As filed with the Securities and Exchange Commission on July 3, 2018

 

Registration No. 333-222814

 

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549 

 

 

 

Amendment No. 2

 

FORM F-1

 

REGISTRATION STATEMENT 

 

UNDER THE SECURITIES ACT OF 1933 

 

 

 

ELECTRAMECCANICA VEHICLES CORP.  

 

(Exact name of registrant as specified in its charter)

 

British Columbia 3711 N/A
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)

 

102 East 1st Avenue 

Vancouver, British Columbia, Canada, V5T 1A4 

Telephone: (604) 428-7656  

 

(Address of principal executive offices, including zip code, and telephone number, including area code)

 

Ortoli Rosenstadt LLP 

501 Madison Avenue, 14th Floor

New York, New York, U.S.A., 10022 

Telephone: (302) 738-6680  

 

(Name, address, including zip code, and telephone number, including area code, of agent of service)

 

Copies to:

 

William Rosenstadt, Esq.
Tim Dockery, Esq.
Ortoli Rosenstadt LLP
501 Madison Avenue, 14th Floor
New York, New York, U.S.A., 10022
Telephone: (302) 738-6680
Richard I. Anslow, Esq.
Ellenoff Grossman & Schole LLP
1345 Avenue of the Americas
New York, New York 10105
Telephone: (212) 370-1300

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after this Registration Statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

 

Emerging growth company x

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ¨

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of securities to be registered   Proposed maximum
aggregate offering
price(1)
    Amount of registration
fee
 
Units, each unit consisting of one common share, no par value, and one warrant to purchase one common share (3)(4)   $ 28,750,000     $ 3,580  
Common shares included in the units (4)     - (5)     - (5)
Warrants included in the units (4)     - (5)     - (5)
Common shares underlying the warrants included in the units (at an exercise price of 125% of the price of the units) (4)   $ 35,937,500     $ 4,475  
Warrants to be issued to the underwriters     - (5)     - (5)
Common shares underlying warrants to be issued to the Underwriters (4)(6)   $ 2,875,000     $ 358  
    $ 67,562,500     $ 8,413 (2)

 

  (1) Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act.
  (2) The registration fee is calculated in accordance with Rule 457(o) under the Securities Act. The Registrant previously paid $4,936 of the filing fee.
  (3) Includes units that may be purchased by the underwriters pursuant to their option to purchase additional units to cover over-allotments.
  (4) Pursuant to Rule 416 under the Securities Act, there are also being registered such indeterminate number of additional securities as may be issued to prevent dilution resulting from share splits, share dividends or similar transactions.
  (5) No registration fee required pursuant to Rule 457(g).
  (6) We have agreed to issue to the underwriters warrants exercisable at 125% of the per unit offering price within five years of the effective date of this registration statement representing up to 4% of the common shares and common shares underlying warrants included in the units issued in the offering. Resales of the underwriters’ warrants on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, are registered hereby. Resales of common shares issuable upon exercise of the underwriters’ warrants are also being similarly registered on a delayed or continuous basis hereby. See “Underwriting.”

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine

 

 

 

 

 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PROSPECTUS

 

Subject to Completion: Preliminary Prospectus Dated July 3, 2018

 

ELECTRAMECCANICA VEHICLES CORP.

 

 

                       Units

 

This prospectus relates to an offering of                    units of Electrameccanica Vehicles Corp., each unit consisting of one common share and one warrant. Each warrant will entitle the holder to purchase one common share at an exercise price of 125% of the price of the units in this offering, or US$          per share. The warrants will expire five years after the date they are issued. The units will not be issued or certificated. Instead, the common shares and the warrants underlying the units will be issued separately and may be resold separately, although they will have been purchased together in this offering. We will sell these units at a public offering price of US$       per unit.

 

Our common shares are quoted on the OTC Market Group Inc.’s Venture Market (the “OTCQB”) under the symbol “ECCTF”. As of June 15, 2018, the last reported sales price of our common share on the OTCQB was US$6.50 per share, and on June 15, 2018 we had 24,984,489 common shares outstanding. We have applied to have our common shares and warrants listed on the Nasdaq Capital Market under the symbols “SOLO” and “SOLOW”, respectively. Our application might not be approved. There is no established public trading market for the warrants included in the units, and such a market might never develop.

 

We completed a 2-for-1 reverse stock split on May 15, 2018. All share and per share information in this prospectus, excluding the audited financial statements and the notes thereto, has been adjusted to reflect this reverse stock split.

 

We are an “emerging growth company” as defined in section 3(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are therefore eligible for certain exemptions from various reporting requirements applicable to reporting companies under the Exchange Act. (See “ Exemptions Under the Jumpstart Our Business Startups Act. ”)

 

    Per Unit     Total (1)  
Public offering price (2)   US$               US$            
Underwriters fees and commissions (2)(3)   US$               US$            
Proceeds to us, before expenses (4)   US$               US$            

 

 

(1) Assumes that the underwriters do not exercise any portion of their over-allotment option.

 

(2) The public offering price and underwriting discount in respect of each unit corresponds to a public offering price per common share of US$          and a public offering price per warrant of US$            .

 

(3) We will pay the underwriters a cash success fee of 5.5% for those gross proceeds originating from investors introduced by us and 7% on all other gross proceeds. In addition, we will pay a non-accountable expense allowance of 1% of the gross proceeds, which is not included in this table. See “Underwriting” in this prospectus for more information regarding our arrangements with the underwriters. This table sets out the maximum possible underwriting fees and commissions.

 

 

 

 

(4) The total estimated expenses related to this offering are set forth in the section entitled “Expenses Relating to This Offering.”

 

In addition to the fees discussed above, we have agreed to issue to the underwriters warrants to purchase up to a total of                   common shares (which final amount shall be equal to 1.5% of the common shares and common shares underlying the warrants sold in this offering to investors introduced to the underwriters by us and 4% of all other common shares and all other common shares underlying the warrants sold in this offering). The underwriters’ warrants will be exercisable from time to time, in whole or in part, commencing six months after the effective date of the registration statement of which this prospectus forms a part and expiring five years from the effective date of this registration statement. The underwriters’ warrants are exercisable at a per share price of US$            . The underwriters’ warrants are also exercisable on a cashless basis. We also have agreed to reimburse the underwriters for certain of their out-of-pocket expenses. See “Underwriting” for a description of these arrangements.

 

We expect our total cash expenses for this offering to be approximately US$          . The underwriters have agreed to purchase the shares from us on a firm commitment basis. The underwriters have an option exercisable within 45 days from the date of this prospectus to purchase up to            additional common shares and/or warrants from us at the public offering price, less the underwriting discount, solely to cover over-allotments.

 

The underwriters expect to deliver the common shares and warrants against payment in U.S. dollars in New York, New York on or about                  , 2018.

 

In reviewing this prospectus you should carefully consider the matters described under the caption “Risk Factors” beginning on page 1.

 

This investment involves a high degree of risk. You should purchase units only if you can afford a complete loss.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

Joint Book-Running Managers

 

The Benchmark Company ThinkEquity
  A division of Fordham Financial Management, Inc.

 

Co-Manager

Cuttone & Co., LLC

 

THE DATE OF THIS PROSPECTUS IS                      , 2018

 

 

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

  Page
PROSPECTUS SUMMARY ii
RISK FACTORS 1
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS 14
USE OF PROCEEDS 16
DIVIDEND POLICY 16
CAPITALIZATION 16
DILUTION 18
CURRENCY AND EXCHANGE RATES 18
COMPANY INFORMATION 19
BUSINESS OVERVIEW 19
EXEMPTIONS UNDER THE JUMPSTART OUR BUSINESS STARTUPS ACT 37
KEY INFORMATION 38
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 42
DIRECTORS AND EXECUTIVE OFFICERS 54
EXECUTIVE COMPENSATION 63
PRINCIPAL SHAREHOLDERS 76
RELATED PARTY TRANSACTIONS 79
MATERIAL AGREEMENTS 81
MARKET FOR OUR SECURITIES 82
SECURITIES ELIGIBLE FOR FUTURE SALE 82
NOTICE OF ARTICLES AND ARTICLES OF OUR COMPANY 84
LIMITATIONS ON RIGHTS OF NON-CANADIANS 87
MATERIAL INCOME TAX INFORMATION 88
UNDERWRITING 95
EXPENSES RELATING TO THIS OFFERING 100
EXPERTS 101
INTERESTS OF EXPERTS AND COUNSEL 101
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT 101
WHERE YOU CAN FIND MORE INFORMATION 101
INDEX TO FINANCIAL STATEMENTS F-1

 

You should rely only on the information contained in this prospectus, any amendment or supplement to this prospectus or any free writing prospectus prepared by or on our behalf. Neither we, nor the Underwriters, have authorized any other person to provide you with different or additional information. Neither we, nor the Underwriters, take responsibility for, nor can we provide assurance as to the reliability of, any other information that others may provide. The Underwriters are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus or such other date stated in this prospectus, and our business, financial condition, results of operations and/or prospects may have changed since those dates.

 

Except as otherwise set forth in this prospectus, neither we nor the Underwriters have taken any action to permit a public offering of these securities outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of these securities and the distribution of this prospectus outside the United States.

 

i

 

 

Unless the context otherwise requires, in this prospectus, the term(s) “we”, “us”, “our”, “Company”, “our company”, “Electrameccanica” and “our business” refer to Electrameccanica Vehicles Corp.

 

We completed a 2-for-1 reverse stock split on May 15, 2018. All share and per share information in this prospectus, excluding the audited financial statements and the notes thereto, has been adjusted to reflect this reverse stock split.

 

PROSPECTUS SUMMARY

 

The following summary highlights, and should be read in conjunction with, the more detailed information contained elsewhere in this prospectus. You should read carefully the entire document, including our historical and pro forma financial statements and related notes, to understand our business, the units, the common shares, the warrants and the other considerations that are important to your decision to invest in the units. You should pay special attention to the “Risk Factors” section beginning on page 1. Unless otherwise indicated, all information in this prospectus assumes no exercise of the underwriters’ over-allotment option.

 

All references to “$” or “dollars”, are expressed in Canadian dollars unless otherwise indicated.

 

Our Company

 

We are a development-stage electric vehicle, or EV, manufacturing company located in Vancouver, British Columbia, Canada. Our initial product line targets urban residents seeking to commute in an efficient, cost-effective and environmentally friendly manner.

 

Our first flagship EV is the SOLO, a single person car, of which we have built 29 pre-mass production vehicles. We have used some of these pre-mass production vehicles as prototypes and for certification purposes, have delivered some to customers and have used others as test drive models in our showroom. We believe our schedule to mass produce EVs over the near term, combined with our 50-year history of automotive design, manufacturing, and deliveries of motor vehicles to customers significantly differentiates us from other early and development stage EV companies. To support our near-term production, we have entered into a manufacturing agreement with a wholly-owned subsidiary of Zongshen Industrial Group Co. Ltd. (“Zongshen”), an affiliate of Zongshen Power Machinery Co., Ltd. a large-scale scientific and technical enterprise which designs, develops, manufactures and sells a diverse range of motorcycles and motorcycle engines in China. Zongshen has previously purchased common shares and warrants to purchase common shares from us and beneficially owns approximately 10.8% of our common shares.

 

We have two other EV candidates in an advanced stage of development, the Super SOLO, a sports car model of the SOLO, and the Tofino, an all-electric, two-seater roadster, and have identified other vehicles that we would like to add to our candidate list such as the Cargo, a fleet vehicle with ample storage space, and the Twinn, featuring two seats, suitable for urban families, young commuters and empty nesters.

 

We have devoted substantial resources to create an affordable EV which brings significant performance and value to our customers. To this end, we envision the SOLO carrying a manufacturer’s suggested retail price of CDN$19,888 (approximately US$15,888) and being powered by a high performance electric rear drive motor which enables the SOLO to achieve:

 

· a top speed of 85 mph and an attainable cruise speed of 68 mph resulting from its lightweight aerospace composite chassis;

 

· acceleration from 0 mph to 60 mph in approximately eight seconds; and

 

· a range of up to 100 miles generated from a lithium ion battery system that requires only three hours of charging time on a 220-volt charging station (six hours from a 110-volt outlet) that utilizes approximately 8.64 kW/h.

 

In addition, the SOLO contains a number of standard features found in higher price point vehicles including:

 

  LCD digital instrument cluster;

 

ii

 

 

  power windows;
     
  AM/FM stereo with Bluetooth/ CD/USB;
     
  remote keyless entry system;
     
  rear view backup camera;
     
  285 liters of cargo space; and
     
  heater and defogger.

 

We anticipate that air conditioning will be available for the SOLO at an additional cost.

 

We estimate that we need approximately $12.9 million to carry out our proposed business plan over the next 12 months. Since our operations are not yet profitable, our auditors have issued a going concern opinion in our audited financial statements.

 

We were incorporated on February 16, 2015 under the laws of British Columbia, Canada, and have a December 31, fiscal year end. As of June 15, 2018, we had 24,984,489 common shares outstanding.

 

Our principal executive offices are located at 102 East 1st Avenue, Vancouver, British Columbia, Canada, V5T 1A4. Our telephone number is (604) 428-7656. Our website address is www.electrameccanica.com. Information on our website does not constitute part of this prospectus. Our registered and records office is located at Suite 1500, 1055 West Georgia Street, P.O. Box 11117, Vancouver, British Columbia, Canada, V6E 4N7.

 

As of June 15, 2018, our executive officers and directors beneficially owned 72.8% of our common shares, which includes shares that our executive officers and directors have the right to acquire within the next 60 days pursuant to warrants and stock options which have vested.

 

Industry Overview

 

Investment in clean technology has been trending upwards for several years as nations, governments, and societies overall become more aware of the damaging effects that pollution and greenhouse gas emissions have on the environment. EVs are a growing segment of this clean technology movement. An EV is any vehicle that does not solely operate on gas or diesel. Within this alternative vehicle group, there are sub-categories of alternative vehicles that utilize different innovative technologies, including battery electric vehicles (“BEV”) and plug-in hybrid electric vehicles (“PHEV”). Our products are BEVs.

 

Global EV Market

 

EVs have existed for over one hundred years but have only recently gained widespread adoption and public interest due to open discussions of greenhouse gas emission levels, government and international policies on climate change and pollution, increased literature on EVs, fluctuating fuel costs, and improved battery management systems and EV range. In addition. the market for electric vehicles has experienced significant growth in recent years due to consumer demand for vehicles that achieve greater fuel efficiency and lower environmental emissions without sacrificing performance.

 

The global stock of EVs has increased significantly over the past few years. According to the International Energy Agency (the “IEA”), the global stock of electric cars first crossed the one million vehicle threshold in 2015 and then crossed the two million vehicle threshold in 2016.

 

iii

 

 

We anticipate that the trend of increasing EV sales will continue in the near future. The IEA believes that there is a good possibility that the global electric car stock will range between 9 million and 20 million by 2020 and between 40 million and 70 million by 2025.

 

 

iv

 

 

North American EV Market

 

We anticipate that our primary target market shall initially be North America, with a focus on the West Coast where we have a showroom in Vancouver and are looking to open additional showrooms in Los Angeles, San Francisco and Seattle in the third quarter of 2018. Sales of EVs in North America have mirrored the global increase in sales of EVs. The sale of BEVs in the United States increased by 22% between 2015 and 2016 and by 19% in Canada during the same period.

 

In 2016, sales of EVs in six U.S. states and the District of Columbia comprised 1% or more of total auto sales in that jurisdiction. At 3.66% for the year, California had nearly double the next highest EV purchase rate in any U.S. state.

 

According to data compiled by EVAdoption.com, California consumers purchased 12% of autos in the U.S., but bought more than 50% of all EVs in the United States. In essence, Californians are buying at four times the national rate while Oregon and Washington buy at a bit more than two times the national rate.

 

Competitive Advantages & Operational Strengths

 

The EV market is evolving and companies within it must be able to adapt without jeopardizing the timing, quality or quantity of their products. We believe that our extensive managerial and automotive experience, production capability and unique product offering give us the ability to successfully operate in the EV market in a way that our competitors cannot. In particular, we believe that our competitive advantages include:

 

· extensive in-house development capabilities : Our recent acquisition of Intermeccanica International Inc. (“IMI”) enables us to leverage IMI’s extensive 59 years of experience in vehicle design, manufacture, sales and customer support. IMI’s former owner, Henry Reisner, is our President and Chief Operating Officer and one of our directors and, together with his family, is the second largest shareholder in our company. We have integrated IMI’s staff with the research and development team that we had prior to the acquisition to develop and enhance current and future model offerings;

 

  · in-house production capabilities : We have the ability to manufacture our own products on a non-commercial scale. To date, we have produced 29 SOLOs at our facilities in Vancouver, British Columbia. We will continue to produce two to four SOLOs per month as needed and to develop prototypes of our other EVs;

 

· commercial production of the SOLO anticipated to commence in the third quarter of 2018 : We have an agreement with Zongshen whereby they have agreed to produce 5,000 SOLOs in the first twelve months after the start of production, 20,000 cars in the next twelve months and 50,000 cars in the twelve months after that;

 

  · unique product offering : Although the proposed retail price of the SOLO, $19,888 (US$15,888), is far below that of what we deem to be our principal competitors, we believe that the SOLO compares favorably against them; and

 

v

 

 

· management expertise : We have selected our management with an eye towards providing us with the business and technical expertise needed to be successful. Our Chief Executive Officer, Jerry Kroll, and our President and Chief Operating Officer, Henry Reisner, used their love of automobiles to devise the concept for the SOLO. Mr. Kroll has an extensive background working in small businesses and start-ups. We have supplemented their expertise by adding officers and directors with corporate, accounting, legal and other strengths.

 

Strategy

 

Our near-term goal is to commence and expand sales of the SOLO while continuing to develop our other EVs. We intend to achieve this goal by:

 

beginning commercial production of the SOLO : We anticipate that Zongshen will begin producing the SOLO in the third quarter of 2018 and that we will complete our first sale of a mass production vehicle shortly thereafter. Zongshen is contracted to make 75,000 SOLOs in the first three years of production;

 

increasing orders for our EVs : To date, we have received deposits for 863 EVs from individuals. As part of our “Match My Deposit” program, we offer customers who have placed deposits for other electric vehicles a credit of up to $1,000 towards the purchase of a SOLO, which is initially credited towards the buyers’ deposit. 208 of the 863 vehicle deposits that we have received through June 15, 2018 result from the “Match My Deposit” program. Additionally, we have entered into non-binding letters of interest for approximately 61,902 vehicles from corporate accounts. There is no guaranty that a significant number of these orders, if any, will become binding and result in sales. We have achieved this order book through online “direct sales to customers and corporate sales” platform as well as a store and show room at our headquarters in Vancouver. We plan on expanding this model and will be opening similar stores in key urban areas. We are currently negotiating our first U.S. corporate store to be located in Los Angeles;

 

having sales and services supported by local corporate dealerships: We will monitor all cars in real time via telematics which provides early warning of potential maintenance issues; and

 

expanding our product offering: In parallel with the production and sale of the SOLO, we aim to continue the development of our other proposed products, including the Tofino, a two seater sports car in the expected price range of $50,000 to $60,000 with an estimated production date of late 2019, and the Cargo, a fleet vehicle with ample storage space with an estimated production date of 2020.

 

Recent Developments

 

Shortly after our incorporation in 2015, we entered into an arrangement with Intermeccanica to leverage Intermeccanica’s over 50 years of quality car manufacturing expertise. Intermeccanica was founded in Turin, Italy in 1959 as a speed parts provider and soon began producing in-house designed, complete vehicles like the Apollo GT, Italia, Murena, Indira and the Porsche 356 replica.  On October 18, 2017, we entered into a Share Purchase Agreement (the “SPA”) by which we acquired all the shares of Intermeccanica for $2,500,000.

 

On October 2, 2017, we announced a manufacturing agreement with Zongshen to produce 75,000 SOLO all-electric vehicles over the next three years. We anticipate that Zongshen will begin production under the agreement in the third quarter of 2018 and that it will produce 5,000 SOLOs in the first full year of production; 20,000 in the second full year of production; and 50,000 in the third full year of production. Under the agreement, we will reimburse Zongshen $1.8 million for the cost of the prototype tooling and molds and for the costs of the mass production tooling and molds, which we estimate will be $6.0 million. The reimbursement for the costs of the mass production tooling and molds shall be payable 50% when Zongshen commences manufacturing of the tooling and molds (which we expect will be in the third quarter of 2018), 40% when Zongshen completes manufacturing the tooling and molds (which we expect will be in the third quarter of 2018), and 10% upon delivery to us of the first production vehicle (which we expect will be in the fourth quarter of 2018).

 

Implications of Being a Foreign Private Issuer 

 

We are considered a foreign private issuer. In our capacity as a foreign private issuer, we are exempt from certain rules under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and "short-swing" profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information.

 

vi

 

 

We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (1) the majority of our executive officers or directors are U.S. citizens or residents, (2) more than 50% of our assets are located in the United States or (3) our business is administered principally in the United States.

 

We have taken advantage of certain reduced reporting and other requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold equity securities.

 

Implications of Being an Emerging Growth Company

 

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

  the ability to include only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations disclosure; and
     
  an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002.

 

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than US$1.07 billion in annual revenue, have more than US$700 million in market value of our common shares held by non-affiliates or issue more than US$1 billion of non-convertible debt over a three-year period.

