

(3,398,974)

Cash flows from financing activities

 

 

Payment for issuance of common shares for RSU settlement

 

 

(106,187)

Payment for DSU settlement

 

(91,911)

 

Proceeds from issuance of common shares for options exercised

 

 

487,054

Net cash (used in) / provided by financing activities

 

(91,911)

 

380,867

Decrease in cash and cash equivalents and restricted cash

 

(68,209,578)

 

(87,428,435)

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

 

9,857

 

(20,262)

Cash and cash equivalents and restricted cash, beginning

 

134,770,987

 

222,219,684

Cash and cash equivalents and restricted cash, ending

$

66,571,266

$

134,770,987

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

31

ElectraMeccanica Vehicles Corp.

Consolidated Statements of Changes in Stockholders’ Equity

(Expressed in United States dollars)

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

 

1,615,430

 

487,054

 

 

 

487,054

Shares issued pursuant to exercise of RSU

 

333,523

 

(175,526)

 

 

 

(175,526)

Stock-based compensation

 

 

4,962,839

 

 

 

4,962,839

Net loss

 

 

 

 

(123,698,513)

 

(123,698,513)

Foreign currency translation

 

 

 

64,425

 

 

64,425

Balance at December 31, 2022

 

119,287,917

$

395,564,470

$

4,566,225

$

(272,805,168)

$

127,325,527

Shares issued pursuant to exercise of options

 

4,215

 

 

 

 

Stock-based compensation

 

 

3,304,140

 

 

 

3,304,140

Net loss

 

 

 

 

(57,582,200)

 

(57,582,200)

Foreign currency translation

 

 

 

14,747

 

 

14,747

Balance at December 31, 2023

 

119,292,132

$

398,868,610

$

4,580,972

$

(330,387,368)

$

73,062,214

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

32

Table of Contents

ElectraMeccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2023 and 2022

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 (“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 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 electric vehicles (“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 the voluntary recall of its SOLO vehicles 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 refund payments for 392 vehicles returned by customers as of December 31, 2023.

On August 14, 2023, the Company and Tevva Motors Limited (“Tevva”) signed an arrangement agreement (“Tevva Arrangement Agreement”) and other ancillary agreements to merge the two companies into a newly created parent company (the “Tevva Arrangement”). The Tevva Arrangement Agreement included customary representations, covenants, and closing conditions. On October 4, 2023, the Company terminated the Tevva Arrangement Agreement as a result of multiple incurable breaches of the Tevva Arrangement Agreement by Tevva, including failures by Tevva to disclose material information about Tevva to the Company.

On January 11, 2024, the Company and Xos, Inc., a publicly traded Nasdaq company incorporated in Delaware (“Xos”), entered into an arrangement agreement (the “Xos Arrangement Agreement”), pursuant to which Xos will acquire all of the issued and outstanding common shares of the Company pursuant to a plan of arrangement (the “Xos Plan of Arrangement”) under the Business Corporations Act (British Columbia) (the “Xos Arrangement”). Xos is a leading manufacturer of medium-duty commercial EVs for parcel delivery, uniform rental, food and beverage, and cash-in-transit fleets across the United States and Canada. See Note 20 for additional information.

Management intends to finance its operations over the next twelve months using existing cash on hand.

2.Summary of significant accounting policies

Basis of presentation and consolidation

As a non-U.S. company listed on the NASDAQ, the United States Securities and Exchange Commission (“SEC”) required the Company to perform a test on the last business day of the second quarter of each fiscal year to determine whether the Company continued to meet the definition of a foreign private issuer (“FPI”). Historically, the Company met the definition of an FPI, and as such, prepared consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”), reported with the SEC on FPI forms, and complied with SEC rules and regulations applicable to FPIs.

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ElectraMeccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2023 and 2022

On June 30, 2022, the Company performed the test and determined that the Company no longer met the definition of an FPI. As such, the Company is required to prepare consolidated financial statements in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”), report with the SEC on domestic forms, and comply with SEC rules and regulations applicable to domestic issuers. In the year ended December 31, 2022, the Company retrospectively adopted U.S. GAAP.

The consolidated financial statements of the Company have been prepared in accordance with U.S. GAAP for all periods presented. Comparative figures, which were previously prepared in accordance with IFRS, have been adjusted as required to be compliant with the Corporation’s accounting policies under U.S. GAAP.