 

vii

 

 

Offering Summary

 

Units Offered:                    units (excluding the over-allotment discussed below)
     
Separability of Common Shares and Warrants:   The units will not be issued or certificated. Instead, the common shares and the warrants underlying the units will be issued separately and may be resold separately, although they will have been purchased together in this offering.
     
Shares Offered:                   common shares are included in the units (excluding the over-allotment discussed below)
     
Warrants Offered:                   warrants are included in the units (excluding the over-allotment discussed below). Each warrant will entitle the holder to purchase one common share at an exercise price of 125% of the price of the shares in this offering, or US$         per share. The warrants shall be exercisable from the date of issuance, which is the closing date of this offering, and expire on the five year anniversary thereof. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, we will, at our election, upon exercise, either pay a cash adjustment in respect of such fraction (in an amount equal to such fraction multiplied by the exercise price) or round the number of shares to be received by the holder up to the next whole number.
     
Offering Price:   US$         per unit
     
Over-allotment   We have granted the underwriters a 45-day option (commencing from the date of this prospectus) to purchase up to an additional                       common shares and/or up to an additional                warrants at the public offering price per common share and per warrant as set forth on the cover page of this prospectus solely to cover over-allotments, if any.
     
Shares Outstanding Prior to the Offering:    24,984,489 common shares as of June 15, 2018 
     
Shares Outstanding After the Offering:                         common shares will be outstanding immediately after the offering (or                if the underwriters exercise their over-allotment option in full).
     
    Assuming that all of the warrants sold in the offering are exercised and we issue no additional common shares,                common shares will be outstanding after the offering (or                if the underwriters exercise their over-allotment option in full).
     
Gross Proceeds:    We will receive gross proceeds of US$25,000,0000 (or US$28,750,000 if the underwriters exercise their over-allotment option in full).  We would receive additional gross proceeds of US$31,250,000 if all of the warrants included in the units are exercised (or US$35,937,500 if the underwriters exercise their over-allotment option in full and the warrants included in the units are exercised). 
     
Use of Proceeds:   We intend to use the net proceeds from this offering for plant and equipment, production molds, furniture and fixtures, inventory, research and development, sales and marketing and for general working capital.
     
Underwriters’ Warrants:    We have agreed to issue to the underwriters warrants to purchase up to a total of                    common shares (equal to 1.5% of the common shares and common shares underlying the warrants sold in this offering to investors introduced to the underwriters by us and 4% of all other common shares and all other common shares underlying the warrants sold in this offering). The warrants will be exercisable from time to time, in whole or in part, from six months after the effective date of the registration statement of which this prospectus forms a part until five years from the effective date of the registration statement. The underwriters’ warrants are exercisable at a per share price of US$         .
     
The Underwriters:    The Benchmark Company, LLC, ThinkEquity, a division of Fordham Financial Management, Inc., and Cuttone & Co., LLC

 

viii

 

 

Market for our Common Shares:   Our common shares are currently quoted on OTCQB operated by the OTC Markets Group Inc. under the symbol “ECCTF.” Currently, there is only a limited public trading market for our common shares. We have applied to have our common shares listed on the Nasdaq Capital Market under the symbol “SOLO”.
     
Market for our Warrants:   Currently, there is no public trading market for the warrants included in the units. We have applied to have the warrants listed on the Nasdaq Capital Market under the symbol “SOLOW”.
       
Risk Factors:   See “Risk Factors” and the other information in this prospectus for a discussion of the factors you should consider before deciding to invest in our securities.   

 

ix

 

 

Summary Financial Data

 

The summary financial information set forth below has been derived from our audited financial statements for the fiscal years ended December 31, 2017 and 2016 and the period ended December 31, 2015 and from our unaudited financial statements for the three months ended March 31, 2018. You should read the following summary financial data together with our historical and pro forma financial statements and the notes thereto included elsewhere in this prospectus and with the information set forth in the section titled “Management’s Discussion and Analysis of Financial Conditions and Results of Operations”.

 

Consolidated Statement of Comprehensive Loss

 

  For the three
 
          Year ended           months ended  
    Year ended     December 31,     Period ended     March 31,  
    December 31, 2017     2016     December 31, 2015    

2018

   

2017

 
Revenue   $ 109,173       -       -     $ 166,133     $ -  
Gross Profit   $ 45,223       -       -     $ 63,465     $ -  
Net and Comprehensive Loss   $ 11,366,372     $ 8,973,347     $ 995,833     $ 2,403,974     $ 2,189,569  
Loss per Share – Basic and Fully Diluted   $ (0.35 )   $ (0.54 )   $ (0.44 )   $ (0.10 )   $ (0.10 )

 

 

Consolidated Statements of Financial Position

 

    December 31, 2017     December 31, 2016     December 31, 2015     For the three
months ended
March 31, 2018
 
Cash   $ 8,610,996     $ 3,916,283     $ 106,357     $ 5,861,327  
Current Assets   $ 10,007,684     $ 4,437,152     $ 197,309     $ 7,266,465  
Total Assets   $ 12,661,381     $ 4,787,766     $ 213,118     $ 11,152,939  
Current Liabilities   $ 3,354,675     $ 881,176     $ 346,416     $ 2,143,318  
Total Liabilities   $ 7,010,365     $ 881,176     $ 346,416     $ 5,309,948  
Total Equity (Deficiency)   $ 5,651,016     $ 3,906,590     $ (133,298 )   $ 5,842,991  

 

x

 

 

RISK FACTORS

 

An investment in our securities carries a significant degree of risk. You should carefully consider the following risks, as well as the other information contained in this prospectus, including our historical and pro forma financial statements and related notes included elsewhere in this prospectus, before you decide to purchase the units. Any one of these risks and uncertainties has the potential to cause material adverse effects on our business, prospects, financial condition and operating results which could cause actual results to differ materially from any forward-looking statements expressed by us and a significant decrease in the value of our common shares and warrants. Refer to “Forward-Looking Statements”.

 

 

We may not be successful in preventing the material adverse effects that any of the following risks and uncertainties may cause. These potential risks and uncertainties may not be a complete list of the risks and uncertainties facing us. There may be additional risks and uncertainties that we are presently unaware of, or presently consider immaterial, that may become material in the future and have a material adverse effect on us. You could lose all or a significant portion of your investment due to any of these risks and uncertainties.

 

Risks Related to our Business and Industry

 

We have a limited operating history and have generated minimal revenues.

 

Our limited operating history makes evaluating our business and future prospects difficult. We were formed in February 2015, and we have not yet begun mass production or the commercial delivery of our first vehicle. To date, we have no revenues from the sale of electric vehicles as any amounts received from the sale of our pre-mass production electric vehicles were netted off against research and development costs as cost recovery and minimal revenue from the sale of custom cars. We intend to derive revenues from the sales of our SOLO vehicle, our Super SOLO vehicle, our Tofino vehicle and other intended electric vehicles. The SOLO and Tofino are in development, and we do not expect to start delivering to the SOLO customers until the fourth quarter of 2018 or to the Tofino customers until 2019. Our vehicles require significant investment prior to commercial introduction and may never be successfully developed or commercially successful.

 

We expect that we will experience an increase in losses prior to the launch of the SOLO, the Super SOLO or the Tofino.

 

For the fiscal year ended December 31, 2017, we generated a net and comprehensive loss of $11,366,372, bringing our accumulated deficit to $21,335,552, and for the three-month period ended March 31, 2018, we generated a net and comprehensive loss of $2,403,974, bringing our accumulated deficit to $23,739,526. We anticipate generating a significant loss for the current fiscal year. The independent auditor’s report on our audited financial statements includes an explanatory paragraph relating to our ability to continue as a going concern.

 

We have minimal revenues, are currently in debt and expect significant increases in costs and expenses to forestall profits for the foreseeable future, even if we generate revenues in the near term. Even if we are able to successfully develop the SOLO, the Super SOLO or the Tofino, they might not become commercially successful. If we are to ever achieve profitability we must have a successful commercial introduction and acceptance of our vehicles, which may not occur.

 

We expect the rate at which we will incur losses to increase significantly in future periods from current levels as we:

 

  design, develop and manufacture our vehicles and their components;
     
  develop and equip our manufacturing facility;
     
  build up inventories of parts and components for the SOLO, the Super SOLO and the Tofino;
     
  open Electrameccanica stores;
     
  expand our design, development, maintenance and repair capabilities;
     
  develop and increase our sales and marketing activities; and

 

  1  

 

 

  develop and increase our general and administrative functions to support our growing operations.

 

Because we will incur the costs and expenses from these efforts before we receive any revenues with respect thereto, our losses in future periods will be significantly greater than the losses we would incur if we developed the business more slowly. In addition, we may find that these efforts are more expensive than we currently anticipate or that these efforts may not result in profits or even revenues, which would further increase our losses.

 

We currently have negative operating cash flows, and if we are unable to generate positive operating cash flows in the future our viability as an operating business will be adversely affected.

 

We have made significant up-front investments in research and development, sales and marketing, and general and administrative expenses to rapidly develop and expand our business. We are currently incurring expenditures related to our operations that have generated a negative operating cash flow. Operating cash flow may decline in certain circumstances, many of which are beyond our control. We might not generate sufficient revenues in the near future. Because we continue to incur such significant future expenditures for research and development, sales and marketing, and general and administrative expenses, we may continue to experience negative cash flow until we reach a sufficient level of sales with positive gross margins to cover operating expenses. An inability to generate positive cash flow until we reach a sufficient level of sales with positive gross margins to cover operating expenses or raise additional capital on reasonable terms will adversely affect our viability as an operating business.

 

To carry out our proposed business plan to develop, manufacture, sell and service electric vehicles, we will require a significant amount of capital.

 

To carry out our proposed business plan for the next twelve months, we estimate that we will need approximately $12.9 million. If the funds from this offering and revenue from the sale of our cars, if any, are not sufficient to cover our cash requirements, we will need to raise additional funds through the sale of our equity securities, in either private placements or additional registered offerings, and shareholder loans. If we are unsuccessful in raising enough funds through such capital-raising efforts, we may review other financing possibilities such as bank loans. Financing might not be available to us or, if available, only on terms that are not acceptable to us.

 

Our ability to obtain the necessary financing to carry out our business plan is subject to a number of factors, including general market conditions and investor acceptance of our business plan. These factors may make the timing, amount, terms and conditions of such financing unattractive or unavailable to us. If we are unable to raise sufficient funds, we will have to significantly reduce our spending, delay or cancel our planned activities or substantially change our current corporate structure. We might not be able to obtain any funding, and we might not have sufficient resources to conduct our business as projected, both of which could mean that we would be forced to curtail or discontinue our operations.

 

Terms of subsequent financings may adversely impact your investment.

 

We may have to engage in common equity, debt, or preferred stock financing in the future. Your rights and the value of your investment in our securities could be reduced. Interest on debt securities could increase costs and negatively impacts operating results. Preferred stock could be issued in series from time to time with such designation, rights, preferences, and limitations as needed to raise capital. The terms of preferred stock could be more advantageous to those investors than to the holders of common shares. Likewise, if we issue warrants as part of any future financing, the terms of those warrants could be more advantageous to those investors than to the holders of warrants contained in the units. In addition, if we need to raise more equity capital from the sale of common shares, institutional or other investors may negotiate terms at least as, and possibly more, favorable than the terms of your investment. Common shares which we sell could be sold into any market which develops, which could adversely affect the market price.

 

Our future growth depends upon consumers’ willingness to adopt three-wheeled single passenger electric vehicles.

 

Our growth highly depends upon the adoption by consumers of, and we are subject to an elevated risk of any reduced demand for, alternative fuel vehicles in general and electric vehicles in particular. If the market for three-wheeled single passenger electric vehicles does not develop as we expect or develops more slowly than we expect, our business, prospects, financial condition and operating results will be negatively impacted. The market for alternative fuel vehicles is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and industry standards, frequent new vehicle announcements and changing consumer demands and behaviors. Factors that may influence the adoption of alternative fuel vehicles, and specifically electric vehicles, include:

 

  2  

 

 

  perceptions about electric vehicle quality, safety (in particular with respect to lithium-ion battery packs), design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of electric vehicles;
     
  perceptions about vehicle safety in general, in particular safety issues that may be attributed to the use of advanced technology, including vehicle electronics and braking systems;
     
  the limited range over which electric vehicles may be driven on a single battery charge;
     
  the decline of an electric vehicle’s range resulting from deterioration over time in the battery’s ability to hold a charge;
     
  concerns about electric grid capacity and reliability, which could derail our efforts to promote electric vehicles as a practical solution to vehicles which require gasoline;
     
  the availability of alternative fuel vehicles, including plug-in hybrid electric vehicles;
     
  improvements in the fuel economy of the internal combustion engine;
     
  the availability of service for electric vehicles;
     
  the environmental consciousness of consumers;
     
  volatility in the cost of oil and gasoline;
     
  government regulations and economic incentives promoting fuel efficiency and alternate forms of energy;
     
  access to charging stations, standardization of electric vehicle charging systems and consumers’ perceptions about convenience and cost to charge an electric vehicle;
     
  the availability of tax and other governmental incentives to purchase and operate electric vehicles or future regulation requiring increased use of nonpolluting vehicles; and
     
  perceptions about and the actual cost of alternative fuel.

 

The influence of any of the factors described above may cause current or potential customers not to purchase our electric vehicles, which would materially adversely affect our business, operating results, financial condition and prospects.

 

The range of our electric vehicles on a single charge declines over time which may negatively influence potential customers’ decisions whether to purchase our vehicles.

 

The range of our electric vehicles on a single charge declines principally as a function of usage, time and charging patterns. For example, a customer’s use of their vehicle as well as the frequency with which they charge the battery of their vehicle can result in additional deterioration of the battery’s ability to hold a charge. We currently expect that our battery pack will retain approximately 85% of its ability to hold its initial charge after approximately 3,000 charge cycles and 8 years, which will result in a decrease to the vehicle’s initial range. Such battery deterioration and the related decrease in range may negatively influence potential customer decisions whether to purchase our vehicles, which may harm our ability to market and sell our vehicles.

 

  3  

 

 

Developments in alternative technologies or improvements in the internal combustion engine may materially adversely affect the demand for our electric vehicles.

 

Significant developments in alternative technologies, such as advanced diesel, ethanol, fuel cells or compressed natural gas, or improvements in the fuel economy of the internal combustion engine, may materially and adversely affect our business and prospects in ways we do not currently anticipate. For example, fuel which is abundant and relatively inexpensive in North America, such as compressed natural gas, may emerge as consumers’ preferred alternative to petroleum-based propulsion. Any failure by us to develop new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay our development and introduction of new and enhanced electric vehicles, which could result in the loss of competitiveness of our vehicles, decreased revenue and a loss of market share to competitors.

 

If we are unable to keep up with advances in electric vehicle technology, we may suffer a decline in our competitive position.

 

We may be unable to keep up with changes in electric vehicle technology and, as a result, may suffer a decline in our competitive position. Any failure to keep up with advances in electric vehicle technology would result in a decline in our competitive position which would materially and adversely affect our business, prospects, operating results and financial condition. Our research and development efforts may not be sufficient to adapt to changes in electric vehicle technology. As technologies change we plan to upgrade or adapt our vehicles and introduce new models to continue to provide vehicles with the latest technology, in particular battery cell technology. However, our vehicles may not compete effectively with alternative vehicles if we are not able to source and integrate the latest technology into our vehicles. For example, we do not manufacture battery cells which makes us depend upon other suppliers of battery cell technology for our battery packs.

 

If we are unable to design, develop, market and sell new electric vehicles and services that address additional market opportunities, our business, prospects and operating results will suffer.

 

We may not be able to successfully develop new electric vehicles and services, address new market segments or develop a significantly broader customer base. To date, we have focused our business on the sale of the SOLO, a three-wheeled single passenger electric vehicle and have targeted mainly urban residents of modest means. We will need to address additional markets and expand our customer demographic to further grow our business. Our failure to address additional market opportunities would harm our business, financial condition, operating results and prospects.

 

Demand in the vehicle industry is highly volatile.

 

Volatility of demand in the vehicle industry may materially and adversely affect our business, prospects, operating results and financial condition. The markets in which we will be competing have been subject to considerable volatility in demand in recent periods. Demand for automobile sales depends to a large extent on general, economic, political and social conditions in a given market and the introduction of new vehicles and technologies. As a new start-up manufacturer, we will have fewer financial resources than more established vehicle manufacturers to withstand changes in the market and disruptions in demand.

 

We depend on a third-party for our near-term manufacturing needs.

 

In October 2017, we entered into a manufacturing agreement with Zongshen, a company located in the People’s Republic of China, to produce 75,000 SOLO vehicles in the three full years from the commencement of production. The delivery of SOLO vehicles to our future customers and the revenue derived therefrom depends on Zongshen’s ability to fulfill its obligations under that manufacturing agreement. Zongshen’s ability to fulfill its obligations is outside of our control and depends on a variety of factors including Zongshen’s operations, Zongshen’s financial condition and geopolitical and economic risks that could affect China. If Zongshen is unable to fulfill its obligations or is only able to partially fulfill its obligations, we will not be able to sell our SOLO vehicle in the volumes anticipated on the timetable that we anticipate, if at all.

 

We do not currently have arrangements in place that will allow us to fully execute our business plan.

 

To sell our vehicles as envisioned, we will need to enter into agreements and arrangements that are not currently in place. These include, entering into agreements with dealerships, arranging for the transportation of SOLOs delivered pursuant to our manufacturing agreement with Zongshen, obtaining battery and other essential supplies in the quantities that we require, entering into manufacturing agreements for the Super SOLO and the Tofino and acquiring additional manufacturing capability. If we are unable to enter into such agreements or are only able to do so on terms that are unfavorable to us, we may not be able to fully carry out our business plans.

 

  4  

 

 

We depend on certain key personnel, and our success will depend on our continued ability to retain and attract such qualified personnel.

 

Our success depends on the efforts, abilities and continued service of Jerry Kroll, our Chief Executive Officer and Chairman, Henry Reisner, our President and Chief Operating Officer, Kulwant Sandher, our Chief Financial Officer, and Ed Theobald, our General Manager. A number of these key employees and consultants have significant experience in the automobile manufacturing industry. A loss of service from any one of these individuals may adversely affect our operations, and we may have difficulty or may not be able to locate and hire a suitable replacement. We have not obtained any “key person” insurance on certain key personnel.

 

Since we have little experience in mass-producing electric vehicles, any delays or difficulties in transitioning from producing custom vehicles to mass-producing vehicles may have a material adverse effect on our business, prospects and operating results.

 

Our management team has experience in producing custom designed vehicles and is now switching focus to mass producing electric vehicles in a rapidly evolving and competitive market. If we are unable to implement our business plans in the timeframe estimated by management and successfully transition into a mass-producing electric vehicle manufacturing business, then our business, prospects, operating results and financial condition will be negatively impacted and our ability to grow our business will be harmed.

 

We are subject to numerous environmental and health and safety laws and any breach of such laws may have a material adverse effect on our business and operating results.

 

We are subject to numerous environmental and health and safety laws, including statutes, regulations, bylaws and other legal requirements. These laws relate to the generation, use, handling, storage, transportation and disposal of regulated substances, including hazardous substances (such as batteries), dangerous goods and waste, emissions or discharges into soil, water and air, including noise and odors (which could result in remediation obligations), and occupational health and safety matters, including indoor air quality. These legal requirements vary by location and can arise under federal, provincial, state or municipal laws. Any breach of such laws and/or requirements would have a material adverse effect on our company and its operating results.

 

Our vehicles are subject to motor vehicle standards and the failure to satisfy such mandated safety standards would have a material adverse effect on our business and operating results.

 

All vehicles sold must comply with federal, state and provincial motor vehicle safety standards. In both Canada and the United States vehicles that meet or exceed all federally mandated safety standards are certified under the federal regulations. In this regard, Canadian and U.S. motor vehicle safety standards are substantially the same. Rigorous testing and the use of approved materials and equipment are among the requirements for achieving federal certification. Failure by us to have the SOLO, the Super SOLO, the Tofino or any future model electric vehicle satisfy motor vehicle standards would have a material adverse effect on our business and operating results.

 

If we are unable to reduce and adequately control the costs associated with operating our business, including our costs of manufacturing, sales and materials, our business, financial condition, operating results and prospects will suffer.

 

If we are unable to reduce and/or maintain a sufficiently low level of costs for designing, manufacturing, marketing, selling and distributing and servicing our electric vehicles relative to their selling prices, our operating results, gross margins, business and prospects could be materially and adversely impacted.

 

If our vehicles fail to perform as expected, our ability to develop, market and sell our electric vehicles could be harmed.

 

Our vehicles may contain defects in design and manufacture that may cause them not to perform as expected or that may require repair. For example, our vehicles use a substantial amount of software code to operate. Software products are inherently complex and often contain defects and errors when first introduced. While we have performed extensive internal testing, we currently have a very limited frame of reference by which to evaluate the performance of our SOLO in the hands of our customers and currently have no frame of reference by which to evaluate the performance of our vehicles after several years of customer driving. A similar evaluation of the Super SOLO and the Tofino is further behind.

 

  5  

 

 

We have very limited experience servicing our vehicles. If we are unable to address the service requirements of our future customers our business will be materially and adversely affected.