These consolidated financial statements include the accounts of the Company and its subsidiaries in which the Company has a controlling financial interest. All intercompany balances and transactions have been eliminated from the Company’s consolidated financial statements.

Use of estimates

The preparation of the consolidated financial statements in accordance with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from the estimates made by management.

Estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Estimates include the following:

estimating the write down of inventory to net realizable value;
estimating the fair value of stock options that are based on market conditions;
estimating the incremental borrowing rate for calculating the lease liabilities;
estimating the recall provision;
estimating the contingent liabilities for the contract termination;
estimating the fair value of the long-lived assets to determine and measure impairment losses on property and equipment, right-of-use assets and cloud computing assets included in other assets; and
changes in facts and circumstances related to the determination of asset groups for impairment testing purposes.

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Table of Contents

ElectraMeccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2023 and 2022

Assets and liabilities held for sale

Assets and liabilities (disposal groups) to be sold are classified as held for sale in the period in which all of the following criteria are met, including: (i) management commits to a plan to sell, (ii) the disposal group is available to sell in its present condition, (iii) there is an active program to locate a buyer, (iv) the disposal group is being actively marketed at a reasonable price in relation to its fair value, (v) significant changes to the plan to sell are unlikely, and (vi) the sale of the disposal group is generally probable of being completed within one year. Management performs an assessment at least quarterly or when events or changes in business circumstances indicate that a change in classification may be necessary.

Assets and liabilities held for sale are presented separately within the consolidated balance sheets with any adjustments necessary to measure the disposal group at the lower of its carrying value or fair value less costs to sell. Depreciation of property, plant and equipment are not recorded while these assets are classified as held for sale. For each period the disposal group remains classified as held for sale, its recoverability is reassessed and any necessary adjustments are made to its carrying value.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits with banks with original maturities of ninety days or less and overdrafts to the extent there is a legal right of offset and practice of net settlement with cash balances.

Inventory

Inventory consists of vehicles and parts held for resale or for use in fixed fee contracts and is valued at the lower of cost and net realizable value. The cost of inventory includes purchase costs and conversion costs, and is determined principally by using the weighted average method. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion, disposal, and transportation, and any other estimated costs necessary to make the sale. As necessary, the Company records write-downs for excess, slow moving and obsolete inventory. To determine these amounts, the Company regularly reviews inventory quantities on hand and compares them to estimates of historical utilization, future product demand, and production requirements. Write-downs of inventory to net realizable value are recorded in cost of revenue in the consolidated financial statements.

Prepaid expenses and deposits

The Company pays for some goods and services in advance and recognizes these expenses as prepaid expenses at the balance sheet date. If certain prepaid expenses extend beyond one-year, those are classified as non-current assets.

Loan receivable

When the Company records receivables, it records 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. The Company evaluates 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. The Company estimates 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. During the year ended December 31, 2023, the Company advanced cash to Tevva in the form of a loan receivable of $6.0 million (see Note 12). 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 million loan receivable was fully impaired and recorded an impairment loss of $6.0 million in the consolidated statement of operations and comprehensive loss.

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ElectraMeccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2023 and 2022

Plant and equipment

Plant and equipment are measured at historical cost less accumulated depreciation and accumulated impairment losses, if any. Historical cost includes expenditures that are directly attributable to the acquisition of the asset, including all costs incurred in bringing the asset to its present location and condition.

Depreciation is generally computed using the straight-line method over the estimated useful lives of the respective assets, as follows:

Furniture and equipment

5 years

Computer hardware

3 years

Computer software

2 years

Vehicles

3 years

Production molds

3 years

Leasehold improvements

over term of lease

Right-of-use assets

over term of lease

Impairment of long-lived assets

Long-lived assets, such as plant, and equipment, finite-lived intangible assets, and operating lease right-of-use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group exceeds the undiscounted cash flows, an impairment is recognized to the extent that the carrying amount exceeds the fair value. Fair value can be determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Any impairment loss recognized is not reversed in future periods.

Cloud computing arrangements

Capitalized implementation costs for cloud computing arrangements represents the primary balance of the Company’s other assets.