 

If we are unable to successfully address the service requirements of our future customers our business and prospects will be materially and adversely affected. In addition, we anticipate the level and quality of the service we will provide our customers will have a direct impact on the success of our future vehicles. If we are unable to satisfactorily service our customers, our ability to generate customer loyalty, grow our business and sell additional vehicles could be impaired.

 

We have very limited experience servicing our vehicles. As of June 15, 2018, we had not sold any electric vehicles and had only delivered six pre-mass production electric vehicles to customers. We do not plan for mass production to begin for SOLO vehicles until the third quarter of 2018 or for the Tofino until 2019. The total number of SOLOs that we have produced is 25. Throughout its history, Intermeccanica has produced approximately 2,500 cars, which includes, providing after sales support and servicing. We do not have any experience servicing the SOLO or the Tofino as a limited number of SOLOS have been produced and the Tofino has not yet been produced. Servicing electric vehicles is different than servicing vehicles with internal combustion engines and requires specialized skills, including high voltage training and servicing techniques.

 

We may not succeed in establishing, maintaining and strengthening the Electrameccanica brand, which would materially and adversely affect customer acceptance of our vehicles and components and our business, revenues and prospects.

 

Our business and prospects heavily depend on our ability to develop, maintain and strengthen the Electrameccanica brand. Any failure to develop, maintain and strengthen our brand may materially and adversely affect our ability to sell our planned electric vehicles. If we are not able to establish, maintain and strengthen our brand, we may lose the opportunity to build a critical mass of customers. Promoting and positioning our brand will likely depend significantly on our ability to provide high quality electric cars and maintenance and repair services, and we have very limited experience in these areas. In addition, we expect that our ability to develop, maintain and strengthen the Electrameccanica brand will also depend heavily on the success of our marketing efforts. To date, we have limited experience with marketing activities as we have relied primarily on the internet, word of mouth and attendance at industry trade shows to promote our brand. To further promote our brand, we may be required to change our marketing practices, which could result in substantially increased advertising expenses, including the need to use traditional media such as television, radio and print. The automobile industry is intensely competitive, and we may not be successful in building, maintaining and strengthening our brand. Many of our current and potential competitors, particularly automobile manufacturers headquartered in Detroit, Japan and the European Union, have greater name recognition, broader customer relationships and substantially greater marketing resources than we do. If we do not develop and maintain a strong brand, our business, prospects, financial condition and operating results will be materially and adversely impacted.

 

Increases in costs, disruption of supply or shortage of raw materials, in particular lithium-ion cells, could harm our business.

 

We may experience increases in the cost or a sustained interruption in the supply or shortage of raw materials. Any such increase or supply interruption could materially negatively impact our business, prospects, financial condition and operating results. We use various raw materials in our business including aluminum, steel, carbon fiber, non-ferrous metals such as copper and cobalt. The prices for these raw materials fluctuate depending on market conditions and global demand for these materials and could adversely affect our business and operating results. For instance, we are exposed to multiple risks relating to price fluctuations for lithium-ion cells. These risks include:

 

  the inability or unwillingness of current battery manufacturers to build or operate battery cell manufacturing plants to supply the numbers of lithium-ion cells required to support the growth of the electric or plug-in hybrid vehicle industry as demand for such cells increases; 
     
  disruption in the supply of cells due to quality issues or recalls by the battery cell manufacturers; and

 

  6  

 

 

  an increase in the cost of raw materials, such as cobalt, used in lithium-ion cells.

 

Our business depends on the continued supply of battery cells for our vehicles. We do not currently have any agreements for the supply of batteries and depend upon the open market for their procurement. Any disruption in the supply of battery cells from our supplier could temporarily disrupt the planned production of our vehicles until such time as a different supplier is fully qualified. Moreover, battery cell manufacturers may choose to refuse to supply electric vehicle manufacturers to the extent they determine that the vehicles are not sufficiently safe. Furthermore, current fluctuations or shortages in petroleum and other economic conditions may cause us to experience significant increases in freight charges and raw material costs. Substantial increases in the prices for our raw materials would increase our operating costs, and could reduce our margins if we cannot recoup the increased costs through increased electric vehicle prices. We might not be able to recoup increasing costs of raw materials by increasing vehicle prices. We have also already announced an estimated price for the base model of our planned SOLO, Super SOLO and Tofino. However, any attempts to increase the announced or expected prices in response to increased raw material costs could be viewed negatively by our potential customers, result in cancellations of SOLO, Super SOLO and Tofino reservations and could materially adversely affect our brand, image, business, prospects and operating results.

 

The unavailability, reduction or elimination of government and economic incentives could have a material adverse effect on our business, financial condition, operating results and prospects.

 

Any reduction, elimination or discriminatory application of government subsidies and economic incentives because of policy changes, the reduced need for such subsidies and incentives due to the perceived success of the electric vehicle, fiscal tightening or other reasons may result in the diminished competitiveness of the alternative fuel vehicle industry generally or our electric vehicles in particular. This could materially and adversely affect the growth of the alternative fuel automobile markets and our business, prospects, financial condition and operating results.

 

If we fail to manage future growth effectively, we may not be able to market and sell our vehicles successfully.

 

Any failure to manage our growth effectively could materially and adversely affect our business, prospects, operating results and financial condition. We plan to expand our operations in the near future in connection with the planned production of our vehicles. Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully. Risks that we face in undertaking this expansion include:

 

  training new personnel;
     
  forecasting production and revenue;
     
  controlling expenses and investments in anticipation of expanded operations;
     
  establishing or expanding design, manufacturing, sales and service facilities;
     
  implementing and enhancing administrative infrastructure, systems and processes;
     
  addressing new markets; and
     
  establishing international operations.

 

We intend to continue to hire a number of additional personnel, including design and manufacturing personnel and service technicians for our electric vehicles. Competition for individuals with experience designing, manufacturing and servicing electric vehicles is intense, and we may not be able to attract, assimilate, train or retain additional highly qualified personnel in the future. The failure to attract, integrate, train, motivate and retain these additional employees could seriously harm our business and prospects.

 

  7  

 

 

Our business may be adversely affected by labor and union activities.

 

Although none of our employees are currently represented by a labor union, it is common throughout the automobile industry generally for many employees at automobile companies to belong to a union, which can result in higher employee costs and increased risk of work stoppages. We have a manufacturing agreement with Chongqing Zongshen Automobile Co., Ltd. to produce 75,000 SOLO vehicles in the three full years from the commencement of production. Zongshen’s workforce is not currently unionized, though they may become so in the future or industrial stoppages could occur in the absence of a union. We also directly and indirectly depend upon other companies with unionized work forces, such as parts suppliers and trucking and freight companies, and work stoppages or strikes organized by such unions could have a material adverse impact on our business, financial condition or operating results. If a work stoppage occurs within our business, that of Zongshen or that of our key suppliers, it could delay the manufacture and sale of our electric vehicles and have a material adverse effect on our business, prospects, operating results or financial condition. Additionally, if we expand our business to include full in-house manufacturing of our vehicles, our employees might join or form a labor union and we may be required to become a union signatory.

 

We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.

 

We may become subject to product liability claims, which could harm our business, prospects, operating results and financial condition. The automobile industry experiences significant product liability claims and we face inherent risk of exposure to claims in the event our vehicles do not perform as expected or malfunction resulting in personal injury or death. Our risks in this area are particularly pronounced given we have limited field experience of our vehicles. A successful product liability claim against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about our vehicles and business and inhibit or prevent commercialization of other future vehicle candidates which would have material adverse effect on our brand, business, prospects and operating results. We plan to maintain product liability insurance for all our vehicles with annual limits of approximately $5 million on a claims-made basis, but any such insurance might not be sufficient to cover all potential product liability claims. Any lawsuit seeking significant monetary damages either in excess of our coverage, or outside of our coverage, may have a material adverse effect on our reputation, business and financial condition. We may not be able to secure additional product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly if we do face liability for our products and are forced to make a claim under our policy.

 

Our patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent others from interfering with our commercialization of our products.

 

The status of patents involves complex legal and factual questions and the breadth and effectiveness of patented claims is uncertain. We cannot be certain that we are the first creator of inventions covered by pending patent applications or the first to file patent applications on these inventions, nor can we be certain that our pending patent applications will result in issued patents or that any of our issued patents will afford sufficient protection against someone creating a knockoff of our products, or as a defensive portfolio against a competitor who claims that we are infringing its patents. In addition, patent applications filed in foreign countries are subject to laws, rules and procedures that differ from those of the United States, and thus we cannot be certain that foreign patent applications, if any, will result in issued patents in those foreign jurisdictions or that such patents can be effectively enforced, even if they relate to patents issued in the U.S. In addition, others may obtain patents that we need to take a license to or design around, either of which would increase costs and may adversely affect our business, prospects, financial condition and operating results.

 

We may need to defend ourselves against patent or trademark infringement claims, which may be time-consuming and would cause us to incur substantial costs.

 

Companies, organizations or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit or interfere with our ability to make, use, develop, sell or market our vehicles or components, which could make it more difficult for us to operate our business. From time to time, we may receive communications from holders of patents or trademarks regarding their proprietary rights. Companies holding patents or other intellectual property rights may bring suits alleging infringement of such rights or otherwise assert their rights and urge us to take licenses. In addition, if we are determined to have infringed upon a third party’s intellectual property rights, we may be required to do one or more of the following:

 

  cease selling, incorporating certain components into, or using vehicles or offering goods or services that incorporate or use the challenged intellectual property;
     
  pay substantial damages;

 

  8  

 

 

  seek a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all;
     
  redesign our vehicles or other goods or services; or
     
  establish and maintain alternative branding for our products and services.

 

In the event of a successful claim of infringement against us and our failure or inability to obtain a license to the infringed technology or other intellectual property right, our business, prospects, operating results and financial condition could be materially adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs, negative publicity and diversion of resources and management attention.

 

You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited because we are incorporated under the laws of the Province of British Columbia, a substantial portion of our assets are in Canada and all of our directors and executive officers reside outside the United States

 

We are organized under the laws of the  Business Corporations Act  (British Columbia) (the “Business Corporation Act”) and our executive offices are located outside of the United States in Vancouver, British Columbia. All of our officers, our auditor and all but one of our directors reside outside the United States. In addition, a substantial portion of their assets and our assets are located outside of the United States. As a result, you may have difficulty serving legal process within the United States upon us or any of these persons. You may also have difficulty enforcing, both in and outside of the United States, judgments you may obtain in U.S. courts against us or these persons in any action, including actions based upon the civil liability provisions of U.S. Federal or state securities laws. Furthermore, there is substantial doubt as to the enforceability in Canada against us or against any of our directors, officers and the expert named in this prospectus who are not residents of the United States, in original actions or in actions for enforcement of judgments of U.S. courts, of liabilities based solely upon the civil liability provisions of the U.S. federal securities laws. In addition, shareholders in British Columbia companies may not have standing to initiate a shareholder derivative action in U.S. federal courts.

 

As a result, our public shareholders may have more difficulty in protecting their interests through actions against us, our management, our directors or our major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.

 

Global economic conditions could materially adversely impact demand for our products and services.

 

Our operations and performance depend significantly on economic conditions. Uncertainty about global economic conditions could result in customers postponing purchases of our products and services in response to tighter credit, unemployment, negative financial news and/or declines in income or asset values and other macroeconomic factors, which could have a material negative effect on demand for our products and services and, accordingly, on our business, results of operations or financial condition.

 

The current U.S. administration has indicated that it may impose tariffs on up to US$250 billion of goods manufactured in China and imported into the United States. These tariffs may provoke a trade war between China and the United States. Such a trade conflict could affect our business because we intend to mass produce the SOLO in China and our intended principal market is the West Coast of North America. If a trade war were to begin or if tariffs were imposed on any of our products, we could be forced to increase the sales price of such products or reduce the margins, if any, on such products.

 

Risks Related to Our Common Shares, Warrants and this Offering

 

Our executive officers and directors beneficially own 73% of our common shares.

 

Our executive officers and directors beneficially own, in the aggregate, 73% of our common shares, which includes shares that our executive officers and directors have the right to acquire pursuant to warrants and stock options which have vested. As a result, they will be able to exercise a significant level of control over all matters requiring shareholder approval, including the election of directors, amendments to our Articles and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control of our company or changes in management and will make the approval of certain transactions difficult or impossible without the support of these shareholders.

 

The continued sale of our equity securities will dilute the ownership percentage of our existing shareholders and may decrease the market price for our common shares and warrants.

 

Our Notice of Articles authorize the issuance of an unlimited number of common shares and the issuance of preferred shares. The Board of Directors has the authority to issue additional shares of our capital stock to provide additional financing in the future and designate the rights of the preferred shares, which may include voting, dividend, distribution or other rights that are preferential to those held by the common shareholders. The issuance of any such common or preferred shares may result in a reduction of the book value or market price, if one exists at the time, of the outstanding common shares. Given our lack of revenues, we will likely have to issue additional equity securities to obtain working capital we require for the next 12 months. Our efforts to fund our intended business plans will therefore result in dilution to our existing shareholders. If we do issue any such additional common shares, such issuance also will cause a reduction in the proportionate ownership and voting power of all other shareholders. As a result of such dilution, if you acquire common shares, your proportionate ownership interest and voting power could be decreased. Further, any such issuances could result in a change of control or a reduction in the market price for our common shares.

 

  9  

 

 

Additionally, we had 21,367,839 vested options and 12,407,009 warrants outstanding as of June 15, 2018. The exercise price of the majority of these options and warrants is significantly below our current market price. If the holders of these options and warrants elect to exercise them, your ownership position will be diluted and the per share value of the shares in this offering will be diluted as well. As a result, the market value of our shares and warrants could significantly decrease as well.

 

Issuances of our preferred stock may adversely affect the rights of the holders of our common shares and reduce the value of our common shares and warrants.

 

Our Notice of Articles authorize the issuance of an unlimited number of shares of preferred stock. Our Board of Directors has the authority to create one or more series of preferred stock and, without shareholder approval, issue shares of preferred stock with rights superior to the rights of the holders of common shares. As a result, shares of preferred stock could be issued quickly and easily, adversely affecting the rights of holder of common shares and could be issued with terms calculated to delay or prevent a change in control or make removal of management more difficult. Although we currently have no plans to create any series of preferred stock and have no present plans to issue any shares of preferred stock, any creation and issuance of preferred stock in the future could adversely affect the rights of the holders of common shares and reduce the value of the common shares and the warrants sold in the units.

 

The market price of our common shares and of our warrants may be volatile and may fluctuate in a way that is disproportionate to our operating performance.

 

Our common shares began trading on the OTCQB in September 2017. The volume of trading has been low and the share price has fluctuated significantly. Currently, there is no public market for our warrants. Although we will not close this offering unless our application to list our common shares and the warrants included in the units on the Nasdaq Capital Market is approved, such listing might not affect the volume or price volatility of our common shares or our warrants. The value of your investment could decline due to the impact of any of the following factors upon the market price of our common shares and warrants:

 

sales or potential sales of substantial amounts of our common shares;
announcements about us or about our competitors;
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 in particular, have historically experienced extreme price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These broad market and industry factors could reduce the market price of our common shares or warrants, regardless of our actual operating performance.

 

We do not intend to pay dividends and there will thus be fewer ways in which you are able to make a gain on your investment.

 

We have never paid any cash or stock dividends and we do not intend to pay any dividends for the foreseeable future. To the extent that we require additional funding currently not provided for in our financing plan, our funding sources may prohibit the payment of any dividends. Because we do not intend to declare dividends, any gain on your investment will need to result from an appreciation in the price of our common shares. There will therefore be fewer ways in which you are able to make a gain on your investment.

 

  10  

 

 

Because the SEC imposes additional sales practice requirements on brokers who deal in securities that are deemed penny stocks, some brokers may be unwilling to trade our securities. This means that you may have difficulty reselling your shares and warrants, which may cause the value of your investment to decline.

 

Our shares and warrants are classified as penny stocks and are covered by section 15(g) of the Exchange Act, which imposes additional sales practice requirements on broker-dealers who sell our securities in this offering or in the aftermarket. For sales of our securities, broker-dealers must make a special suitability determination and receive a written agreement from you prior to making a sale on your behalf. Because of the imposition of the foregoing additional sales practices, it is possible that broker-dealers will not want to make a market in our shares or warrants. This could prevent you from reselling your shares or warrants and may cause the value of your investment to decline.

 

FINRA sales practice requirements may limit your ability to buy and sell our common shares and warrants, which could depress the price of our shares and warrants.

 

FINRA rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements may make it more difficult for broker-dealers to recommend that their customers buy our common shares, which may limit your ability to buy and sell our shares, have an adverse effect on the market for our shares and warrants and, thereby, depress their market prices.

 

You may face significant restrictions on the resale of your shares and warrants due to state “blue sky” laws.

 

Each state has its own securities laws, often called “blue sky” laws, which: (1) limit sales of securities to a state’s residents unless the securities are registered in that state or qualify for an exemption from registration; and (2) govern the reporting requirements for broker-dealers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover the transaction, or it must be exempt from registration. The applicable broker must also be registered in that state.

 

We do not know whether our securities will be registered or exempt from registration under the laws of any state. A determination regarding registration will be made by the broker-dealers, if any, who agree to serve as market makers for our common shares and warrants. There may be significant state blue sky law restrictions on the ability of investors to sell, and on purchasers to buy, our securities. You should therefore consider the resale market for our common shares and warrants to be limited, as you may be unable to resell your shares or warrants without the significant expense of state registration or qualification.

 

Our common shares are thinly traded and our warrants are not currently trading, and you may be unable to sell at or near ask prices or at all if you need to sell your shares or warrants to raise money or otherwise desire to liquidate your shares.  

 

Our common shares are currently quoted on the OTC Market Group Inc.’s Venture Market (the “OTCQB”) under the symbol “ECCTF”. In the first quarter of 2018, our average daily trading volume was approximately 835 shares. Currently, there is no public market for our warrants. Although this offering will not close unless our application to list our shares and the warrants included in the units on the Nasdaq Capital Market has been approved, our common shares may continue to be, and our warrants may always be, “thinly-traded” after that listing, meaning that the number of persons interested in purchasing our common shares or warrants at or near bid prices at any given time may be relatively small or non-existent. This situation may be attributable to a number of factors, including that we are relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and might be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned.  As a consequence, there may be periods of several days or more when trading activity in our shares or warrants 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 or warrants may not develop or be sustained. 

 

  11  

 

 

Volatility in our common shares or warrant price may subject us to securities litigation.

 

The market for our common shares or warrants may have, when compared to seasoned issuers, significant price volatility, and we expect that our share or warrant price may continue to be more volatile than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources. 

 

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.  

 

Our management will have broad discretion in the application of the net proceeds from this offering and any proceeds from the exercise of the warrants sold in this offering, including for any of the purposes described in the section entitled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could harm our business.

 

We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies.  

 

We are a foreign private issuer within the meaning of the rules under the Exchange Act. As such, we are exempt from certain provisions applicable to United States domestic public companies. For example:

 

· we are not required to provide as many Exchange Act reports, or as frequently, as a domestic public company;
· for interim reporting, we are permitted to comply solely with our home country requirements, which are less rigorous than the rules that apply to domestic public companies;
· we are not required to provide the same level of disclosure on certain issues, such as executive compensation;
· we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information;
· we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and
· we are not required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction.

 

Our shareholders may not have access to certain information they may deem important and are accustomed to receive from U.S. reporting companies. 

 

As an “emerging growth company” under applicable law, we will be subject to lessened disclosure requirements. Such reduced disclosure may make our common shares or warrants less attractive to investors.

 

For as long as we remain an “emerging growth company”, as defined in the JOBS Act, we will elect to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.  Because of these lessened regulatory requirements, our shareholders would be left without information or rights available to shareholders of more mature companies. If some investors find our common shares or warrants less attractive as a result, there may be a less active trading market for such securities and their market prices may be more volatile. 

 

  12  

 

 

We incur significant costs as a result of being a public company, which costs will grow after we cease to qualify as an “emerging growth company.”

 

We incur significant legal, accounting and other expenses as a public company that we did not incur as a private company. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and Nasdaq Capital Market, impose various requirements on the corporate governance practices of public companies. We are an “emerging growth company,” as defined in the JOBS Act and will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following May 23, 2022, (b) in which we have total annual gross revenue of at least US$1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common shares that is held by non-affiliates exceeds US$700 million as of the prior June 30th, and (2) the date on which we have issued more than US$1.0 billion in non-convertible debt during the prior three-year period.  An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 in the assessment of the emerging growth company’s internal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies.

 

Compliance with these rules and regulations increases our legal and financial compliance costs and makes some corporate activities more time-consuming and costly. After we are no longer an emerging growth company, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 and the other rules and regulations of the SEC. For example, as a public company, we have been required to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We have incurred additional costs in obtaining director and officer liability insurance. In addition, we incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.

 

We may become a “controlled company” within the meaning of Nasdaq listing standards and, as a result, qualify for exemptions from certain corporate governance requirements.