The Company’s cloud computing arrangements primarily comprise of hosting arrangements which are service contracts, whereby the Company gains remote access to use enterprise software hosted by the vendor or another third party on an as-needed basis for a period of time in exchange for a subscription fee. Subscription fees are usually prepaid and recorded in operating expense over the period that the Company has access to use the software. Implementation costs for cloud computing arrangements are capitalized if certain criteria are met and consist of internal and external costs directly attributable to developing and configuring cloud computing software for its intended use. Amortization of capitalized implementation costs is recorded on a straight-line basis over the term of the cloud computing arrangement, which is the non-cancellable period of the agreement, together with periods covered by renewal options which the Company is reasonably certain to exercise. The Company only capitalizes subsequent additions, modifications or upgrades to internal-use software to the extent that such changes allow the software to perform a task it previously did not perform.

Leases

The Company enters into contractual arrangements for the utilization of certain non-owned assets. Historically, these principally related to property for the Company’s offices, assembly facility and kiosk locations which have varying terms including extension and termination options.

The Company determines if an arrangement is a lease at inception. Leases are evaluated at commencement to determine proper classification as an operating lease or a finance lease. The Company’s leases are all operating leases. The Company recognizes a right-of-use (“ROU”) asset and lease liability at lease commencement based on the present value of lease payments over the lease term.

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ElectraMeccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2023 and 2022

The Company generally uses its incremental borrowing rate as the discount rate as most of the Company’s lease arrangements do not provide an implicit borrowing rate. The incremental borrowing rate is estimated using a combination of risk-free interest rate corresponding to lease terms, as well as a blended credit risk spread.

For operating leases, fixed lease payments are recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, and has elected to utilize the practical expedient to account for lease and non-lease components together as a single combined lease component. Certain lease agreements include variable lease payments that depend on an index, as well as payments for non-lease components, such as common area maintenance, and certain pass-through operating expenses such as real estate taxes and insurance. In instances where these payments are fixed, they are included in the measurement of our lease liabilities, and when variable, are excluded and recognized in the period in which the obligations for those payments are incurred. The Company’s leases do not contain any material residual value guarantees or payments under purchase and termination options.

Lease terms are initially determined as the non-cancellable period of a lease adjusted for options to extend or terminate a lease that are reasonably certain to be exercised. Lease liabilities are subsequently measured at amortized cost using the effective interest method.

ROU assets are carried at cost less accumulated amortization, impairment losses, and any subsequent remeasurement of the lease liability. Initial cost comprises the lease liability adjusted for lease payments at or before the commencement date, lease incentives received, initial direct costs and an estimate of restoration costs.

The Company has elected not to present short-term leases on the consolidated balance for leases that have lease terms of 12 months or less and do not contain purchase options or renewal terms that the Company is reasonably certain to exercise. The lease expense related to those short-term leases is recognized on a straight-line basis over the lease term.

Revenue

The Company historically generated revenue primarily through the sale of EVs as well as parts sales, services, repairs, and support services, and sales of custom-built vehicles; however, the revenue from custom built vehicles permanently ceased in the fourth quarter 2022.

Sales of EVs

Vehicle sales revenue is generated from the sale of EVs to customers. There is one performance obligation identified in vehicle sale arrangements. Shipping and handling provided by the Company is considered a fulfillment activity. Payment is typically received at or prior to the transfer of control of the vehicle to the customer. The Company recognizes revenue related to the vehicle when the customer obtains control of the vehicle which occurs at a point in time either upon completion of delivery to the agreed upon delivery location or upon pick up of the vehicle by the customer.

The Company’s vehicle contracts do not contain a significant financing component. The Company has elected to exclude sales taxes and amounts collected on behalf of third parties from the measurement of the transaction price.

The Company provides a manufacturer’s warranty on all vehicles sold. The warranty covers the rectification of reported defects via repair, replacement, or adjustment of faulty parts or components. The warranty does not cover any item where failure is due to normal wear and tear. 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 refund payments for 392 vehicles returned by customers as of December 31, 2023. As of December 31, 2023, there are 23 vehicles subject to the recall which have not been repurchased as a result of the customers rejection of the repurchase offer.  At December 31, 2023 and 2022, no additional warranty provision has been recognized other than the recall provision as no future warranty services would be required following Company’s decision to buy-back the vehicles under the recall.

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ElectraMeccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2023 and 2022

Part sales

The sale of parts is a single performance obligation to be recognized at the point in time when control is transferred to the customer. Shipping and handling provided by Company is considered a fulfillment activity. Payment for the products sold are made upon invoice or in accordance with payment terms customary to the business. The Company’s parts sales do not contain a significant financing component. The Company has elected to exclude sales taxes from the measurement of the transaction price.

Services, repairs and support services

Services, repairs and support services are recognized in the accounting period when the services are rendered. Payment for the services are made upon invoice or in accordance with payment terms customary to the business. The Company’s service revenue does not contain a significant financing component. The Company has elected to exclude sales taxes from the measurement of the transaction price.

Sales of custom-built vehicles

Prior to the fourth quarter of 2022, the Company manufactured and sold 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 completion of shipment to the customer. There is one performance obligation identified in vehicle sale arrangements. Shipping and handling provided by the Company is considered a fulfillment activity. Payment is typically received at or prior to the transfer of control of the vehicle to the customer. The Company’s vehicle contracts do not contain a significant financing component. The Company has elected to exclude sales taxes and amounts collected on behalf of third parties from the measurement of the transaction price.

Foreign currency translation

The Company and its subsidiaries’ functional currency is U.S. dollars (“USD”), except the functional currency of Intermeccanica International Inc. is CAD and the functional currency of EMV Automotive Technology (Chongqing) Inc. is the Chinese RMB.

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 the settlement of foreign currency transactions are recognized in the consolidated statements of operations and comprehensive loss.

On consolidation, the assets and liabilities of foreign operations that have a functional currency other than USD are translated into USD at the exchange rates in effect at the end of the reporting period. Revenues and expenses are translated at the average monthly exchange rates prevailing during the period. The resulting translation gains and losses are included within other comprehensive loss. The cumulative deferred translation gains or losses on the foreign operations are reclassified to net income, only on disposal of the foreign operations.

Advertising and marketing costs

The Company expenses advertising costs when incurred in sales and marketing expenses.

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2023 and 2022

Research and development expenses

Research and development expenses consist primarily of personnel-related expenses, contractor fees, engineering design and testing expenses, and allocated facilities cost. Most of the Company’s research and development expenses are related to developing new products and services and improving existing products and services. Research and development expenses have been expensed as incurred and included in the consolidated statements of operations and comprehensive loss.

Stock-based compensation

The Company has a share-based compensation plan under which various types of equity-based awards may be granted, including stock options, deferred share units (“DSUs”) and restricted share units (“RSUs”). We use the fair value method of accounting for our stock options, DSUs and RSUs. The fair value of stock option awards with only service and/or performance conditions is estimated on the grant or offering date using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires inputs such as the risk-free interest rate, expected term and expected volatility. These inputs are subjective and generally require significant judgment. The fair value of DSUs and RSUs is measured on the grant date based on the closing fair market value of the Company’s common shares. Stock-based compensation expense is recognized over the vesting period on a straight-line basis. The Company estimates expected forfeitures at the time of grant instead of accounting for forfeitures as they occur.

For performance-based awards, stock-based compensation expense is recognized over the expected performance achievement period of individual performance milestones when the achievement of each individual performance milestone becomes probable. For performance-based awards with a vesting schedule based on the attainment of both performance and market conditions, stock-based compensation expense associated with each tranche is recognized over the longer of (i) the expected achievement period for the operational milestone for such tranche and (ii) the expected achievement period for the related market capitalization milestone determined on the grant date, beginning at the point in time when the relevant operational milestone is considered probable of being achieved. If such operational milestone becomes probable any time after the grant date, we will recognize a cumulative catch-up expense from the grant date to that point in time. If the related market capitalization milestone is achieved earlier than its expected achievement period and the achievement of the related operational milestone, then the stock-based compensation expense will be recognized over the expected achievement period for the operational milestone, which may accelerate the rate at which such expense is recognized. The fair value of such awards is estimated on the grant date using Monte Carlo simulations.

Stock-based compensation expense is recorded in general and administrative expenses, research and development expenses and sales and marketing expenses in the consolidated statements of operations and comprehensive loss.

Income taxes

Income taxes are comprised of current and deferred taxes. These taxes are accounted for using the liability method. Current tax is recognized in connection with income for tax purposes, unrealized tax benefits and the recovery of tax paid in a prior period and measured using the enacted tax rates and laws applicable to the taxation period during which the income or loss for tax purposes arose.