 

A “controlled company” under the Nasdaq corporate governance rules is a company of which more than 50% of the voting power for the election of the directors is held by an individual, group or another company. Our Chairman and Chief Executive Officer, Jerry Kroll, currently owns approximately 34.4% of the voting power of the board of directors, which percentage does not include shares underlying options and warrants that he owns. If we sell all shares being offered by this Prospectus and Mr. Kroll were to exercise the options and warrants that he owns, he would own approximately % of our common shares, and we would become a controlled company. Pursuant to the “controlled company” exemption, we could elect not to comply with the requirements that a majority of our board of directors consists of independent directors and that we have a compensation committee and a nominating committee, in each case, composed entirely of independent directors with a written charter addressing each committee’s purpose and authorities. If we were to become a controlled company and elect to rely on the “controlled company” exemption, as opposed to the requirements that would otherwise apply, our shareholders may have less protection than what is currently accorded under the Listing Rules of the Nasdaq Capital Market.

 

  13  

 

 

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

 

This prospectus contains statements that constitute “forward-looking statements”. Any statements that are not statements of historical facts may be deemed to be forward-looking statements. These statements appear in a number of different places in this prospectus and, in some cases, can be identified by words such as “anticipates”, “estimates”, “projects”, “expects”, “contemplates”, “intends”, “believes”, “plans”, “may”, “will”, or their negatives or other comparable words, although not all forward-looking statements contain these identifying words. Forward-looking statements in this prospectus may include, but are not limited to, statements and/or information related to: strategy, future operations, the size and value of the order book and the number of orders, the number and timing of building pre- mass production vehicles, the projection of timing and delivery of SOLOs, Super SOLOs or Tofinos in the future, projected costs, expected production capacity, expectations regarding demand and acceptance of our products, estimated costs of machinery to equip a new production facility, and trends in the market in which we operate, plans and objectives of management.

 

Forward-looking statements are based on the reasonable assumptions, estimates, analysis and opinions made in light of our experience and our perception of trends, current conditions and expected developments, as well as other factors that we believe to be relevant and reasonable in the circumstances at the date that such statements are made, but which may prove to be incorrect. Management believes that the assumption and expectations reflected in such forward-looking statements are reasonable. Assumptions have been made regarding, among other things: our ability to build pre-mass production vehicles and to begin production deliveries within certain timelines; our expected production capacity; prices for machinery to equip a new production facility, labor costs and material costs, remaining consistent with our current expectations; production of SOLOs, Super SOLOs and Tofinos meeting expectations and being consistent with estimates; equipment operating as anticipated; there being no material variations in the current regulatory environment; and our ability to obtain financing as and when required and on reasonable terms. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which may have been used.

 

The forward-looking statements, including the statements contained in the sections entitled Risk Factors, Description of Business and Management’s Discussion and Analysis of Financial Conditions and Results of Operations and elsewhere in this prospectus, are subject to known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from those expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors include but are not limited to:

 

  general economic and business conditions, including changes in interest rates;
     
  prices of other electric vehicles, costs associated with manufacturing electric vehicles and other economic conditions; 
     
  natural phenomena;
     
  actions by government authorities, including changes in government regulation;
     
  uncertainties associated with legal proceedings;
     
  changes in the electric vehicle market;
     
  future decisions by management in response to changing conditions;
     
  our ability to execute prospective business plans;
     
  misjudgments in the course of preparing forward-looking statements;
     
  our ability to raise sufficient funds to carry out our proposed business plan;
     
  consumers’ willingness to adopt three-wheeled single passenger electric vehicles;
     
  declines in the range of our electric vehicles on a single charge over time may negatively influence potential customers’ decisions to purchase such vehicles;

 

  14  

 

 

  developments in alternative technologies or improvements in the internal combustion engine;
     
  inability to keep up with advances in electric vehicle technology;
     
  inability to design, develop, market and sell new electric vehicles and services that address additional market opportunities; 
     
  dependency on certain key personnel and any inability to retain and attract qualified personnel;
     
  inexperience in mass-producing electric vehicles;
     
  inability to reduce and adequately control operating costs;
     
  failure of our vehicles to perform as expected;
     
  inexperience in servicing electric vehicles;
     
  inability to succeed in establishing, maintaining and strengthening the Electrameccanica brand;
     
  disruption of supply or shortage of raw materials;
     
  the unavailability, reduction or elimination of government and economic incentives;
     
  failure to manage future growth effectively; and
     
  labor and employment risks.

 

Although management has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Forward-looking statements might not prove to be accurate, as actual results and future events could differ materially from those anticipated in such forward-looking statements. Accordingly, readers should not place undue reliance on forward-looking statements. We wish to advise you that these cautionary remarks expressly qualify, in their entirety, all forward-looking statements attributable to our company or persons acting on our company’s behalf. We do not undertake to update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such statements, except as, and to the extent required by, applicable securities laws. You should carefully review the cautionary statements and risk factors contained in this prospectus and other documents that we may file from time to time with the securities regulators.

 

  15  

 

 

USE OF PROCEEDS

 

Assuming the sale of US$25,000,000 of units in this offering, after deducting the estimated underwriting discounts and offering expenses payable by us and assuming no exercise of the underwriters’ over-allotment option, we expect to receive net proceeds of approximately US$22,620,000 from this offering.

 

Gross proceeds   US$ 25,000,000  
Underwriting discounts and commissions (up to 7.0% of gross proceeds)   US$ 1,750,000  
Underwriting non-accountable expenses (1% of gross proceeds)   US$ 250,000  
Miscellaneous underwriting fees expenses   US$ 150,000  
Other offering expenses (1)   US$ 230,000  
Net proceeds   US$ 22,620,000  

 

(1) These consist of legal fees and expenses of approximately $150,000, the Nasdaq Capital Market listing fee of $50,000, accountant and auditing fees and expenses of approximately $20,000, and other fees of approximately $10,000 and excludes those other offering expenses that have already been paid.

 

We intend to use the net proceeds of this offering as follows, and we have ordered the specific uses of proceeds in order of priority.

 

Description of Use   Estimated Amount of
Net Proceeds
 
Manufacturing Plant & Equipment   US$ 2,404,730  
Production Molds   US$ 4,144,364  
Inventory   US$ 4,026,524  
Research & Development   US$ 7,286,091  
Sales & Marketing   US$ 2,804,985  
Unallocated Working Capital   US$ 1,953,306  
Total   US$ 22,620,000  

 

We would receive additional gross proceeds of US$31,250,000 if all of the warrants included in the units are exercised, assuming no exercise of the underwriters’ over-allotment option. We intend to use any such proceeds for working capital and general corporate purposes. General corporate purposes may include capital expenditures.

 

DIVIDEND POLICY

 

To date, we have not paid any dividends on our outstanding common shares. The future payment of dividends will depend upon our financial requirements to fund further growth, our financial condition and other factors which our Board of Directors may consider in the circumstances. We do not contemplate paying any dividends in the immediate or foreseeable futures.

 

CAPITALIZATION

 

The following table sets forth our capitalization as of March 31, 2018:

 

on an actual basis,

 

on a pro forma basis to reflect the application of net proceeds of $22,620,000 (excluding proceeds from the exercise of the over-allotment option, if any) after deducting the estimated offering expenses.

 

  16  

 

 

You should read this table in conjunction with our historical and pro forma financial statements and related notes appearing elsewhere in this prospectus and “Use of Proceeds.”

 

    As of March 31, 2018  
    Actual (unaudited)     Pro forma(1)  
Assets:                
Current assets   $ 7,266,465     $ 35,541,465  
Restricted cash     107,903       107,903  
Goodwill and other intangible assets   $ 1,260,014       1,260,014  
Plant and equipment   $ 2,518,557       2,518,557  
Total Assets   $ 11,152,939     $ 39,427,939  
                 
Liabilities:                
Current Liabilities   $ 2,143,318       2,143,318  
Derivative Liabilities   $ 3,166,630       3,166,630  
Total Liabilities   $ 5,309,948       5,309,948  
                 
Shareholder’s Equity:                
Share Capital   $ 25,293,271       53,568,271  
Share-based payment reserve   $ 4,289,246     $ 4,289,246  
                 
Deficit   $ (23,739,526 )     (23,739,526 )
Total equity   $ 5,842,991     $ 34,117,991  
Total Liabilities and Equity   $ 11,152,939     $ 39,427,939  

 

(1)  Converted into Canadian dollars as set out in “Currency and Exchange Rates”.

 

  17  

 

 

DILUTION

 

If you invest in our units, your interest in our common shares will be diluted to the extent of the difference between the offering price per unit and the pro forma net tangible book value per common share after the offering. Dilution results from the fact that the per unit offering price is substantially in excess of the book value per common share attributable to the existing shareholders for our presently outstanding common shares. Our net tangible book value attributable to shareholders at                    , 2018 was $        or approximately $       per common share. Net tangible book value per common share as of                      , 2018 represents the amount of total assets less intangible assets and total liabilities, divided by the number of common shares outstanding.

 

We will have                                     common shares outstanding upon completion of the offering (and common shares outstanding if the over-allotment option is exercised in full). Our post offering pro forma net tangible book value, which gives effect to receipt of the net proceeds from the offering and issuance of additional shares in the offering, but does not take into consideration any other changes in our net tangible book value after                     , 2018, will be approximately $           or $           per common share (or $           or $            per common share if the over-allotment option is exercised in full). This would result in dilution to investors in this offering of approximately $              per common share (or $              per common share if the over-allotment option is exercised in full) or approximately       % (or         % if the over-allotment option is exercised in full) from the offering price of US$          per unit. Net tangible book value per common share would increase to the benefit of present shareholders by $           per share attributable to the purchase of the units by investors in this offering.

 

The following table sets forth the estimated net tangible book value per common share after the offering and the dilution to persons purchasing units based on the foregoing offering assumptions.

 

    Offering
Without Over-
Allotment(1)
    Offering With
Over-
Allotment(1)
 
Offering price per unit   $                    
Net tangible book value per common share before the offering   $                
Increase per common share attributable to payments by new investors   $                
Pro forma net tangible book value per common share after the offering   $                
Dilution per common share to new investors   $                

 

(1)  U.S. dollar amounts converted into $ as set out in “Currency and Exchange Rates”.

 

CURRENCY AND EXCHANGE RATES

 

All dollar amounts in this prospectus are expressed in Canadian dollars unless otherwise indicated. Our accounts are maintained in Canadian dollars, and our financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. All reference to “U.S. dollars”, “USD”, or to “US$” are to United States dollars.

 

The following table sets forth, for each period indicated, the high and low exchange rate for U.S. dollars expressed in Canadian dollars, and the average exchange rate for the periods indicated. Averages for year-end periods are calculated by using the exchange rates on the last day of each full month during the relevant period. These rates are based on the noon-buying rate certified for custom purposes by the U.S. Federal Reserve Bank of New York set forth in the H.10 statistical release of the Federal Reserve Board. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in preparation of our consolidated financial statements, pro forma financial statements or elsewhere in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you. We make no representation that any Canadian dollar or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Canadian dollars, as the case may be, at any particular rate or at all. 

 

    Period End     Period Average Rate     High Rate     Low Rate  
Year Ended                        
December 31, 2016   $ 1.3426     $ 1.3243     $ 1.4592     $ 1.2544  
December 31, 2017   $ 1,2517     $ 1.2963     $ 1.3745     $ 1.2131  
 
Last Six Months                                
December 2017   $ 1.2517     $ 1.2769     $ 1.2900     $ 1.2517  
January 2018   $ 1.2293     $ 1.2429     $ 1.2534     $ 1.2293  
February 2018   $ 1.2806     $ 1.2588     $ 1.2806     $ 1.2280  
March 2018   $ 1.2891     $ 1.2933     $ 1.3096     $ 1.2822  
April 2018   $ 1.2848     $ 1.2732     $ 1.2918     $ 1.2581  
May 2018   $ 1.2970     $ 1.2866     $ 1.3027     $ 1.2761  

 

Certain conversions from U.S. dollars into Canadian dollars have been made for your convenience at US$1.00 = $1.2517, the noon-buying price on December 29, 2017.

 

  18  

 

 

COMPANY INFORMATION

 

History and Development of the Company

 

Electrameccanica Vehicles Corp. is a development-stage electric vehicle (“EV”) production company incorporated on February 16, 2015 under the laws of British Columbia, Canada. The concept for our company was developed by Jerry Kroll after years of research and development on advanced EVs.

 

Upon returning to Vancouver in 2011, Mr. Kroll decided that new electric drive systems could revolutionize car assembly and the concept for our company’s flagship EV called the “SOLO” was born. With the help of long time automotive expert and friend, Henry Reisner, President of Intermeccanica International Inc. (“Intermeccanica”), and Intermeccanica’s vast experience in automotive craftsmanship, our company’s first prototype was finished in January 2015. To solidify our presence and branding in the EV market, we incorporated in February of 2015 under the name Electrameccanica Vehicles Corp. For the past 10 years, Mr. Kroll has been researching and developing technologies for autonomous drive systems and dynamic induction charging. We have plans for ongoing refinements to performance, style, value and efficiency as drive systems, computerization and materials are developed.

 

We currently have a modern furnished showroom near the downtown core of Vancouver, British Columbia where interested consumers may receive more information on the SOLO, review its specs and technical design, and even test-drive a prototype of the SOLO.

 

As of June 15, 2018, we have received deposits for 863 vehicles (including 746 SOLOs and 117 Tofinos) from individuals. As part of our “Match My Deposit” program, we offer customers who have placed deposits for other electric vehicles a credit of up to $1,000 towards the purchase of a SOLO, which is initially credited towards the buyers’ deposit. 208 of the 863 vehicle deposits that we have received through June 15, 2018 result from the “Match My Deposit” program. Additionally, we have entered into non-binding letters of interest for approximately 61,902 corporate orders (21,988 SOLOs and 39,914 Tofinos) for which we have letters of credit for $273 million for SOLOs and $618 million for Tofinos. We cannot assure you that these non-binding orders with refundable deposits will result in actual sales.

 

We have been funding operations to date through equity financings by our founders and through private placements of $25,165,436 from investors. Our management maintains a majority control of our company. As our June 15, 2018, our directors and executive officers beneficially owned 72.8% of our outstanding shares, including shares that our executive officers and directors have the right to acquire within the next 60 days pursuant to warrants and stock options which have vested.

 

Corporate Headquarters

 

Our principal executive offices are located at 102 East 1st Avenue, Vancouver, British Columbia, Canada, V5T 1A4. Our phone number is (604) 428-7656.

 

Subsidiaries

 

We have two subsidiaries, Intermeccanica International Inc., a corporation subsisting under the laws of the Province of British Columbia, Canada, and EMV Automotive USA Inc., a Nevada corporation.

 

BUSINESS OVERVIEW

 

General

 

We are a development-stage EV company focusing on the market demand for EVs that are efficient, cost-effective and environmentally friendly methods for urban residents to commute. We believe that our flagship EV called the SOLO is the answer to such market demand. In addition, we have two other EV candidates in an advanced stage of development, the Super SOLO and the Tofino.

 

  19  

 

 

SOLO

 

 

We created the SOLO’s first prototype in January of 2015. Since the completion of the prototype, our engineers and designers have devoted efforts to provide the SOLO with an appealing design, and have engaged in proprietary research and development leading to a high performance electric rear drive motor.

 

 

 

The SOLO features a lightweight aerospace composite chassis to allow for a top speed of 130km/h, an attainable cruise speed of 110km/h and is able to go from 0 km/h to 100 km/h in approximately eight seconds. Our SOLO features a lithium ion battery system that requires only three hours of charging time on a 220-volt charging station or six hours from a 110-volt outlet. The lithium battery system utilizes approximately 8.64 kW/h for up to 160 km in range. We also offer a comprehensive warranty package for two years of unlimited mileage which is included in the price of the SOLO. Standard equipment in the SOLO includes, but is not limited to the following:

 

  LCD Digital Instrument Cluster;
     
  Power Windows;
     
  AM/FM stereo with Bluetooth/ CD/USB;
     
  Remote keyless entry system;
     
  Rear view backup camera; and
     
  Heater and defogger.

 

Optional equipment will include air conditioning at an additional cost.

 

  20  

 

 

The purchase price for our SOLO is $19,888 (approximately US$15,888).

 

Our production department has completed production of 29 SOLOs as of June 27, 2018. Producing the pre-mass production SOLOs allows us to determine and assess the entire production process. Currently, we have increased our production space, organized a production line, ordered components and are in the process of fine tuning the production process through the pre-mass production SOLOs. We have entered into a manufacturing agreement with Zongshen and expect to begin mass production of the SOLO in the third quarter of 2018. We anticipate our production costs to be $15,000 per SOLO, providing a gross margin of 25% based on a sale price of $19,888.

 

Super Solo

 

 

We also plan on launching the Super SOLO, which is a sports car model within our EV product line. The Super SOLO is intended to boast a longer range and a higher top speed, sleek, aerodynamic design and features that will rival existing super sports cars such as the Ferrari 488 and Lamborghini Gallardo.

 

Refundable deposits have been accepted for the planned Super SOLO and such deposits are able to be returned at any time. Mechanical development on the Super SOLO has begun and progress will determine when this and any other variants can be launched. No set date has been declared at this time. The Super SOLO is intended to be a high-performance version of the SOLO.

 

  21  

 

 

The Tofino

 

 

We announced on March 28, 2017, at the Vancouver International Auto Show that we intend to build the Tofino, an all-electric, two-seater roadster representing an evolution of the Intermeccanica Roadster. We are designing the Tofino to be equipped with a high-performance, all-electric motor with a top speed of 200 kph (125 mph) and a 0-100 kph (0-60 mph) in less than seven seconds. The chassis and body are expected to be made of a lightweight aerospace-grade composite with the car expected to be capable of up to 400 km (250 miles) of range on a full charge. We are accepting a refundable deposit of $1,000 to reserve the Tofino.

 

Future EV candidates

 

We have identified other vehicles that we would like to add to our candidate list such as the “Cargo” and the “Twinn”, although no timeline has been set for their development and production. We have plans in the future to release the “Cargo,” a larger vehicle than the SOLO that is designed for use as a fleet vehicle with ample storage space which would be best suited for delivery companies such as FedEx, the United States Postal Service and Canada Post. We expect that the Cargo will offer the appropriate compartment space for fleet vehicle uses such as delivery, while offering long range capability and cleaner technology. We envision the Twinn featuring two seats, suitable for urban families, young commuters, empty nesters, and environmentally-conscious consumers.

 

 

Sources and Availability of Raw Materials

 

We continue to source duplicate suppliers for all of our components, and in particular, we are currently sourcing our lithium batteries from Panasonic, Samsung and LT Chem. Lithium is subject to commodity price volatility which is not under our control and could have a significant impact on the price of lithium batteries.

 

At present, we are subject to the supply of our chassis from one supplier for the production of the SOLO, the Super SOLO and the Tofino. We are exploring additional suppliers of the chassis to mitigate the risk of depending on only one supplier.

 

  22  

 

 

Patents and Licenses

 

We have filed patents on items that our legal counsel deem necessary to protect our products. We do not rely on any licenses from third-party vendors at this time.

 

Our success depends, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of patent and design applications, trade secrets, including know-how, employee and third party non-disclosure agreements, copyright laws, trademarks and other contractual rights to establish and protect our proprietary rights in our technology. As at June 15, 2018, we had one issued design registration, two allowed design application and six pending patent and design applications with various countries which we consider core to our business in a broad range of areas related to the design of the SOLO and its powertrain. We intend to continue to file additional patent applications with respect to our technology. We do not know whether any of our pending patent applications will result in the issuance of patents or whether the examination process will require us to narrow our claims. Even if granted, these pending patent applications might not provide us with adequate protection.

 

Trademarks

 

We operate under the trademark “ELECTRA MECCANICA SOLO”, which is registered under applicable intellectual property laws. We have also registered the trademark for the name “Tofino” in Japan and applied to register the trademark in Canada, the United States, the European Union and China. This prospectus contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent possible under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

Industry Overview

 

Investment in clean technology has been trending upwards for several years as nations, governments, and societies overall become more aware of the damaging effects that pollution and greenhouse gas emissions have on the environment. In an attempt to prevent and/or slow-down these damaging effects and create a more sustainable environment, consumers have taken to exploring and purchasing clean technology while nations and government agencies have undertaken programs to reduce greenhouse gas emissions, contribute funding into research and development in clean technology, and offer incentives/rebates for clean technology investments by businesses and consumers. EVs are a growing segment of this clean technology movement.

 

Electric vehicle (“EV”) is a broad term for vehicles that do not solely operate on gas or diesel. Within this alternative vehicle group, there are sub-categories of alternative vehicles that utilize different innovative technologies such as: (i) battery electric vehicles (“BEV”); (ii) fuel-cell electric vehicles (“FCV”); or (iii) plug-in hybrid electric vehicles (“PHEV”).

 

BEVs draw on power from battery management systems to power electric motors instead of from an internal combustion engine, a fuel cell, or a fuel tank. The Nissan Leaf, Tesla Model S, and our vehicles are BEVs.

 

FCVs typically utilize a hydrogen fuel cell that, along with oxygen from the air, converts chemical energy into electricity which powers the vehicle’s motor. Emissions from a FCV are water and heat, hence making FCVs true zero-emission vehicles. The Honda Clarity, Hyundai Tucson and Toyota Mirai are FCVs.

 

PHEVs are the hybrid vehicles that have both an electric motor and an internal combustion engine. A PHEV can alternate between using electricity while in its all-electric range and relying on its gas-powered engine. The Chevrolet Volt and the Toyota Prius are examples of PHEVs.

 

The popularity of EVs have also been met with difficulties in charging convenience. There are far more gas stations available than public EV charging stations. The convenience and availability of public EV charging stations may prove to be an obstacle of mass adoption of EVs.