Deferred tax is recognized on the difference between the carrying amount of an asset or a liability, as reflected in the financial statements, and the corresponding tax base, used in the computation of income for tax purposes (temporary differences) and measured using the enacted tax rates and laws as at the balance sheet date that are expected to apply to the income that the Company expects to arise for tax purposes in the period during which the difference is expected to reverse. Management assesses the likelihood that a deferred tax asset will be realized, and a valuation allowance is provided to the extent that it is more likely than not that all or a portion of a deferred tax asset will not be realized. The determination of both current and deferred taxes reflects the Company’s interpretation of the relevant tax rules and judgement.

An unrealized tax benefit may arise in connection with a period that has not yet been reviewed by the relevant tax authority. A change in the recognition or measurement of an unrealized tax benefit is reflected in the period during which the change occurs.

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2023 and 2022

Income taxes are recognized in the consolidated statements of operations and comprehensive loss, except when they relate to an item that is recognized in other comprehensive loss or directly in equity, in which case, the taxes are also recognized in other comprehensive loss or directly in equity respectively. Where income taxes arise from the initial accounting for a business combination, these are included in the accounting for the business combination.

Interest and penalties in respect of income taxes are not recognized in the consolidated statement of operations and comprehensive loss as a component of income taxes but as a component of interest expense.

Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount within a range of loss can be reasonably estimated. When no amount within the range is a better estimate than any other amount, the Company accrues for the minimum amount within the range. Legal costs incurred in connection with loss contingencies are expensed as incurred.

Net income or loss per share

Basic net earnings or loss per share is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted net earnings or loss per share is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding, adjusted for own shares held, and for the effects of all dilutive potential common shares, which comprise warrants, share options, DSUs, RSUs and restricted shares granted to employees and directors.

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 (“ASC”) 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 Canada and the United States.

Fair value measurements

The Company follows the accounting guidance in ASC 820, Fair Value Measurement, for its fair value measurements of financial assets and liabilities measured at fair value on a recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:

Level 1: Quoted prices in active markets for identical assets or liabilities.

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2023 and 2022

Level 2: Observable inputs other than Level 1 prices, for similar assets or liabilities that are directly or indirectly observable in the marketplace.

Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

The Company’s financial assets include cash and cash equivalents, receivables, and restricted cash. The Company’s financial liabilities include trade payables and accrued liabilities, derivative liabilities, share-based compensation liability, and lease liabilities. The carrying amounts of these instruments, including cash and cash equivalents, receivables, restricted cash, and trade payables and accrued liabilities, are considered to be representative of their fair values because of their short-term nature.

Concentration of credit risk

Financial instruments that potentially subject the Company to concentration of credit risk consist of principally cash and cash equivalents, bank deposits and certain receivables. The Company holds cash and cash equivalents with highly rated financial institutions. Balances with these institutions exceeded the Canadian Deposit Insurance Corporation insured amount of CAD$100 thousand as of December 31, 2023 and 2022. The Company has not experienced any significant credit losses in these accounts and does not believe the Company is exposed to any significant credit risk on these instruments.

Concentration of supply risk

In September 2017, we entered into the Manufacturing Agreement (as defined in Note 11) with Chongqing Zongshen Automobile Industry Co., Ltd. (“Zongshen”). In 2022, the delivery of SOLO vehicles to our customers and the revenue derived depended on Zongshen’s ability to fulfil its obligations under that Manufacturing Agreement. 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, pursuant to which, such concentration risk no longer existed (see Note 11).

Standards issued but not yet effective

All ASUs issued but not yet adopted were assessed and determined to be either not applicable or are not expected to have a material impact on our consolidated financial statements or financial statement disclosures.

3.Cash and cash equivalents and restricted cash

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

    

December 31, 2023

    

December 31, 2022

Cash and cash equivalents

$

65,454,810

$

134,255,538

Restricted cash

 

1,116,456

 

515,449

Total cash, cash equivalents and restricted cash

$

66,571,266

$

134,770,987

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

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2023 and 2022

4.Prepaid expenses and other current assets

    

December 31, 2023

    

December 31, 2022

SOLO deposit (with manufacturer)

$

$

7,133,451

Battery cell deposit

 

 

300,000

Prepaid insurance

 

854,995

 

1,095,152

Prepaid rent and security deposit

 

338,797

 

495,112

Cloud computing assets

 

1,374,299

 

1,234,039

Other prepaid expenses

 

319,717

 

1,133,096

$

2,887,808

$

11,390,850

The Company’s prepaid expenses and other current assets as of December 31, 2023 decreased compared with December 31, 2022 primarily as a result of the settlement agreement with Zongshen, as further described in Note 11, and decreases in prepaid insurance and other prepaid expenses.