 

  23  

 

 

Consumers may be afraid that their EVs may run out of charge while they are out on the road and this fear is recognized by the public and has been popularized with the term “range anxiety”. Despite this fear, the distance travelled by most urban commuters is a lot lower than the typical range of an EV. Data from Statistics Canada’s National Household Survey in 2011 reported the average Canadian takes 25 minutes to commute to work.

 

There currently exists different categories of charging stations depending on the voltage they provide. EV owners can often charge at home on a regular 110-volt outlet which may take between 10 hours to 20 hours depending on the model and make of the EV. This type of outlet and charging is termed level 1 charging. Level 2 charging means the voltage at the charging station is typically around 240 volts and this type of outlet is usually available at public charging stations, shopping malls and big box retailer parking lots, and even located in certain residential hi-rises. Charging at a level 2 station typically cuts down the level 1 charge time in half and may require a small fee for the service which may vary depending on the provider and the location. The following table shows approximate charge information of Level 1 and Level 2 charging stations:

 

    Level 1 Charging   Level 2 Charging
Electric and Power Specifications   120 Volt, 20 Amp circuit
1.4 kW
  208 – 240 Volt, 40 Amp circuit*
6.2 – 7.6 kW**
         
Time to Fully Charge an EV with a 100-mile Battery   17 – 25 hours   4 – 5 hours
         
Drivers Served per Station per Day   1   3 – 4 or more

 

Global EV Market

 

EVs have been around for over one hundred years but have only recently gained widespread adoption and public interest due to open discussions of greenhouse gas emission levels, government and international policies on climate change and pollution, increased literature on EVs, fluctuating fuel costs and improved battery management systems and EV range. In addition, the market for electric vehicles has experienced significant growth in recent years due to consumer demand for vehicles that achieve greater fuel efficiency and lower environmental emissions without sacrificing performance.

 

Traditional automotive manufacturers have entered into the EV market to capitalize on its growth. The majority of growth in the EV market has been led by the following EV models: the Nissan Leaf, the Chevrolet Volt (PHEV), the Toyota Prius (PHEV), the Tesla Model S and the Mitsubishi Outlander (PHEV). Four of the five models above are made by traditional automotive manufacturers, and the fifth is made by Tesla Motors, one of several manufacturers that are solely devoted to the manufacturing of EVs.

 

  24  

 

 

The global stock of EVs has increased significantly over the past few years. According to the International Energy Agency (the “IEA”), the global stock of electric cars first crossed the one million vehicle threshold in 2015 and then crossed the two million vehicle threshold in 2016.

 

 

  25  

 

 

Likewise, the IEA has reported that the global stock of BEVs, the type of vehicles we mass producing, increased on a worldwide basis from about 746,000 in 2015 to approximately 1,209,000 in 2016, an increase of approximately 62.1%.

 

 

 

 

 

 

 

 

 

  26  

 

 

We anticipate that the trend of increasing EV sales will continue in the near future. The IEA believes that there is a good possibility that the global electric car stock will range between 9 million and 20 million by 2020 and between 40 million and 70 million by 2025.

 

 

  27  

 

 

North American EV Market

 

We anticipate that our primary target market shall initially be North America, with a focus on the West Coast. Sales of EVs in North America have mirrored the global increase in sales of EVs. According to the IEA, the sale of BEVs in the United States increased by 22% between 2015 and 2016 and by 19% in Canada during the same period.

 

According to data compiled by EVAdoption.com, in 2016, sales of EVs in six U.S. states and the District of Columbia comprised 1% or more of total auto sales in that jurisdiction. At 3.66% for the year, California had nearly double the next highest EV purchase rate in any U.S. state.

 

Further according to data compiled by EVAdoption.com, California consumers purchased 12% of autos in the United States, but bought more than 50% of all EVs in the United States. In essence, Californians are buying at four times the national rate while Oregon and Washington buy at a bit more than two times the national rate. The amount BEVs sold in California as a percentage of all EVs sold there has steadily increased from 1.3% in 2013 to 2.7% in the first quarter of 2017.

 

  28  

 

 

The following table sets out data on PHEV and BEV sales in the United States in 2016 as broken out for select states.

 

PHEV and BEV Sales January – December, 2016 US by State
State   EV Sales #     EV Sales
% of US
    Sales %
W/O
Calif.
    EVs % of
State Sales
    % of New US
Car Regist.
    Relative to
Actual Sales
 
California     73,854       50.7 %     N/A       3.66 %     12 %     422.79 %
Oregon     3,486       2.4 %     4.9 %     1.93 %     1.1 %     217.70 %
Washington     5,363       3.7 %     7.5 %     1.81 %     1.70 %     216.71 %
Hawaii     1,224       0.8 %     1.7 %     1.39 %     0.50 %     168.17 %
Vermont     514       0.4 %     0.7 %     1.32 %     0.20 %     176.55 %
District of Columbia     405       0.3 %     0.6 %     1.05 %     N/A       N/A  
Colorado     2,711       1.9 %     3.8 %     1.00 %     1.60 %     116.40 %
Connecticut     1,511       1.0 %     2.1 %     0.85 %     1.00 %     103.80 %
Massachusetts     2,905       2.0 %     4.1 %     0.80 %     2.10 %     95.03 %
New Jersey     3,980       2.7 %     5.5 %     0.67 %     3.50 %     78.12 %
New York     6,043       4.2 %     8.4 %     0.58 %     6.00 %     69.19 %
Florida     6,255       4.3 %     8.7 %     0.47 %     7.80 %     55.09 %
Georgia     2,435       1.7 %     3.4 %     0.47 %     3.00 %     55.76 %
Illinois     2,688       1.8 %     3.7 %     0.41 %     3.90 %     47.35 %
Michigan     2,482       1.7 %     3.5 %     0.41 %     3.70 %     46.08 %
Texas     4,510       3.1 %     6.3 %     0.29 %     8.90 %     34.81 %
All Other States     25,204       17.3 %     35.1 %                        
All States     145,570       100.0 %     71,716                          
Data Sources: Alliance of Automobile Manufacturers; National Automobile Dealers Association; Chart: EVAdoption.com

 

Commuter market

 

We designed the SOLO with a view to attracting commuters who use a personal vehicle by cutting their commuting costs and reducing their environmental footprint. We believe that a substantial number of commuters will find the capacity of our EVs attractive in comparison to cars designed to carry more people, including the approximately 83% of Canadians who commute daily to and from work using personal vehicles. As cars designed to carry between four and eight people generally weigh substantially more than those that carry one or two people, they require more fuel or energy to operate. This significant mismatch between capacity and utilization leads to a significant excess of traffic and pollution and higher operating costs.

 

Although consumers may be afraid that their EVs may run out of charge while they are out on the road, the average U.S. commute was only 26.4 minutes in 2015. The 100 mile range of our SOLO on a full charge would more than cover such a round-trip commute.

 

Government Support

 

There has been a growing trend for governments as a matter of public policy to favor EVs. This has taken the form of initiatives aimed at improving transit, financial incentives for the purchase of EVs and financial incentives for the manufacture of EVs.

 

Initiatives to Improve Transit

 

Many localities try to reduce or regulate traffic, particularly in places where there is high population density, chronic congestion, narrow roads and limited urban space. While these initiatives might be onerous to owners of traditional internal combustion engine vehicles, they often exempt or partially exclude EVs. These initiatives include various forms of congestion charging (which often exempt or provide discounts for EVs), priority lanes for high-occupancy vehicles and EVs, restrictions on new registrations of vehicles (excluding EVs) and subsidies for the installation of public charging stations for EVs.

 

  29  

 

 

 

Going further than restrictions on cars fueled by petrol or diesel, several European countries and cities are formulating programs that would actually ban them. Norway’s Minister for the Environment expects to implement a ban on the sale of cars that are not EVs by 2025. President Macron of France has vowed to eliminate the sale of cars with internal combustion engines in France by 2040, and city hall in Paris has called for a ban all cars with traditional combustion engines from its streets by 2030. In the United Kingdom, the government has announced a strategy that calls for sales of new gas and diesel cars and vans to end by 2040.

 

Purchaser Incentives

 

To promote the purchase of EVs, many state and local governments offer financial incentives to purchasers. These incentives can take the form of rebates, tax credits or the elimination or reduction of sales tax. Financial incentives available in selected North American jurisdictions for the purchase of EVs are set out in the following table:

 

    U.S. Federal     California     New York     British
Columbia
    Ontario     Quebec  
Tax credit   US$ 7,500       -       -       -       -       -  
Rebate     -     US$ 2,500     US$ 2,000     $ 5,000     $ 14,000     $ 8,000  

 

Although these financial incentives may not continue at this level or at all, we believe that our EVs would currently qualify for these tax credits and rebates.

 

Several jurisdictions offer similar financial incentives for the purchase and installation of home charging stations for EVs.

 

Manufacturing Incentives

 

To promote the manufacture and development of EVs, many federal, state and local governments provide financial incentives to EV companies. These incentives can take the form of tax credits or grants. In 2017, we received $193,534 in government grants related to Canada’s Industrial Research Assistance Program administered by the National Research Council and $111,380 in a Scientific Research and Experimental Development grant. We will continue to apply for grants where we believe warranted.

 

Competitive Advantages & Operational Strengths

 

The EV market is evolving and companies within it must be able to adapt without jeopardizing the timing, quality or quantity of their products. Other manufacturers have entered the electric vehicle market and we expect additional competitors to enter this market within the next several years. As they do, we expect that we will experience significant competition. With respect to the SOLO, we also face strong competition from established automobile manufacturers, including manufacturers of EVs such as the Tesla Model S, the Chevrolet Volt and the Nissan Leaf.

 

We believe the primary competitive factors in our market include but are not limited to:

 

  technological innovation;
     
  product quality and safety;
     
  service options;
     
  product performance;
     
  design and styling;
     
  brand perception;
     
  product price; and

 

  30  

 

 

  manufacturing efficiency.

 

Most of our current and potential competitors have significantly greater financial, technical, manufacturing, marketing and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. Virtually all of our competitors have more extensive customer bases and broader customer and industry relationships than we do. In addition, almost all of these companies have longer operating histories and greater name recognition than we do. Our competitors may be in a stronger position to respond quickly to new technologies and may be able to design, develop, market and sell their products more effectively.

 

Furthermore, certain large manufacturers offer financing and leasing options on their vehicles and also have the ability to market vehicles at a substantial discount, provided that the vehicles are financed through their affiliated financing company. We do not currently offer any form of direct financing on our vehicles. The lack of our direct financing options and the absence of customary vehicle discounts could put us at a competitive disadvantage.

 

We expect competition in our industry to intensify in the future in light of increased demand for alternative fuel vehicles, continuing globalization and consolidation in the worldwide automotive industry. Our ability to successfully compete in our industry will be fundamental to our future success in the EV market and our market share. We might not be able to compete successfully in our market. If our competitors introduce new cars or services that compete with or surpass the quality, price or performance of our vehicles or services, we may be unable to satisfy existing customers or attract new customers at the prices and levels that would allow us to generate attractive rates of return on our investment. Increased competition could result in price reductions and revenue shortfalls, loss of customers and loss of market share, which could harm our business, prospects, financial condition and operating results.

 

We believe that our experience, production capability, product offering and management give us the ability to successfully operate in the EV market in a way that our competitors cannot. In particular, we believe that we have a number of competitive advantages:

 

· extensive in-house development capabilities : Our recent acquisition of Intermeccanica International Inc. (“IMI”) enables us to leverage IMI’s extensive 59 years of experience in vehicle design, manufacture, sales and customer support. IMI’s former owner is our Chief Operating Officer and one of our directors and, together with his family, is the second largest shareholder in our company. We have integrated IMI’s staff with the research and development team that we had prior to the acquisition to develop and enhance current and future model offerings;

 

· in-house production capabilities : We have the ability to manufacture our own products on a non-commercial scale. To date, we have produced 29 SOLOs at our facilities in Vancouver, British Columbia. We will continue to produce two to four SOLOs per month as needed and to develop prototypes of our other EVs;

 

· commercial production of the SOLO anticipated to commence in the third quarter of 2018 : We have an agreement with Zongshen whereby they have agreed to produce 5,000 SOLOs in the first twelve months after the start of production, 20,000 cars in the next twelve months and 50,000 cars in the twelve months after that; and

 

  31  

 

 

· unique product offering: Although the proposed retail price of the SOLO, $19,888 (US$15,888), is far below that of what we deem to be our principal competitors, we believe that the SOLO compares favorably as set out in the table below:

 

 
  ElectraMeccanica
SOLO
Smart Electric Tesla Model 3 Chevrolet Volt Nissan Leaf
Price US$15,888 US$28,750 Up to US$56,500 US$33,220+ US$29,990
Electric only miles Up to 100 miles Up to 76 miles Up to 310 miles Up to 53 miles Up to 150 miles
Price per Mile US$155/mile US$378/mile US$182/mile US$627/mile US$199/mile
Top Speed 85/mph 83/mph 130/mph 100/mph 93/mph
Full charge Time 3 hours on a 240 volt outlet 6 hours on a 240 volt outlet 13.85 hours on a 240 volt outlet 4.5 hours on a 240 volt outlet 4 hours on a 7kW charging point
Vehicle Class Micro  Sub-compact Compact Compact Compact

 

· management expertise : We have selected our management with an eye towards providing us with the business and technical expertise needed to be successful. Our Chief Executive Officer, Jerry Kroll, and our President and Chief Operating Officer, Henry Reisner, used their love of automobiles to devise the concept for the SOLO. Mr. Kroll has an extensive background working in small businesses and start-ups. We have supplemented their expertise by adding officers and directors with corporate, accounting, legal and other strengths.

 

Strategy

 

Our near-term goal is to commence and expand sales of the SOLO while continuing to develop our other EVs. We intend to achieve this goal by:

 

beginning commercial production of the SOLO: We anticipate that Zongshen will begin producing the SOLO in the third quarter of 2018 and that we will complete our first sale shortly thereafter. Zongshen is contracted to make 75,000 SOLOs in the first three years of production;

 

increasing orders for our EVs: As of June 15, 2018, we have received deposits for 863 vehicles (including 746 SOLOs and 117 Tofinos) from individuals. As part of our "Match My Deposit" program, we offer customers who have placed deposits for other electric vehicles a credit of up to $1,000 towards the purchase of a SOLO, which is initially credited towards the buyers' deposit. 208 of the 863 vehicle deposits that we have received through June 15, 2018 result from the "Match My Deposit" program. Additionally, we have entered into non-binding letters of interest for approximately 61,902 corporate orders (21,988 SOLOs and 39,914 Tofinos) for which we have letters of credit for $273 million for SOLOs and $618 million for Tofinos. We cannot guarantee that a significant number of these orders, if any, will become binding or result in sales. We have achieved this order book through online “direct sales to customers and corporate sales” platform as well as a store and show room at our headquarters in Vancouver. We plan on expanding this model and will be opening similar stores in key urban areas. We are currently negotiating our first U.S. corporate store located in Los Angeles;

 

having sales and services supported by local corporate dealerships: We will monitor all cars in real time via telematics which provides early warning of potential maintenance issues; and

 

expanding our product offering: In parallel with the production and sale of the SOLO, we aim to continue the development of our other proposed products, including the Tofino, a two seater sports car in the expected price range of $50,000 to $60,000 with an estimated production date of late 2019, the Cargo, a fleet vehicle with ample storage space with an estimated production date of 2020 and the eRoadster, a two seat sportscar for which we have an existing prototype.

 

  32  

 

 

Our showroom in Vancouver, British Columbia

 

Manufacturing Plan

 

As of June 15, 2018, we have built 29 pre-mass production SOLOs. We have used some of these vehicles as prototypes, have delivered six to customers upon payment of the purchase price and have used others as test drive models in our showroom. At our facilities located in British Colombia, we can manufacture approximately two to four vehicles per month. Our ability to build EVs at our own facilities has been enhanced by our recent acquisition of Intermeccanica which has over 50 years of custom car manufacturing expertise. Intermeccanica commenced operations during 1959 in Turin, Italy selling speed equipment kits. This led to the production of a Formula Junior racer and eventually to the first unique bodied, hand assembled road car called the InterMeccanica Puch or IMP (21). The car competed at the Nurburgring, a 13.75 mile race circuit in Germany, where it won its 500 cc class. The success of the IMP led Intermeccanica to build the Apollo (101), Griffith (14), Italia (500) and Indra (125) during the period 1959 to 1975. Thereafter, Intermeccanica moved to North America where it started to construct the Porsche 356 Speedster replica and later Intermeccanica moved to Vancouver, Canada, where it developed the tooling to produce the Roadster RS based on the 1959 Porsche 356 D, Intermeccanica incorporated its own tubular chassis in 1986 and offered various powertrains from the original VW air-cooled engine to a six-cylinder engine from a Porsche 911. Intermeccanica, throughout its operating history, has built approximately 2,500 vehicles.

 

To enable us to mass produce our EVs, we have entered into a manufacturing agreement with Zongshen located in Chongqing, China. Under the agreement, Zongshen has begun the process of establishing tooling and has contracted to produce 75,000 SOLO vehicles. Zongshen is the wholly-owned subsidiary of Zongshen Industrial Group Co. Ltd., an affiliate of Zongshen Power Machinery Co., Ltd., which is a large-scale scientific and technical enterprise capable of researching, developing, manufacturing and selling a diverse range of motorcycles and motorcycle engines in China. Its products include over 130 models of two-wheeled motorcycles, electric motorcycles, three-wheeled motorcycles, cross-country vehicles and ATVs with motors ranging from 35CC to 500CC. Zongshen Power has been an industry leader for many successive years with a stated production of over four million motorcycle engines annually. Zongshen has purchased $1,017,532 of our common shares and warrants to purchase common shares from us and beneficially owns approximately 10.8% of our common shares. If we complete this offering, we expect to begin placing orders with Zongshen in the third quarter of 2018 and to begin sales of SOLOs in the fourth quarter of 2018. We anticipate that Zongshen will produce up to 5,000 of our cars in the first full year of production, 20,000 of our cars in the second full year of production and 50,000 of our cars in the third full year of production.

 

  33  

 

 

Marketing Plan

 

We recognize that marketing efforts must be focused on customer education and establishing brand presence and visibility which is expected to allow our vehicles to gain traction and subsequently gain increases in orders. Marketing and promotional efforts must emphasize the SOLO’s image as an efficient, clean, and affordable EV for the masses to commute on a daily basis. If we can successfully promote the SOLO on these points, we expect growth in sales and customer base to occur rapidly.

 

A key point to the marketing plan is to target metropolitan cities with high population density, expensive real estate, high commuter traffic load, and pollution levels which are becoming an enormous concern. Accordingly, our management has identified cities in Canada and the United States that fit the aforementioned criteria and have plans to seek out suitable locations in the following cities for additional showrooms in the third quarters of 2018: Toronto; Seattle; Los Angeles; San Francisco; and Manhattan.

 

Key aspects of our marketing plan are highlighted below. We plan to develop a marketing strategy that will generate interest and media buzz based on the SOLO’s selling points.

 

  Organic engagement on social media with engaging posts aimed to educate the public about EVs and develop interest in our SOLO, which to date has had positive traction.
     
  Earned media – we have already received press coverage from several traditional media sources and expect these features and news stories to continue as we embark on our commercial launch.
     
  Investor Relations/ Press Releases – our in-house investor relations team will provide media releases/kits for updates and news on our progress.
     
  Industry shows and events – we displayed the SOLO at the Vancouver International Autoshow in March 2017, the Consumer Electronics Show in Las Vegas in January 2018 and the Vancouver International Autoshow in March 2018. Promotional merchandise giveaways will enhance and further solidify our branding in consumer minds. Computer stations and payment processing software will be readily on hand at to accept SOLO reservations.
     
  First-hand experience - Test-drives and public viewings are available at our existing showroom in the Vancouver downtown core.

 

We anticipate that our marketing strategy and tactics will evolve over time as our SOLO gains momentum and we identify appropriate channels and media that align with our long-term objectives. In all of our efforts, we plan to focus on the features that differentiate our SOLO from the existing EVs on the market.

 

Reservation System

 

We have an online reservation system which allows a potential customer to reserve a SOLO by paying a refundable $250 deposit, a Super SOLO by paying a refundable $1,000 deposit and a Tofino by paying a refundable $1,000 deposit. Once reserved, the potential customer is allocated a reservation number and the reservation will be fulfilled as the respective vehicles are produced. As of June 15, 2018, we have received deposits for 746 SOLOs, and 117 Tofinos. In addition, we have received non-binding letters of intent for 61,902 vehicles from corporate entities that are not required to make a deposit.

 

We will earn revenue once a vehicle has been delivered to the customer who has pre-ordered their vehicle. Each order is placed in line as received and fulfilled once the vehicle becomes available. The customer may, at any time, for any reason, cancel their order and have their deposit returned. We do not consider any order as being secured until the vehicle has been delivered and full receipt of the remaining balance of the vehicle purchase price has been received.

 

Sales and Service Model

 

Sales Model

 

We sell our vehicles online via our website (www.electrameccanica.com), while we develop our planned corporate owned dealerships in key markets and franchise dealer network in other market areas. As each franchise dealer is established, any vehicles sold within such dealers designated territory will be delivered to such dealer to fulfill online orders as well as such franchise dealer’s orders.

 

  34  

 

 

We are unable to identify where we hope to establish franchise dealers as opposed to corporate owned dealerships. The establishment of franchise dealers will depend on regional demand, available candidates and local regulations. We are currently accepting expressions of interest and applications for franchised dealerships from individuals, and do not have any franchise or dealer agreements. Our vehicles will initially be available directly from Electrameccanica.

 

We plan to only establish and operate corporate owned dealerships in those states in the U.S. that do not restrict or prohibit certain retail sales models by vehicle manufacturers. In all other instances, we plan to establish franchise dealerships to comply with local regulations.

 

Service Model

 

We plan to have our vehicles serviced through our corporate and franchised dealerships.

 

Government Regulation

 

As a vehicle manufacturer established in Canada, we are required to ensure that all vehicle production meets applicable safety and environmental standards. Issuance of the National Safety Mark (the “NSM”) by the Minister of Transport for Canada will be our authorization to manufacture vehicles in Canada. Receipt of the NSM is contingent on us demonstrating that our vehicles are designed and manufactured to meet or exceed the applicable sections of the Canadian Motor Vehicle Safety Act (C.R.C. Chapter 1038) and that appropriate records are maintained. Unique to Canada, the SOLO and the Super SOLO are under the three-wheeled vehicle category and are subject to the safety standards listed in Schedule III of the Canadian Motor Vehicle Safety Regulations (“CMVSR”), which can be found at ( http://laws-lois.justice.gc.ca/eng/regulations/C.R.C.,_c._1038/section-sched3.html ). For sale into the United States, we and our vehicles must meet the applicable parts of the U.S. Code of Federal Regulations (“CFR”) Title 49 - Transportation. This includes providing Manufacture Identification information (49 CFR Part 566), VIN-deciphering information (49 CFR Part 565), and certifying that our vehicles meet or exceeds the applicable sections of the Federal Motor Vehicle Safety Standards (40 CFR Part 571) and Environmental Protection Agency noise emission standards (40 CFR 205). Since the U.S. regulations do not have a specific class for three-wheeled ‘autocycles’, the SOLO and the Super SOLO fall under the definition of a motorcycle pursuant to Sec. 571.3 of 49 CFR Part 571.

 

We obtained U.S. compliance certification for the SOLO in the first quarter of 2018 at a testing facility in Quebec, Canada. Compliance certification of the SOLO for Canada began in 2018, and we estimate, depending on the weather and results, that it will be complete in late 2018 or early 2019.

 

Within the three wheel vehicle classification in Canada, CMVSR Standard 305 sets out the regulation for prevention of injury to the occupant during and after a crash as related to the vehicle’s batteries. Under this standard, the security and integrity of electric drive system components and their isolation from the occupant are evaluated in the course of a frontal barrier crash test in accordance with Technical Standard Document No. 305. There is no such regulation applicable to the motorcycle category under the U.S. regulations.

 

Although the SOLO and the Super SOLO fall under the definition of a motorcycle under U.S. regulations, a motorcycle license is not required to drive them in all but Arkansas, New York, Maine and Massachusetts where motorcycle helmets must be worn while operating.

 

Research and Development

 

We have allocated substantial resources in developing our first vehicles. We expended $4,430,386 during the fiscal year ended December 31, 2017, $2,778,295 during the fiscal year ended December 31, 2016 and $1,560,177 during the three months ended March 31, 2018 on research and development costs which include labor and materials.

 

Employees

 

As of June 15, 2018, we employed a total of 51 full-time and seven part-time people at our principal executive offices in Vancouver, British Columbia. None of our employees are covered by a collective bargaining agreement.

 

  35  

 

 

The breakdown of full-time employees by main category of activity is as follows:

 

Activity   Number of
Full-Time Employees  
Engineering/R&D   36 
Sales & Marketing  
General & Administration  
Executives  

 

Property, Plants and Equipment

 

Our principal office is located at 102 East 1st Avenue, Vancouver, British Columbia, Canada, V5T 1A4. On July 25, 2015, we together with Intermeccanica as tenants entered into a light industrial lease agreement with Cressey (Quebec Street) Development LLP (the “Landlord”) for the premises located at 102 East 1st Avenue, Vancouver, British Columbia. The lease agreement is for a term of five years which commenced on November 1, 2015, with a monthly minimum rent of $3,918.86 plus additional rent, which includes operating costs, property taxes, utilities and a management fee of 4% of the minimum rent for the particular lease year. The leased premises is 7,235 sq. ft. in size and we are not allowed to assign the lease or grant a sublease of the whole or any part of the leased premises without the written consent of the Landlord.

 

Currently, our development and manufacturing facility is located at 47 Braid Street, New Westminster, British Columbia, Canada and is capable of producing four to ten SOLOs per month. Our existing production facilities are being used to build SOLOs and for the development of the Super SOLO, and they are adequate for production of the low volume required for the Super SOLO. We together with Intermeccanica as tenants entered into a lease agreement with Astron Realty Group Inc. for Unit 47, which commenced on August 1, 2016 and expires on July 31, 2020. Unit 47 is approximately 7,270 sq. ft. and the minimum rent per month is $3,938 until July 31, 2017 and $4,089 from August 1, 2017 to July 31, 2020, and we are responsible for all associated lease costs such as strata fees, property taxes, utility fees and other charges associated with the occupancy of such premises.

 

We are considering building a production facility. Our management has met with several groups to discuss the possibility of a production facility located in Canada and internationally. Ideally, the new production facility will be 50,000 to 200,000 square feet, which will support production of 25,000 to 50,000 SOLOs per year. We have also consulted an automotive process design company, which will form a suitable manufacturing flow production process and facility layout for our anticipated 10 production lines that will maximize labor and equipment usage and minimize manufacturing and assembly time. Our management estimates the full assembly of a SOLO in such a new production facility will take approximately four hours. An example of the layout of the new production facility is presented below. We estimate that the cost of the machinery to equip a new production facility will range from $10 million to $15 million for the assembly of vehicles. Experts in the field of designing and equipping a manufacturing facility presented to us that a facility of 50,000 to 200,000 square feet will be able to produce between 25,000 to 50,000 vehicles per year. The level of automation will determine if the equipment cost will be on the lower-end of the range ($10 million) for a semi-automated facility, to the upper-end of the range ($15 million) for a fully automated facility. While it is difficult to forecast any sales, we believe that there are enough expressions of interest to utilize the production capabilities of the above mentioned facility. A commitment to such a facility will only occur after initial deliveries occur and we can establish a clear market demand for the SOLO.

 

  36  

 

 

 

Intermeccanica Business

 

In October 2017, we acquired Intermeccanica. In addition to the manufacturing and design experience that the acquisition provided us, we acquired a business of custom car manufacturing. Intermeccanica, throughout its operating history, has built approximately 2,500 vehicles, and in the year ended December 31, 2017, Intermeccanica sold eight vehicles. We intend to continue the legacy business of Intermeccanica, but we do not envision that it will be central to our operations, represent a material portion of our revenue if we develop our business as planned or account for a material portion of our expenses.

 

Legal Proceedings

 

We are not involved in, or aware of, any legal or administrative proceedings contemplated or threatened by any governmental authority or any other party. As of the date of this prospectus, no director, officer or affiliate is a party adverse to us in any legal proceeding, or has an adverse interest to us in any legal proceeding.

 

EXEMPTIONS UNDER THE JUMPSTART OUR BUSINESS STARTUPS ACT

 

The United States Congress passed the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), which provides for certain exemptions from various reporting requirements applicable to reporting companies under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that qualify as “emerging growth companies.” We are an “emerging growth company” as defined in section 3(a) of the Exchange Act (as amended by the JOBS Act, enacted on April 5, 2012), and we will continue to qualify as an “emerging growth company” until the earliest to occur of: (a) the last day of the fiscal year during which we have total annual gross revenues of US$1,070,000,000 (as such amount is indexed for inflation every five years by the SEC) or more; (b) the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act; (c) the date on which we have, during the previous three-year period, issued more than US$1,000,000,000 in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer”, as defined in Exchange Act Rule 12b–2. Therefore, we expect to continue to be an emerging growth company for the foreseeable future.

 

  37  

 

 

Generally, a registrant that registers any class of its securities under section 12 of the Exchange Act is required to include in the second and all subsequent annual reports filed by it under the Exchange Act, a management report on internal control over financial reporting and, subject to an exemption available to registrants that meet the definition of a “smaller reporting company” in Exchange Act Rule 12b-2, an auditor attestation report on management’s assessment of internal control over financial reporting. However, for so long as we continue to qualify as an emerging growth company, we will be exempt from the requirement to include an auditor attestation report in our annual reports filed under the Exchange Act, even if we do not qualify as a “smaller reporting company”. In addition, section 103(a)(3) of the Sarbanes-Oxley Act of 2002 has been amended by the JOBS Act to provide that, among other things, auditors of an emerging growth company are exempt from the rules of the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the registrant (auditor discussion and analysis).

 

Additionally, we have irrevocably elected to comply with new or revised accounting standards even though we are an emerging growth company. We have made this election to reduce the risk of having to restate our financials once we cease to be an emerging growth company.

 

KEY INFORMATION

 

Selected Historical Consolidated and Pro Forma Financial Data

 

You should read the following selected financial data together with our historical and pro forma financial statements and the notes thereto included elsewhere in this prospectus and with the information set forth in the section titled “Management’s Discussion and Analysis of Financial Conditions and Results of Operations”.

 

Selected Historical Consolidated Financial Data

 

The selected historical consolidated financial information set forth below has been derived from our audited financial statements for the fiscal years ended December 31, 2017 and 2016 and for the period ended December 31, 2015 and from our unaudited financial statements for the three-month period ended March 31, 2018.

 

Consolidated Statement of Comprehensive Loss

 

  For the three
 
          Year ended           months ended  
    Year ended     December 31,     Period ended     March 31,  
    December 31, 2017     2016     December 31, 2015    

2018

   

2017

 
Revenue   $ 109,173       -       -     $ 166,133     $ -  
Gross Profit   $ 45,223       -       -     $ 63,465     $ -  
Net and Comprehensive Loss   $ 11,366,372     $ 8,973,347     $ 995,833     $ 2,403,974     $ 2,189,569  
Loss per Share – Basic and Fully Diluted   $ (0.70 )   $ (0.54 )   $ (0.44 )   $ (0.10 )   $ (0.10 )

 

Consolidated Statements of Financial Position

 

    December 31, 2017     December 31, 2016     December 31, 2015     For the three
months ended
March 31, 2018
 
Cash   $ 8,610,996     $ 3,916,283     $ 106,357     $ 5,861,327  
Current Assets   $ 10,007,684     $ 4,437,152     $ 197,309     $ 7,266,465  
Total Assets   $ 12,661,381     $ 4,787,766     $ 213,118     $ 11,152,939  
Current Liabilities   $ 3,354,675     $ 881,176     $ 346,416     $ 2,143,318  
Total Liabilities   $ 7,010,365     $ 881,176     $ 346,416     $ 5,309,948  
Total Equity (Deficiency)   $ 5,651,016     $ 3,906,590     $ (133,298 )   $ 5,842,991  

 

Selected Pro Forma Financial Data

 

On October 18, 2017, we acquired all of the issued share capital of Intermeccanica pursuant to a Share Purchase Agreement in exchange for payment of an aggregate of $2.5 million. Intermeccanica is a custom car manufacturer with over 50 years of expertise.

 

  38  

 

 

The unaudited pro forma condensed combined financial information gives effect to the acquisition as if it had been completed on January 1, 2017. Our historical consolidated financial information and that of Intermeccanica have been adjusted in the unaudited pro forma condensed combined financial information to give effect to events that are (1) directly attributable to the acquisition, (2) factually supportable, and (3) expected to have a continuing impact on the combined results. The unaudited pro forma adjustments are based upon currently available information and assumptions that we believe to be reasonable. The pro forma adjustments and related assumptions are described in the notes accompanying the unaudited pro forma condensed combined financial information included elsewhere in this prospectus.

 

You should read this unaudited pro forma condensed combined financial information in conjunction with our financial statements and the accompanying notes, the pro forma financial statements, the accompanying notes and the section of this prospectus entitled " Management’s Discussion and Analysis of Financial Condition and Results of Operation ", each of which are included elsewhere in this prospectus.

 

    Year Ended December 31, 2017  
    Intermeccanica     Electrameccanica     Adjustments     Total  
                         
Revenue (1)   $ 1,179,595     $ -     $ (501,461 )   $ 678,134  
Cost of revenue (2)     758,948       -       (385,971 )     372,977  
Gross profit     420,647       -       (115,490 )     305,157  
                                 
Operating expenses (3)     (404,521 )     (9,401,693 )     (115,462 )     (9,690,752 )
                                 
Income/(Loss) before other items     16,126       (9,401,693 )     (28 )     (9,385,595 )
                                 
Other items (5)     11,806       (536,440 )     (1,342,794 )     (1,867,428 )
                                 
Net and comprehensive loss   $ 27,932     $ (9,938,133 )   $ (1,342,766 )   $ (11,253,023 )

 

(1) Revenue adjustment related to the elimination of intercompany revenue for the year ended December 2017 was $501,461

 

(2) Cost of revenue adjustment related to the elimination of intercompany cost of sales for the year ended December 31, 2017 was $385,971.

 

(3) A portion of the operating expense adjustment relates to general and administrative expenses that were adjusted by $95,941 for the elimination of intercompany expenses for the year ended December 31, 2017.

 

(4) A portion of the operating expense adjustment relates to research and development expenses that were adjusted by $19,521 for the elimination of intercompany research and development expenses for the year ended December 31, 2017.

 

(5) The adjustment for other items relates to goodwill. We performed an impairment test of the goodwill. The recoverable amount of the Intermeccanica cash-generating unit was determined to be $1,157,206 based on its fair value less costs to sell. The difference of $1,342,794 has been recorded as an impairment in net loss.

 

Total purchase consideration was $2,500,000. In addition to an initial payment of $100,000 in 2016, an additional $200,000 was paid prior to acquisition. On October 18, 2017 the Company paid $700,000 and entered into a Promissory Note (the “Note”) for the balance of $1,500,000. The Note was paid in full on January 28, 2018.

 

Outstanding Share Data

 

Our authorized share capital consists of an unlimited number of common shares and preferred shares without nominal or par value. As at June 27, 2018, our outstanding equity and convertible securities were as follows:

 

Securities   Outstanding
Voting equity securities issued and outstanding   24,984,489 common shares
Preferred shares   None
Securities convertible or exercisable into voting equity securities – stock options   Vested Stock options to acquire up to 21,367,839 common shares
Securities convertible or exercisable into voting equity securities – warrants   Warrants to acquire up to 12,407,009 common shares

 

Units

 

Each unit being offered in this offering consists of one common share and one warrant to purchase one common share. The units will not be issued or certificated. Instead, the common shares and the warrants underlying the units will be issued separately and may be resold separately, although they will have been purchased together in this offering.

 

Common Shares

 

The holders of our common shares are entitled to vote at all meetings of shareholders, to receive dividends if, as and when declared by the directors and to participate pro rata in any distribution of property or assets upon our liquidation, winding-up or other dissolution. Our common shares carry no pre-emptive rights, conversion or exchange rights, redemption, retraction, repurchase, sinking fund or purchase fund provisions. There are no provisions requiring the holder of our common share to contribute additional capital and no restrictions on the issuance of additional securities by us. There are no restrictions on the repurchase or redemption of common shares by us except to the extent that any such repurchase or redemption would render us insolvent pursuant to the  Business Corporations Act .

 

  39  

 

 

For additional information regarding our common shares, please see the discussion under the heading entitled “Notice of Articles and Articles of Our Company - Rights, Preferences and Restrictions Attaching to Our Shares”.

 

Warrants Included in the Units

 

Each warrant included in the units will entitle the holder to purchase one common share at an exercise price of 125% of the price of the units sold in this offering. The warrants shall be exercisable from the date of issuance, which is the closing date of this offering, and expire on the five year anniversary thereof.

 

No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the warrants. As to any fraction of a share which the holder would otherwise be entitled to purchase upon such exercise, we shall, at our election, either pay a cash adjustment in respect of such fraction (in an amount equal to such fraction multiplied by the exercise price) or round the number of shares to be received by the holder up to the next whole number.

 

Non-cumulative voting

 

Holders of our common shares do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in that event, the holders of the remaining shares will not be able to elect any of our directors.

 

Preferred Shares

 

We do not have any preferred shares outstanding as of the date of this prospectus. However, preferred shares may be issued from time to time in one or more series, each consisting of a number of preferred shares as determined by our Board of Directors, who also may fix the designations, rights, privileges, restrictions and conditions attached to the shares of each series of preferred shares. The preferred shares of each series shall, with respect to payment of dividends and distributions of assets in the event of liquidation, dissolution or winding-up of our company, whether voluntary or involuntary, or any other distribution of our assets among our shareholders for the purpose of winding-up our affairs, rank on a preference over shares of our common shares and the shares of any other class ranking junior to the preferred shares.

 

For additional information regarding our shares of preferred stock, please see the discussion under the heading entitled “Notice of Articles And Articles Of Our Company - Rights, Preferences and Restrictions Attaching to Our Shares”.

 

Stock transfer agent

 

Our stock transfer agent for our securities is Computershare Investor Services Inc. located at 510 Burrard Street, 2nd Floor, Vancouver, British Columbia, Canada V6C 3B9, and its telephone number is (604) 661-9400.

 

Indebtedness as of March 31, 2018:

 

Contractual         Payments due by period   More than 5
Obligations   Total     Less than 1 year     2-3 years     4-5 years  

years

Operating Lease Obligations   $ 741,137 (1)   $ 310,034     $ 431,103     Nil   Nil
Other Long-Term Liabilities Reflected on the Registrant’s Balance Sheet under IFRS     Nil       Nil       Nil     Nil   Nil
Total   $ 741,137     $ 310,034     $ 431,103     Nil   Nil

 

(1) Office and warehouse rent, based on $17,410.68 per month October through December 2016; $18,422.62 per month January through December 2017. Amounts are estimated due to fluctuations in common area maintenance charges.

 

  40  

 

 

Financings

 

During the year ended December 31, 2017, we issued the following shares:

 

Issuance of Shares   Number of Shares Issued     Cash Proceeds  
Private placements     1,910,250     $ 10,842,021  
Finder’s fee     107,005     $ Nil  
Shares issued on conversion of convertible loan     810,057     $ 2,992,810  
Shares issued for services     75,000     $ Nil  
Share issued costs     Nil     $ (1,456,442 )

 

During the year ended December 31, 2017, we issued 1,910,250 common shares for gross proceeds of $12,022,308, with unit or share prices ranging from $0.30 to US$12.00 (CAD $14.94).  Share issue costs related to these issuances were $1,381,442 and includes 107,005 common shares issued for finder’s fees with a fair value of $709,521.  We also received $750,000 as a subscription for 441,177 common shares at a price of $1.70 per share that were issued in the first quarter of 2018.

 

During the year ended December 31, 2017, we issued 75,000 common shares for services with a fair value of $811,308 and warrants to acquire 22,523 common shares for services with a fair value of $274,408.  

 

During the year ended December 31, 2017, upon the conversion of convertible loans with a carrying value of $1,657,846 we issued 810,057 common shares.

 

At December 31, 2017, we had 23,794,105 issued and outstanding common shares (2016 – 20,891,794).

 

During the year ended December 31, 2016, we issued 6,787,600 common shares for gross proceeds of $8,375,519, with unit prices ranging from $0.7268 to $2.00.  As the fair value of certain units issued was less than the recorded value a share-based payment expense of $3,264,681 was recorded.  Share issue costs related to these issuances was $1,604,486 and includes 636,756 common shares issued for finder’s fees with a fair value of $823,512.  We also received $51,500 as subscriptions for 25,750 common shares that were issued in our 2017 fiscal year.

 

During the year ended December 31, 2016, we issued an additional 13,125 common shares for finder’s fees with a fair value of $26,250.  

 

During the year ended December 31, 2016, we issued 62,500 common shares in partial settlement a shareholder loan in the amount of $50,000.

 

During the three months ended March 31, 2018, we issued the following shares;

 

Issuance of Shares   Number of
Shares Issued
    Cash Proceeds  
Private Placements     757,138     $ 3,534,397  
Finder’s Fee     2,286       $ Nil  
Shares issued for exercise of stock options     6,198     $ 12,395  
Share issued costs     Nil     $ (337,787 )

 

Incentive Stock Options

 

During the year ended December 31, 2017, we granted 560,000 stock options with an exercise price of $2.00 per share, which options will expire on February 17, 2023, and d uring the three months ended March 31, 2018, we granted 347,500 additional stock options with an exercise price of US$9.60 per share, which options will expire on January 6, 2025. The following table represents the number of stock options that are outstanding as at March 31, 2018.

 

Date of Grant  

Number of

Options

   

Price Per

Option

    Expiry Date
June 11, 2015     22,500,000     $ 0.30     June 11, 2022
August 13, 2015     1,331,250     $ 0.30     August 13, 2022
December 9, 2015     4,200,000     $ 0.80     December 9, 2022
March 7, 2016     12,500     $ 0.80     March 7, 2023
June 21, 2016     25,000     $ 2.00     June 21, 2023
February 17, 2017     480,000     $ 2.00     February 17, 2023
August 8, 2017     50,000     $ 2.00     August 8, 2023
January 5, 2018     347,500     US$ 9.60     January 6, 2025

 

  41  

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

 

This prospectus should be read in conjunction with the accompanying financial statements and related notes. The discussion and analysis of the financial condition and results of operations are based upon the financial statements, which have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the International Accounting Standards Board (IASB).