5.Inventory, net

The Company’s inventory consisted of the following:

    

December 31, 2023

    

December 31, 2022

Parts and batteries

$

1,527,670

$

1,242,055

Vehicles

 

2,637,750

 

18,022,771

Inventory provision

 

(1,795,420)

 

(15,031,771)

$

2,370,000

$

4,233,055

For the years ended December 31, 2023 and 2022, $1,795,420 and $15,031,771, respectively, was recognized as inventory write-downs of parts and vehicles, and are reflected in cost of revenue. In estimating the net realizable value of the vehicle inventory at December 31, 2023 and 2022, the Company has concluded that it is able to recover the inventory value through crushing vehicles to recover tariffs already paid. The vehicle inventory’s net realizable value recognized at December 31, 2023 and 2022 represents the estimated amount that can be recovered from claiming the previously paid tariffs.

6.Plant and equipment

    

December 31, 2023

    

December 31, 2022

Furniture and equipment

$

1,744,693

$

2,117,901

Computer hardware and software

 

955,178

 

1,381,786

Vehicles

 

157,490

 

1,046,817

Leasehold improvements

 

11,654,292

 

12,862,333

Production tooling and molds

 

 

1,956,743

Total plant and equipment

 

14,511,653

 

19,365,580

Less: accumulated depreciation

 

(3,420,785)

 

(2,913,103)

Plant and equipment, net

$

11,090,868

$

16,452,477

During the years ended December 31, 2023 and 2022, depreciation expense of $2,072,363 and $4,938,545, respectively, was included in the general and administrative expenses.

During the years ended December 31, 2023 and 2022, $nil and $1,498,130, respectively, of production tooling was transferred to equipment upon completion of the asset.

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2023 and 2022

During the year ended December 31, 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 expense, net in the consolidated statements of operations and comprehensive loss.

During the years ended December 31, 2023 and 2022, impairment loss of $395,000 and $2,001,930, respectively, was recognized for vehicles assets based on the estimated amount that can be recovered from claiming the previously paid tariffs and disposing of the vehicles. In 2023, the reassessment of tariff claim recoveries led to additional impairments during the year.

During the years ended December 31, 2023 and 2022, impairment loss of $1,534,410 and $nil, respectively, was recognized for furniture and equipment and computer hardware and software based on the appraisal values. In 2023, after deciding to exit the Mesa facility and lacking any saleable product, the Company’s asset groups underwent reassessment for annual impairment testing.

At December 31, 2022, production tooling and molds with a cost of $8,112,133 and accumulated depreciation of $6,294,544 were written off to nil as these molding assets for the SOLO will no longer be used and these assets were not considered to have any alternate use.

7.Other assets

    

December 31, 2023

    

December 31, 2022

Security deposit

$

1,161,000

$

1,161,000

Cloud computing assets

 

2,405,964

 

3,920,869

Duty drawback receivable

132,896

Intangible assets

11,956

11,956

$

3,711,816

$

5,093,825

As of December 31, 2023, gross capitalized implementation costs incurred in a cloud computing arrangement and related accumulated amortization were $6,170,195 and $2,389,932, respectively (December 31, 2022 - $6,170,195 and $1,015,287, respectively). The Company’s capitalized implementation costs primarily relate to the implementation of a new enterprise resource planning (“ERP”) system during 2021 and 2022. During the years ended December 31, 2023 and 2022, amortization expense of $1,374,645 and $881,216, respectively was recorded for capitalized implementation costs. The estimated aggregate amortization expense amounts to $1,374,643 for both 2024 and 2025, $1,030,977 for 2026, and $nil for years 2027 and 2028. The Company is currently reassessing the remaining useful life of the capitalized implementation costs as a result of the execution of the Xos Arrangement Agreement on January 11, 2024. Subject to the final assessment of the utility of the related computing assets, the remaining useful life may be materially reduced.

The Company is claiming tariffs paid on the previous importation of SOLO vehicles. As of December 31, 2023, long - term receivable of $132,896 was included in other assets, representing the tariff amount expected to be recovered from U.S. Customs and Border Protection in one to three years.