 

The preparation of financial statements in conformity with these accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis, we review our estimates and assumptions. The estimates were based on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates or other forward-looking statements under different assumptions or conditions, but we do not believe such differences will materially affect our financial position or results of operations. Our actual results may differ materially as a result of many factors, including those set forth under the headings entitled “ Special Note Regarding Forward-Looking Statements ” and “ Risk Factors ”.

 

Critical accounting policies, the policies we believe are most important to the presentation of our financial statements and require the most difficult, subjective and complex judgments, are outlined below under the heading “ Critical Accounting Policies and Estimates” , and have not changed significantly since our founding.

 

Overview

 

ElectraMeccanica Vehicles Corp. (the “Company”) was incorporated on February 16, 2015, under the laws of the province of British Columbia, Canada, and our principal activity is the development and manufacturing of single occupancy electric vehicles. Our head office and principal address is located at 102 East 1st Avenue, Vancouver, British Columbia, Canada, V5T 1A4.

 

Results of Operations

 

Results of Operations for the Three Months Ended March 31, 2018 as Compared to the Three Months Ended March 31, 2017

 

Revenue for the three months ended March 31, 2018 was $166,133 (2017: $nil), caused by the acquisition of Intermeccanica International Inc. (“IMI”). The cost of revenue was $102,668 providing a gross profit of $63,465 or 38%. Revenue recognition for IMI is based on a percentage completion method, and currently, IMI has eight Roadsters/Speedsters in various stages of production. The following table indicates the number of vehicles produced for either delivery to customers, testing or marketing purposes.

 

Vehicle Type  

Production

Three Months Ended

   

Customer Deliveries

Three Months Ended

 
    March 31, 2018     March 31, 2017     March 31, 2018     March 31, 2017  
Roadster/Speedster     Nil       Nil       Nil       Nil  
SOLO     6       2       Nil       1  

 

During the three months ended March 31, 2018, we incurred a comprehensive loss of $2,403,974 compared to a $2,189,569 comprehensive loss for the corresponding period in 2017. The largest expense items that resulted in a decrease in net comprehensive loss for the three months ended March 31, 2018 were;

 

  42  

 

 

General and administrative expenses for the three months ended March 31, 2018 were $975,217 compared to $482,809 for the three months ended March 31, 2017. The following items are included in office and general expenses;

 

Rent increased to $87,122, for the three months ended March 31, 2018, from $58,285 for the three months ended March 31, 2017. The increase was caused by the acquisition of Intermeccanica International Inc., (“IMI”) and an increase in our production premises as we expanded our production capabilities to produce the SOLO and an increase in our retail presence.

 

Office expenses increased to $236,950, for the three months ended March 31, 2018, from $32,050 for the corresponding quarter ended March 31, 2017. The increase was caused by travel by our staff to China and the United States for strategic alliances and an increases in insurance costs.

 

Legal & Professional were $264,969, for the three months ended March 31, 2018, from $176,852 for the corresponding quarter ended March 31, 2017. The increase in legal and professional expenses relate to the increases in accounting fees and legal fees related to our patent filings.

 

Consulting fees were $143,265, for the three months ended March 31, 2018, compared to $93,344 for the corresponding quarter ended March 31, 2017. The increase in fees related to the use of additional consultants for investor relations and executive advisory services. Consulting fees relate to services provided for accounting, finance and corporate advisory services.

 

Investor relations expenses, not including consultant fees above, increased to $90,058 for the three months ended March 31, 2018, from $22,223 for the corresponding quarter ended March 31, 2017. We increased our investor relations activities by attending an investor conference.

 

Salaries increased to $152,854 for the three months ended March 31, 2018, compared to $100,055 for the corresponding quarter ended March 31, 2017. The increase is related to performance increases to certain salaried employees, the addition of new employees and the additional employees from the purchase of IMI.

 

Research and development expenses increased to $1,560,177 for the three months ended March 31, 2018 from $1,283.729 for the corresponding quarter ended March 31, 2017. We continue to develop our first electric vehicle, the SOLO. All costs related to pre-mass production vehicles are being expensed to research and development. During the three months ended March 31, 2018, we received $5,565 (2017: $103,534) in government grants due from the Industrial Research Assistance Program (“IRAP) Co-op program administered by the National Research Council.

 

Sales and marketing expenses increased to $279,630 for the three months ended March 31, 2018 from $124,266 for the corresponding quarter ended March 31, 2017. We increased our sales and marketing efforts by attending trade shows, re-establishing our social media presence and increasing our staff as our first electric vehicle, the SOLO, nears production.

 

Stock-based compensation charges for the three months ended March 31, 2018 were $790,234 (2017: $247,656). We issued 347,500 stock options at an exercise price of US$9.60 per share during the three months ended March 31, 2018. In addition, the stock-based compensation charges relate to stock options issued during previous quarters where charges are recognized over the stock option vesting period. We use the Black-Scholes method of calculating the stock-based compensation expense under the graded method.

 

  43  

 

 

The operating expenses for the three months ended March 31, 2018 increased to $3,656,287 (2017: $2,163,370); the increase in operating loss was caused by the aforementioned expenses for the quarter.

 

We incurred an interest accretion expense of $nil for the three months ended March 31, 2018 (2017: $20,277), relating to a convertible loan.

 

We incurred changes in fair values of warrant derivative of $(1,166,027) (2017: $Nil), caused by warrants priced in US dollars, while our functional currency is Canadian dollars. As a result of this difference in currencies, the proceeds that will be received by us are not fixed and will vary based on foreign exchange rates, hence the warrants are a derivative under IFRS, and are required to be recognized and measured at fair value at each reporting period. Any changes in fair value from period to period are recorded as non-cash gain or loss in the consolidated statement of net loss and comprehensive loss.

 

We also had a foreign exchange gain of $22,821 in the three months ended March 31, 2018 (2017: $5,922).

 

Net loss and comprehensive loss of the three months ended March 31, 2018 was $2,403,974 (2017: $2,189,569).

 

Results of Operations for the Year Ended December 31, 2017 as Compared to the Year Ended December 31, 2016

 

Revenues

 

Revenue for the year ended December 31, 2017 was $109,173 (2016: $nil). Our revenue was derived from the sale of one roadster by Intermeccanica during the period from acquisition to December 31, 2017.  As Intermeccanica was our sole source of revenue and we acquired Intermeccanica in October 2017, we had no revenue prior to October 2017.  We have not included as revenue funds received from the six SOLOs that we have delivered to customers to date, but have instead offset such funds against our research and development expenses.

 

Operating Expenses

 

We incurred costs and expenses in the amount of $9,534,379 for the fiscal year ended December 31, 2017, an increase from costs and expenses of $8,942,022 for the period ended December 31, 2016.

 

This increase in incurred costs and expenses is primarily attributable to the collective results of the following factors:

 

· General and administrative expenses for year ended December 31, 2017 were $2,373,251 compared to $1,205,835 for the period ended December 31, 2016. The following items are included in general and administrative expenses:

 

- Rent, which increased to $269,716 for the year ended December 2017 from $141,957 for the period ended December 31, 2016. The increase was caused by the increase in our production premises as we expand our production capabilities to produce the SOLO, an increase in our retail presence and the addition of rental space from the acquisition of Intermeccanica;

 

  44  

 

 

- Office expenses, which increased to $345,986 for the year ended December 31, 2017 from $113,158 for the period ended December 31, 2016. The increase was caused by travel costs to China and New York, an increase in directors and officers liability insurance as we transitioned from a private company in 2016 to a public company in 2017 and a donation of our first SOLO vehicle to Loving Spoonful, a non-profit organization;

 

- Legal and professional expenses, which increased to $912,347 for the year ended December 31, 2017 from $643,725 for the period ended December 31, 2016. The majority of the legal expenses was due to the filing of our application for a ticker symbol to the Financial Industry Regulation Authority (FINRA) in the United States of America, other legal costs associated with contracts, together with professional fees associated with the filing of our amended F-1 registration statement, the purchase of Intermeccanica, and fees related to the filing and receiving of our Scientific, Research and Experimental Development claim;

 

- Consulting fees, which increased to $405,176 for the year ended December 31, 2017 from $186,437 for the period ended December 31, 2016. Consulting fees relate to services provided for accounting, finance and corporate advisory services. The increase in fees related to the use of additional consultants for investor relations and executive advisory services; and

 

- Salaries, which increased to $326,770 for the year ended December 31, 2017, from $120,558 for the corresponding year ended December 31, 2016.  Increases relate to the addition of new employees and the addition of employees as a result of the acquisition of Intermeccanica.

 

· Research and development expenses increased to $4,430,386 for the year ended December 31, 2017, from $2,778,295 for the period ended December 31, 2016 primarily as a result of an increase in the costs of materials to $2,763,355 from $1,266,730. We continue to develop our first electric vehicles. All costs related to pre-mass production vehicles are being expensed to research and development. During the year ended December 31, 2017, we received $193,534 (2016: $203,997) in government grants related to the Industrial Research Assistance Program administered by the National Research Council.  In addition, we received $111,380 (2016: $nil), in Scientific Research and Experimental Development grant.

 

· Sales and marketing expenses increased to $631,381 for the year ended December 31, 2017 from $209,455 for the period ended December 31, 2015. We have increased our sales and marketing efforts by opening retail stores, increasing our social media presence and increasing our staff as our first electric vehicle, the SOLO, nears production.

 

· Stock-based compensation charges for the year ended December 31, 2017 were $889,511 (2016: $1,461,189). We issued 560,000 stock options at an exercise price of $2.00 per share during the year ended December 31, 2017.  In addition, the stock-based compensation charges relate to stock options issued during previous quarters where charges are recognized over the stock option vesting period. We use the Black-Scholes method of calculating the stock-based compensation expense under the graded method.

 

· Share-based payment expense decreased to $1,085,716 for the year ended December 31, 2017 as compared to $3,264,681 for the corresponding year ended December 31, 2016.  During the year ended December 31, 2017, we issued 22,523 warrants to a consultant to provide marketing services which were fair valued at $274,407 and shares provided for corporate advisory services were fair valued and resulted in a non-cash amount of $811,309.

 

Other Items

 

We incurred an interest accretion expense of $69,562 for the year ended December 31, 2017 (2016: $25,908) relating to a convertible loan (note 11 in the financial statements for the year ended December 31, 2017). We valued our finder’s fee related to the convertible loan at $258,542 (2016: $nil).

 

We incurred changes in fair values of warrant derivative of $186,269 (2016: $nil), caused by warrants priced in U.S. dollars, while our functional currency is in Canadian dollars.  As a result of this difference in currencies, the proceeds that will be received by us are not fixed and will vary based on foreign exchange rates and the warrants are a derivative under IFRS, and are required to be recognized and measured at fair value at each reporting period. Any changes in fair value from period to period are recorded as non-cash gain or loss in the consolidated statement of net loss and comprehensive loss.

 

  45  

 

 

We impaired our goodwill arising from the acquisition of Intermeccanica, after a third-party valuation report was commissioned to value the acquisition and apportion the purchase price to the net assets of Intermeccanica, which amounted to $1,342,794 (2016: $nil).

 

In addition, other items include a foreign exchange loss of $20,048 for the year ended December 31, 2017 (2016: $5,417). Some of our expenses are paid to suppliers based in the United States who invoice us in U.S. dollars.

 

Net and Comprehensive Income (Loss)

 

As a result of the above factors, we reported a net loss and comprehensive loss for the year ended December 31, 2017 of $11,366,372 (2016: $8,973,347).

 

Results of Operations for the year ended December 31, 2016 compared to the period from February 16, 2015 (date of inception) to December 31, 2015

 

Revenues

 

We did not generate any revenue during the fiscal year ended December 31, 2016 (2015: $nil).

 

Operating Expenses

 

We incurred costs and expenses in the amount of $8,942,022 for the fiscal year ended December 31, 2016, a 799% increase from costs and expenses of $994,014 for the period ended December 31, 2015.

 

This increase in incurred costs and expenses is primarily attributable to the collective results of the following factors:

 

· General and administrative expenses for year ended December 31, 2016 were $1,205,835 compared to $132,870 for the period ended December 31, 2015. The following items are included in office and general expenses:

 

o Rent, which increased to $141,957, for the year ended December 2016, from $17,936 for the period ended December 31, 2015. The increase was caused by the increase in our premises as we expands our production capabilities;

 

o Office expenses, which increased to $113,158, for the year ended December 31, 2016, from $18,013 for the period ended December 31, 2015;

 

o Legal and professional expenses, which increased to $643,725, for the year ended December 31, 2016, from $78,660 for the period ended December 31, 2015. The majority of the legal expenses were due to filing our Form F-1 registration statement with the United States Securities and Exchange Commission and the negotiation and preparation of our contractual arrangements; and

 

o Consulting fees, which increased to $186,437, for the year ended December 31, 2016, from $11,985 for the period ended December 31, 2015. Consulting fees relate to services provided for accounting, finance and investor relations.

 

· Research and development expenses increased to $2,778,295 for the year ended December 31, 2016, from $486,809 for the period ended December 31, 2015. All costs related to pre-mass production vehicles were during these periods were expensed to research and development. During the year ended December 31, 2016, we received $203,997 (2015: $12,775) in government grants.

 

  46  

 

 

· Sales and marketing expenses increased to $209,455 for the year ended December 31, 2016, from $19,691 for the period ended December 31, 2015. We increased our sales and marketing efforts in the year ended December 31, 2016 as the SOLO neared production.

 

· Stock-based compensation charges for the year ended December 31, 2016 were $1,461,189 (2015: $354,015). We granted 12,500 stock options with an exercise price of $0.80 per share, and 37,500 additional stock options with an exercise price of $2.00 per share during the year ended December 31, 2016. In addition, the stock-based compensation charges relate to stock options issued during previous quarters where charges are recognized over the stock option vesting period. We use the Black-Scholes method of calculating the stock-based compensation expense under the graded method.

 

· Share-based payment expense for the year ended December 31, 2016 was $3,264,681 (2015: $nil), was caused by private placement shares being issued at a price less than the estimated fair value of the shares to certain individuals and entities.

 

Other Items

 

We incurred an interest accretion expense of $25,908 for the year ended December 31, 2016 (2015: $nil), relating to convertible loan (note 10 in the financial statements for the year ended December 31, 2016).

 

In addition, other items include a foreign exchange loss of $5,417 for the year ended December 31, 2016 (2015: $1,727). Some of our expenses are paid to suppliers based in the United States who invoice us in U.S. dollars.

 

Net and Comprehensive Income (Loss)

 

As a result of the above factors, we reported a net loss and comprehensive loss for the year ended December 31, 2016 of $8,973,347 (2015: $995,833).

 

Liquidity and Capital Resources

 

Our operations consist of the designing, developing and manufacturing of electric vehicles. Our financial success depends upon our ability to market and sell our electric vehicles; and to raise sufficient working capital to enable us to execute our business plan. Our historical capital needs have been met by the sale of common shares. Equity funding might not be possible at the times required by us. If no funds can be raised and sales of our electric vehicles do not produce sufficient net cash flow, then we may require a significant curtailing of operations to ensure our survival.

 

The financial statements have been prepared on a going concern basis which assumes that we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. We incurred a net loss and comprehensive loss of $11,366,372 during the year ended December 31, 2017 and of $2,403,974 during the three months ended March 31, 2018. We had a cash balance of $8,610,996 and$5,861,327, respectively, as at December 31, 2017 and March 31, 2018 and a working capital surplus of $6,653,009 and $5,123,147, respectively, as at December 31, 2017 and March 31, 2018. Our ability to meet our obligations as they fall due and to continue to operate as a going concern depends on the continued financial support of the creditors and the shareholders. In the past, we have relied on sales of our equity securities to meet our cash requirements. Funding from this or other sources might not be sufficient in the future to continue our operations. Even if we are able to obtain new financing, it may not be on commercially reasonable terms or terms that are acceptable to us. Failure to obtain such financing on a timely basis could cause us to reduce or terminate our operations. The above indicates the existence of a material uncertainty that may cast significant doubt on our ability to continue as a going concern.

 

As of March 31, 2018, we had 24,559,728 issued and outstanding common shares and 65,540,336common shares on a fully-diluted basis.  We began trading on the over the counter market on September 1, 2017.

 

  47  

 

 

The Company had $5,123,147 of working capital surplus as at March 31, 2018 compared to $6,653,009 working capital surplus as at December 31, 2017. The decrease in working capital resulted from the cash used in operations of $2,300,191 (2017: $1,854,147); cash used in investing activities of $1,283,805 (2017: $241,259) resulting from the additions to property, plant and equipment and an increase in restricted cash; which was offset by financing activities generating cash of $834,328 (2017: $380,957), due to the issuance of 763,336 common shares for net cash proceeds of $2,459,005 (2017: $380,957); the repayment of a promissory note of $1,500,000 (2017: $nil) due to the purchase of Intermeccanica International Inc., and the repayment of a bank loan acquired on the purchase of Intermeccanica International Inc. We had $6,653,009 of working capital surplus as at December 31, 2017 compared to $3,555,976 of working capital surplus as at December 31, 2016. The increase in working capital surplus resulted from cash used in operations of $7,320,080 (2016: $4,162,835); cash used in investing activities of $2,104,816 (2016: $357,372) resulting from the additions to property, plant and equipment and the purchase of Intermeccanica; which was offset by financing activities generating cash of $14,119,609 (2016: $8,330,133) due to the issuance of 1,910,250 common shares for net cash proceeds of $10,837,902 (2016: $8,063,633); net proceeds from the issuance of a convertible loan of $2,441,191 (2016: $300,000); and proceeds received in fiscal 2017 from share subscriptions of $750,000 (2016: $101,500) for shares that were issued in 2018.

 

As of March 31, 2018, we had no outstanding commitments, other than rent and lease commitments and $7.8 million payable to our manufacturing partner for the production of the SOLO (see note 9 to our financial statements for the year ended December 31 , 2017). On October 16, 2017, Jerry Kroll, CEO, entered into a Share Pledge Agreement with Zongshen to guarantee our payment for the cost of the prototype tooling and molds estimated to be $1.8 million through the pledge of 400,000 of our common shares at a deemed price of US$4.00. Apart from our agreement to reimburse Mr. Kroll for liabilities under his Share Pledge Agreement, we have not pledged any of our assets as security for loans, or otherwise and are not subject to any debt covenants.

 

Subsequent to March 31, 2018, we issued 350,151 units, with each unit consisting of a common share and a warrant to purchase a common share, for proceeds of $2,504,121, net of unit issue costs.

 

Our monthly burn rate is currently $400,000 per month.

 

Cash Used in Operating Activities

 

Operating activities used $7,320,080 in cash for the fiscal year ended December 31, 2017, compared to $4,162,835 in cash used in operating activities for the year ended December 31, 2016 and $2,300,191 in cash for the three months ended March 31, 2018, compared to $1,854,147 for the three months ended March 31, 2017. Our negative cash flow from operating activities for those periods was caused by our being in development phase of our overall business plan (which overall business plan excludes Intermeccanica’s business), and we do not expect to realize any revenues from our overall business plan until the fourth quarter of 2018.

 

Cash Used in Investing Activities

 

Cash flows used in investing activities for the fiscal year ended December 31, 2017 was $2,104,816 compared to $357,372 cash flows used in investing activities for the fiscal year ended December 31, 2016. The increase in cash flows used in investing activities for the fiscal year ended December 31, 2017, was caused primarily by increases in expenditures in equipment to $1,264,265 (2016: $232,027) and investment to $900,000 (2015: $100,000). Cash flows used in investing activities for the three month period ended March 31, 2018 was $1,283,805, compared to $241,259 of cash flows used in investing activities for the three month period ended March 31, 2017, resulting from the additions to property, plant and equipment and an increase in restricted cash.

 

Cash flows from Financing Activities

 

Cash flows generated from financing activities for the fiscal year ended December 31, 2017 were $14,119,609, compared to $8,330,133 for the fiscal year ended December 31, 2016. During the fiscal year ended December 31, 2017, we repaid a shareholder loan of $33,155 (2016: $135,000), generated net cash proceeds from the issuance of common shares net of share issue costs of $10,837,902 (2016: $8,063,633), received $2,441,225 from convertible loans which converted to equity (2016: $300,000) and generated proceeds of $750,000 from share subscriptions (2016: $101,500). Cash flows generated from financing activities for the three months ended March 31, 2018 were $834,328, (2017: $380,957), due to the issuance of 763,336 common shares for net cash proceeds of $2,459,005 (2017: $380,957) offset by the repayment of a promissory note of $1,500,000 (2017: $nil) due to the purchase of Intermeccanica International Inc., and the repayment of a bank loan acquired on the purchase of Intermeccanica International Inc.

 

Off-Balance Sheet Arrangements

 

As of March 31, 2018, we did not have any off-balance sheet debt nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have material current or future effect on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses.

 

  48  

 

 

Research and Development, Patents and Licenses, etc.