8.Impairment of long-lived assets

The Company reviews the carrying value of its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be appropriate.

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2023 and 2022

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 refund payments for 392 vehicles returned by customers as of December 31, 2023. In the fourth quarter of 2023, the Company began destruction of SOLO vehicles and engaged a broker to identify potential tenants for its Mesa facility. The Company signed the Xos Arrangement Agreement with Xos in January 2024, pursuant to which Xos will acquire all of the issued and outstanding common shares of the Company in accordance with the Xos Plan of Arrangement. Consequently, the Company plans to dispose of its furniture and equipment and computer hardware assets as well as removing SOLOs from commerce by crushing the vehicles to recover the previously paid tariffs. The Company plans to continue using the operating lease ROU assets and leasehold improvement assets for the remaining term and sub-lease the property. The Company plans to continue using the cloud computing assets until the Company is able to successfully consummate a strategic alternative for its business, such as the contemplated Xos Arrangement. For the purpose of impairment testing, the Company has grouped the long-lived assets into below groups:

assets to be disposed through auction and sales, including furniture and equipment and computer hardware;
SOLO vehicles to be removed from commerce by crushing in order to recover previously paid tariffs;
operating lease ROU assets and leasehold improvements assets to be held and used (including potential plans to sublease related properties); and
cloud computing assets to be held and used.

The Company estimated the fair values of the individual assets using a combination of methods. The fair values of ROU assets and leasehold improvements were determined using a discounted cash flows approach, where the significant inputs included the estimated market rent and discount rate for each leased property. Fair value of the SOLO vehicles are estimated based on the estimated amount that can be recovered from claiming the previously paid tariffs. The Company used a combination of a market approach and cost approach to determine the fair values of the other plant and equipment and other assets. The significant input in the determination of the fair value of the cloud computing assets was the obsolescence factor applied to determine the depreciated replacement cost.

For the year ended December 31, 2023, the Company recorded a $1,534,410 impairment charge for the assets to be disposed through auction and sales, a $395,000 impairment charge for SOLO vehicles and $nil impairment for operating lease ROU assets and leasehold improvements.

For the purpose of impairment testing at December 31, 2022, all held-and-used long-lived assets, including plant and equipment, operating lease ROU assets, and other assets were grouped in one asset group – the SOLO asset group. For the year ended December 31, 2022, the Company recorded $nil impairment charge for the SOLO asset group as the asset group’s estimated fair value exceeded its carrying value.

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2023 and 2022

9.Trade payables and accrued liabilities

    

December 31, 2023

    

December 31, 2022

Trade payables

$

1,341,526

$

3,795,992

Recall provision

 

315,988

 

8,915,044

Accrued liabilities

 

2,584,374

 

6,635,434

$

4,241,888

$

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 year ended December 31, 2023, the Company reassessed the recall provision estimation and reversed $440,000 of the recall provision, which was recorded in cost of revenue in the consolidated statements of operations and comprehensive loss.  During the year ended December 31, 2023, the Company made payments of $8,159,056 for 392 vehicles returned by customers.  Accordingly, the recall provision balance was reduced to $315,988 as of December 31, 2023, which was included in trade payables and accrued liabilities within the consolidated balance sheets.

10.Leases

In 2023, the company held operating leases for engineering centers, offices, warehouses, and kiosk locations aimed at boosting vehicle sales. These leases ranged from one to eleven years in duration.

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

    

Year ended December 31,

    

Year ended December 31,

 

2023

 

2022

Operating lease expense

 

  

 

  

Operating lease expense

$

2,391,198

$

2,260,556

Short-term lease expense

 

380,183

 

1,238,114

$

2,771,381

$

3,498,670

During the year ended December 31, 2023, the Company terminated the lease of its previous Burnaby, British Columbia, Canada headquarters, and derecognized the ROU assets of $828,193 and lease liability of $936,029. The gain on this disposal was $107,836 and is recorded within other expense, net in the consolidated statement of operations and comprehensive loss.

During the year ended December 31, 2022, the Company commenced a lease agreement for the Mesa facility for a period of 129.5 months. As a result, the Company recognized a ROU asset of $6,736,373, a lease liability of $14,738,973 and leasehold improvements of $8,228,290 and derecognized the prepaid lease payment of $225,690 at the commencement of the lease. The lease grants the Company two renewal options of 5 years each that the Company determined are not reasonably certain to be exercised.

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2023 and 2022

Lease-related assets and liabilities as presented in the consolidated balance sheets consist of the following:

    

December 31, 2023

    

December 31, 2022

Assets:

 

  

 

  

Operating lease right-of-use assets

$

7,336,243

$

9,031,277

Liabilities:

 

  

 

  

Current portion of operating lease liabilities

$

1,028,676

$

810,677

Long-term portion of operating lease liabilities

 

15,492,841

 

17,528,282

Total operating lease liabilities

$

16,521,517

$

18,338,959

The Company has calculated the weighted-average remaining lease term, presented in years below, and the weighted-average discount rate for the operating lease population. The Company uses the incremental borrowing rate as the lease discount rate, unless the lessor’s rate implicit in the lease is readily determinable, in which case it is used.

    

December 31, 2023

    

December 31, 2022

 

Weighted average remaining operating lease term (in years)

 

8.83

 

9.41

Weighted average operating lease discount rate

 

10.47

%  

10.28

%

Supplemental cash flow information related to leases where the Company is the lessee is as follows:

    

Year ended December 31,

    

Year ended December 31,

2023

2022

Cash paid for amounts included in the measurement of lease liabilities:

  

  

Operating cash outflows from operating leases

 

2,422,669

 

1,233,699

Non-cash item for amounts included in the measurement of lease liabilities:

 

  

 

  

Leased assets obtained in exchange for new operating lease liabilities

 

 

8,592,776

As of December 31, 2023, the maturities of our operating lease liabilities (excluding short-term leases) are as follows:

    

December 31, 2023

2024

$

2,698,551

2025

 

2,763,290

2026

 

2,847,403

2027

 

2,598,847

2028

2,647,158

Thereafter

 

12,583,504

Total minimum lease payments

 

26,138,753

Less: interest

 

9,617,236

Present value of lease obligations

 

16,521,517

Less: Current portion

 

1,028,676

Long-term portion of lease obligations

$

15,492,841

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2023 and 2022

11.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 was presented as a contract termination liability within the Company’s 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 resolved 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").

As of December 31, 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, which is recorded within gain / (loss) on settlement of legal liabilities in the consolidated statement of operations and comprehensive loss.

12.Loan receivable from Tevva

In connection with the Tevva Arrangement Agreement, on August 14, 2023, the Company and Tevva entered into a facility letter, pursuant to which the Company advanced $6,000,000 to Tevva under a term loan facility (the “Working Capital Facility”).  Interest on the Working Capital Facility accrued at 8% per annum.  

As a result of the Company’s termination of the Tevva Arrangement Agreement on October 4, 2023, all amounts due (including any accrued interest and other sums due) under the Working Capital Facility became repayable in full 90 days from and including the date on which the Tevva Arrangement Agreement was terminated (i.e., January 2, 2024). 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 loan receivable advanced pursuant to the Working Capital Facility was fully impaired and recorded an impairment loss of $6,000,000 in the consolidated statement of operations and comprehensive loss.

On November 28, 2023, the Company entered into a settlement agreement (the “Tevva Settlement Agreement”) with Tevva relating to the termination of the Tevva Arrangement Agreement. Pursuant to the terms of the Tevva Settlement Agreement, Tevva agreed to dismiss its previously filed federal and state court complaints relating to the Tevva Arrangement Agreement and the transactions contemplated therein, and the Company agreed to forgive the approximately $6.1 million due from Tevva under the Working Capital Facility (inclusive of $0.1 million of accrued interest) and to pay Tevva $380,000 in connection with the Tevva Settlement Agreement. As of December 31, 2023, payment of $380,000 was made to Tevva and recorded in gain / (loss) on settlement of legal liabilities in the consolidated statements of operations and comprehensive loss.

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2023 and 2022

13.Income tax

Loss before income taxes consisted of the following:

December 31, 2023

December 31, 2022

Canadian operations

$

(30,999,187)

$

(90,933,403)

U.S. operations

 

(26,464,823)

 

(32,734,055)

Other operations

 

(117,190)

 

(7,501)

$

(57,581,200)

$

(123,674,959)

Provisions for federal, foreign and state income taxes in the consolidated statements of operations consisted of the following components:

Year ended December 31,

Year ended December 31,

2023

2022

Current expense:

 

  

 

  

State

$

1,000

$

23,554

Current expense and total income tax expense

$

1,000