 

Research costs are expensed when incurred. Development costs including direct material, direct labor and contract service costs are capitalized as intangible assets when we can demonstrate that the technical feasibility of a project has been established; that we intend to complete the asset for use or sale and have the ability to do so; that the asset can generate probable future economic benefits; that the technical and financial resources are available to complete the development; and that we can reliably measure the expenditure attributable to the intangible asset during its development. After initial recognition, internally- generated intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses. These costs are amortized on a straight-line basis over the estimated useful life. To date, we have not met the criteria to capitalize development costs.

 

The following table specifies the amounts spent on research and development for the fiscal years ended December 31, 2017 and 2016, the period ended December 31, 2015 and the three months ended March 31, 2018:

 

   

Fiscal year

ended

December

31,   2017

   

Fiscal year

ended

December

31,   2016

   

Period

ended

December

31, 2015

   

Three months

ended

March

31, 2018

 
Labor   $ -1,971,946     $ 1,715,562     $ 382,047     $ 685,568  
Materials     2,763,355       1,266,730       117,537     $ 880,174  
Government grants     (304,914 )     (203,997 )     (12,775 )   $ (5,565 )
Total   $ 4,430,387     $ 2,778,295     $ 486,809     $ 1,560,177  

 

Trend Information

 

Due to our short operating history, we are not aware of any trends that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. However, as of June 15, 2018, we had an order backlog of 700 SOLOs, 14 Super SOLOs and 117 Tofinos.

 

Going Concern

 

The accompanying financial statements have been prepared under the assumption that our company will continue as a going concern. We are a development stage company and have incurred losses since our inception. As shown in the accompanying financial statements, we have had minimal revenues and have incurred a net loss and comprehensive loss of $11,366,372 during the year ended December 31, 2017 and of $2,403,974 during the three months ended March 31, 2018. We had a cash balance of $8,610,996 and $5,861,327, respectively, as at December 31, 2017 and March 31, 2018 and a working capital surplus of $6,653,009 and $5,123,147, respectively, as at December 31, 2017 and March 31, 2018. We raised $$2,833,043 subsequent to March 31, 2018, which may not be sufficient to enable us to operate for the next 12 months and execute our business plan.

 

Our ability to meet our obligations as they fall due and to continue to operate as a going concern depends on the continued financial support of our creditors and our shareholders. In the past, we have relied on sales of our equity securities to meet our cash requirements. Funding from this or other sources might not be sufficient in the future to continue our operations. Even if we are able to obtain new financing, it may not be on commercially reasonable terms or terms that are acceptable to us. Failure to obtain such financing on a timely basis could cause us to reduce or terminate our operations. The above indicates the existence of a material uncertainty that may cast significant doubt on our ability to continue as a going concern.

 

The financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. If the going concern basis was not appropriate for these financial statements, adjustments would be necessary in the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used.

 

As at March 31, 2018, we had not commenced mass commercial production, and we are currently unable to finance day-to-day activities through operations. Our continuation as a going concern depends upon the successful results from our electric vehicles manufacturing activities and our ability to attain profitable operations and generate funds there from and/or raise equity capital or borrowings sufficient to meet current and future obligations. These factors indicate the existence of a material uncertainty that may cast significant doubt about our ability to continue as a going concern. Management intends to finance its operations over the next twelve months through the proceeds derived from this offering and revenues, if any, from sales of the SOLO which we expect to commence in the fourth quarter of 2018. Should we be unable to continue as a going concern, the net realizable value of our assets may be materially less than the amounts on our statement of financial position.

 

  49  

 

 

Internal control over financial reporting and disclosure controls and procedures

 

Management is responsible for the design and maintenance of both internal control systems over financial reporting and disclosure controls and procedures. Disclosure controls and procedures are designed to provide reasonable assurance that relevant information is gathered and reported to senior management on a timely basis so that appropriate decisions can be made regarding public disclosure.

 

Current disclosure controls include meetings with the Chief Executive Officer, Chief Financial Officer and members of our Board of Directors and Audit Committee through e-mails, on telephone conferences and informal meetings to review public disclosure. All public disclosures are reviewed by certain members of senior management and our Board of Directors and Audit Committee. Our Board of Directors has delegated the duties to the Chief Executive Officer who is primarily responsible for financial and disclosure controls.

 

Management and the Board of Directors continue to work to mitigate the risk of material misstatement.

 

Financial Instruments

 

We classify our financial instruments in the following categories:

 

· at fair value through profit or loss;

 

· loans and receivables;

 

· held-to-maturity investments; and

 

· available-for-sale and financial liabilities.

 

The classification depends on the purpose for which the financial instruments were acquired. Management determines the classification of its financial instruments at initial recognition. We have no financial instruments classified as fair value through profit or loss, held-to-maturity, or available for sale.

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortized cost. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. Cash and accounts receivable are classified as loans and receivables.

 

Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortized cost. Our non-derivative financial liabilities consist of trade payables, advance payable, refundable deposits for shares, sales deposits and shareholder loans.

 

Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and we have transferred substantially all risks and rewards of ownership.

 

At each reporting date, we assess whether there is objective evidence that a financial instrument has been impaired. Any impairment is recorded in profit or loss. No impairment was required on our financial instruments.

 

We do not have any derivative financial assets and liabilities.

 

Financial Instruments and Financial Risk Management

 

We are exposed in varying degrees to a variety of financial instrument related risks. Our Board of Directors approves and monitors the risk management processes, inclusive of controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:

 

  50  

 

 

Credit Risk

 

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Our primary exposure to credit risk is on our cash held in bank accounts. The majority of cash is deposited in bank accounts held with major banks in Canada. As most of our cash is held by one bank there is a concentration of credit risk. This risk is managed by using major banks that are high credit quality financial institutions as determined by rating agencies. Our secondary exposure to risk is on its other receivables. This risk is minimal as receivables consist primarily of government grant and refundable government value added taxes.

 

Liquidity Risk

 

Liquidity risk is the risk that we will not be able to meet our financial obligations as they fall due. We have a planning and budgeting process in place to help determine the funds required to support our normal operating requirements on an ongoing basis. We ensure that there are sufficient funds to meet our short-term business requirements, taking into account our anticipated cash flows from operations and our holdings of cash and cash equivalents.

 

Historically, our source of funding has been shareholder loans and the issuance of convertible debt and equity securities for cash, primarily through private placements. Our access to financing is always uncertain. There can be no assurance of continued access to significant debt and equity funding.

 

The following is an analysis of the contractual maturities of our non-derivative financial liabilities as at December 31, 2017:

 

At December 31, 2017  

Within one

year

   

Between one

and five

years

   

More than

five years

 
Bank loan   $ 123,637     $ -     $ -  
Trade payables     474,334       -       -  
Customer deposits     447,071       -       -  
Shareholder loan     10,383       -       -  
Promissory note     1,500,000       -       -  
Total   $ 2,555,425     $ -     $ -  

 

At December 31, 2016  

Within one

year

   

Between one

and five

years

   

More than

five years

 
Trade payables   $ 150,305     $ -     $ -  
Customer deposits     169,500       -       -  
Convertible loan     243,676       -       -  
Total   $ 563,481     $ -     $ -  

 

Foreign Exchange Risk

 

Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. We are exposed to currency risk as we incur expenditures that are denominated in U.S. dollars while our functional currency is the Canadian dollar. We do not hedge our exposure to fluctuations in foreign exchange rates.

 

The following table sets out the Canadian dollar equivalent of financial assets and liabilities that are denominated in U.S. dollars as at the year-end dates shown:

 

   

December 31,

2017

   

December 31,

2016

 
Cash and cash equivalents   $ 5,596,635     $ 98,762  
Trade payables   $ (138,794     $ (4,804 )
Total   $ 5,457,841     $ 93,958  

 

  51  

 

 

Based on the above, as at December 31, 2017, a 10% change in the U.S. dollar to Canadian dollar exchange rate would impact our “cash and cash equivalents” by $559,963 (December 31, 2016 - $9,876) our “trade payables” by $13,879 (December 31, 2016 - $480).

 

Interest Rate Risk

 

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. We are exposed to interest rate risk on its cash equivalents as these instruments have original maturities of twelve months or less and are therefore exposed to interest rate fluctuations on renewal. A 1% change in market interest rates would have an impact on our net loss of $18,950 for the period ended December 31, 2017 (December 31, 2016 - $32,499)

 

Classification of Financial Instruments

 

Financial assets included in the statement of financial position are as follows:

 

   

December 31,

2017

   

December 31,

2016

 
Loans and receivables:                
Cash and cash equivalents   $ 8,610,996     $ 3,916,283  
Other receivables   $ 243,639     $ 271,284  
Total   $ 8,854,635     $ 4,187,567  

 

Financial liabilities included in the statement of financial position are as follows:

 

   

December 31,

2017

   

December 31,

2016

 
Non-derivative financial liabilities:                
Bank loan                
Trade payable   $ 123,637     $ 150,305  
Customer deposits   $ 447,071     $ 169,500  
Shareholder loan   $ 10,383       -  
Convertible loan     nil     $ 243,676  
Promissory note   $ 1,500,000          
Derivative financial liabilities                
Warrant derivative liabilities   $ 3,655,686          
    $ 6,271,111     $ 563,481  

 

Fair Value

 

The fair value of our financial assets and liabilities approximates the carrying amount. Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

 

· Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;

 

· Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and

 

· Level 3 – Inputs that are not based on observable market data.

 

Financial liabilities measured at fair value at December 31, 2017 consisted of the derivative liability, which is measured using level 3 inputs.

 

The fair value of the derivative liability was calculated using the Black-Scholes Option Pricing Model using historical volatility as an estimate of future volatility.  At December 31, 2017, if the volatility used was increased by 10% the impact would be an increase to the derivate liability of $482,021 with a corresponding increase in the net and comprehensive loss.

 

  52  

 

 

Critical Accounting Policies and Estimates

 

The preparation of our financial statements requires management to use estimates and assumptions that affect the reported amounts of assets and liabilities as well as revenue and expenses.

 

Research costs are expensed when incurred and are stated net of government grants. Development costs including direct material, direct labor and contract service costs are capitalized as intangible assets when we can demonstrate that the technical feasibility of a project has been established; that we intend to complete the asset for use or sale and have the ability to do so; that the asset can generate probable future economic benefits; the technical and financial resources are available to complete the development; and that we can reliably measure the expenditure attributable to the intangible asset during its development.

 

We account for all stock-based payments and awards using the fair value based method. Under the fair value based method, stock-based payments to non-employees are measured at the fair value of the consideration received, or the fair value of the equity estimates issued, or liabilities incurred, whichever is more reliably measurable.

 

From time to time, we must make accounting estimates. These are based on the best information available at the time, utilizing generally accepted industry standards.

 

The preparation of financial statements in accordance with IFRS requires us to make judgments, apart from those involving estimates, in applying accounting policies. The most significant judgments in applying our financial statements include:

 

· the assessment of our ability to continue as a going concern and whether there are events or conditions that may give rise to significant uncertainty;

 

· the classification of financial instruments; and

 

· the calculation of income taxes requires judgment in interpreting tax rules and regulations.

 

Our financial statements for the fiscal year ended December 31, 2017, for the fiscal year ended December 31, 2016 and for the three-month period ended March 31, 2018 have been prepared by management in accordance with IFRS, as adopted by the International Accounting Standards Board.

 

The critical accounting policies used in the preparation of these consolidated financial statements are described below.

 

Our accounting policies are disclosed in Note 2 of the Notes to our financial statements for the fiscal year ended December 31, 2017 and in Note 2 of the Notes to our financial statements for the three-month period ended March 31, 2018. During the fiscal year ended December 31, 2017 there were no material changes to these policies. We adopted all of the requirements of IFRS 15 Revenue from Contracts with Customers (“IFRS 15”) as of January 1, 2018 as further discussed below. The change did not impact our cumulated revenue recognized or the related assets and liabilities on the transition date.

 

Our more critical accounting policies are noted below:

 

Research and Development Costs

 

Research costs are expensed when incurred. Development costs including direct material, direct labor and contract service costs are capitalized as intangible assets when we can demonstrate that the technical feasibility of a project has been established; that we intend to complete the asset for use or sale and have the ability to do so; that the asset can generate probable future economic benefits; that the technical and financial resources are available to complete the development; and that we can reliably measure the expenditure attributable to the intangible asset during its development. After initial recognition, internally- generated intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses. These costs are amortized on a straight-line basis over the estimated useful life. To date, we have not met the criteria to capitalize development costs.

 

  53  

 

 

Accounting standards issued but not yet applied

 

New standard IFRS 9 “Financial Instruments”

 

This new standard is a partial replacement of IAS 39 “Financial Instruments: Recognition and Measurement”. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets.

 

The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2018. We are currently assessing the impact this new standard will have on its financial statements. Other accounting standards or amendments to existing accounting standards that have been issued but have future effective dates are either not applicable or are not expected to have a significant impact on our financial statements.

 

New standard IFRS 15 “Revenue from Contracts with Customers”

 

We adopted all of the requirements of IFRS 15 as of January 1, 2018. This new standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized.

 

New standard IFRS 16 “Leases”

 

This new standard replaces IAS 17 “Leases” and the related interpretative guidance. IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset being leased. For those assets determined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees, introducing a single, on-balance sheet accounting model that is similar to current finance lease accounting, with limited exceptions for short-term leases or leases of low value assets. Lessor accounting is not substantially changed. The standard is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted for entities that have adopted IFRS 15.

 

We have not early adopted these new standards and are currently assessing the impact that these standards will have on our financial statements.

 

Other accounting standards or amendments to existing accounting standards that have been issued but have future effective dates are either not applicable or are not expected to have a significant impact on our financial statements.

 

DIRECTORS AND EXECUTIVE OFFICERS

 

Board of Directors

 

Our Notice of Articles and Articles are attached as exhibits to the registration statement of which this prospectus forms a part. Our Articles provide that the number of directors is set at:

 

(a) subject to paragraphs (b) and (c), the number of directors that is equal to the number of our first directors;

 

(b) if we are a public company, the greater of three and the number most recently elected by ordinary resolution (whether or not previous notice of the resolution was given); and

 

(c) if we are not a public company, the number most recently elected by ordinary resolution (whether or not previous notice of the resolution was given).

 

Our Board of Directors (the “Board”) currently consists of six directors. Our directors are elected annually at each annual meeting of our company’s shareholders. The Board assesses potential Board candidates to fill perceived needs on the Board for required skills, expertise, independence and other factors.

 

Our Board of Directors is responsible for appointing our company’s officers.

 

  54  

 

 

Board Committees

 

Our Board of Directors currently has six committees, the Audit Committee, the Nominating Committee, the Corporate Governance and Human Resources Committee, the Compensation Committee, the Enterprise Risk Oversight Committee and the Social Media Committee. Each committee is governed by a charter approved by our Board of Directors. A copy of each charter is attached as an exhibit to the registration statement of which this prospectus forms a part.

 

Audit Committee

 

Our A udit Committee consists of Luisa Ingargiola, Steven Sanders, Robert Tarzwell and Shaun Greffard and is chaired by Luisa Ingargiola.  Each member of the Audit Committee satisfies the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market and meet the independence standards under Rule 10A-3 under the Exchange Act. Our Audit Committee will consist solely of independent directors that satisfy the Nasdaq and SEC requirements within one year of the completion of this offering. Our Audit Committee Financial Expert is Robert Tarzwell who qualifies as an “audit committee financial expert” within the meaning of the SEC rules and possesses financial sophistication within the meaning of the Listing Rules of the Nasdaq Stock Market. The Audit Committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The Audit Committee is responsible for, among other things:

 

· selecting our independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by our independent registered public accounting firm;

 

· reviewing with our independent registered public accounting firm any audit problems or difficulties and management’s response and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K;

 

· discussing the annual audited financial statements with management and our independent registered public accounting firm;

 

· annually reviewing and reassessing the adequacy of our Audit Committee charter;

 

· meeting separately and periodically with the management and our internal auditor and our independent registered public accounting firm;

 

· reporting regularly to the full board of directors;

 

· reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposure; and

 

· such other matters that are specifically delegated to our Audit Committee by our board of directors from time to time.

 

Nominating Committee

 

Our Nominating Committee consists of Steven Sanders, Robert Tarzwell, Luisa Ingargiola and Shaun Greffard and is chaired by Steven Sanders. The Nominating Committee is responsible for overseeing the selection of persons to be nominated to serve on our board of directors. The Nominating Committee considers persons identified by its members, management, shareholders, investment bankers and others.

 

Corporate Governance and Human Resources Committee

 

Our Corporate Governance and Human Resources Committee consists of Steven Sanders, Luisa Ingargiola, Robert Tarzwell and Shaun Greffard and is chaired by Steven Sanders. The Corporate Governance and Human Resources Committee shall be responsible for developing our approach to the Board and corporate governance issues; helping to maintain an effective working relationship between the Board and management; exercising, within the limits imposed by our by-laws, by applicable laws, and by the Board, the powers of the Board for the management and direction of our affairs during the intervals between meetings of the Board; reviewing and making recommendations to the Board for the appointment of our senior executives and for considering their terms of employment; reviewing succession planning, matters of compensation; recommending awards under our long term and short term incentive plans; assuming the role of administrator, whether by delegation or by statute, for the corporate-sponsored registered pension plans and our Supplementary Executive Retirement Plan and its wholly-owned subsidiaries and any future, additional or replacement plans relating to the plans; and monitoring the investment performance of the trust funds for the plans and compliance with applicable legislation and investment policies.

 

  55  

 

 

Our Corporate Governance and Human Resources Committee shall also review any “red flags” or issues that may arise out of the Compensation Committee compensation and award recommendations and report them to the Board of Directors. The Compensation Committee and Governance Committee, at times, may be collaborative but will not coordinate as the process is intended to be a “checks and balance” approach. It is being set up as an internal control mechanism that would safeguard against fraud and errors due to omission

 

Compensation Committee

 

Our Compensation Committee consists of Luisa Ingargiola, Steven Sanders, Shaun Greffard and Robert Tarzwell and is chaired by Luisa Ingargiola. Each of the Compensation Committee members satisfies the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market. Our Compensation Committee will assist the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. No officer may be present at any committee meeting during which such officer’s compensation is deliberated upon. The Compensation Committee will be responsible for, among other things:

 

· reviewing and approving to the board with respect to the total compensation package for our most senior executive officers;

 

· approving and overseeing the total compensation package for our executives other than the most senior executive officers;

 

· reviewing and recommending to the board with respect to the compensation of our directors;

 

· reviewing periodically and approving any long-term incentive compensation or equity plans;

 

· selecting compensation consultants, legal counsel or other advisors after taking into consideration all factors relevant to that person’s independence from management; and

 

· programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans.

 

Enterprise Risk Oversight Committee

 

Our Enterprise Risk Oversight Committee consists of Steven Sanders, Luisa Ingargiola, Robert Tarzwell and Shaun Greffard and is chaired by Steven Sanders. The Enterprise Risk Oversight Committee shall oversee the effectiveness of risk management policies, procedures and practices implemented by management of the Corporation with respect to strategic, operational, environmental, health and safety, human resources, legal and compliance and other risks faced by the Corporation. The committee shall:

 

· review executive management’s assessment of our material risk exposures and our actions to identify, monitor and mitigate such exposures,

 

· review executive management’s implementation of systems and controls designed to promote compliance with applicable legal and regulatory requirements and

 

· report to the Board on an annual basis with respect to the committee’s review of our material risks and measures in place to mitigate them, and at least annually in respect of the committee’s other activities.

 

Social Media Committee

 

Our Social Media Committee consists of Luisa Ingargiola, Steven Sanders, Robert Tarzwell and Shaun Greffard and is chaired by Luisa Ingargiola. The Social Media Committee shall oversee our social media strategy initiatives pursuant to Regulation FD. The Social Media Committee shall:

 

  56  

 

 

· provide compliant Regulation FD strategic leadership for social media through the alignment of social media strategies and activities with enterprise strategic objectives and processes;

 

· establish and maintain corporate policies with respect to use of social media for both process-driven social engagements, as well as for use of social media by employees for participating in social conversations (e.g. blogging and Tweeting by subject matter experts);

 

· prioritize social media initiatives and deliver final approvals and recommendations on proceeding with proposed social media projects, including process, technology, and organizational project;

 

· ensure open communication between the social media department and our other functional units so as to promote collaborative strategies, planning, and implementation.

 

Directors and Executive Officers

 

The following table sets forth the names and ages of all of our directors and executive officers.

 

Name, Province/State   and

Country of   Residence

  Age   Position   Director/Officer Since
Jerry Kroll  (1), British Columbia, Canada   57    CEO and Chairman   February 16, 2015
             
Henry Reisner (3), British Columbia, Canada   53    President, Chief Operating Officer and director   February 16, 2015
             
Kulwant Sandher (2), British Columbia, Canada   56    Chief Financial Officer and Secretary   June 15, 2016
             
Iain Ball , British Columbia, Canada   63    Vice-President, Finance   February 16, 2015
             
Ed Theobald , British Columbia, Canada   65    General Manager   February 16, 2015
             
Shaun Greffard  (4), British Columbia, Canada   43    Director   August 8, 2016
             
Luisa Ingargiola (4), Florida, USA   50   Director   March 16, 2018
             
Steven Sanders (4), New York, USA   72   Director   March 16, 2018
             
Robert Tarzwell  (3), British Columbia, Canada   47    Director   August 8, 2016
             
Mark West , British Columbia, Canada   50    Vice-President, Sales & Dealerships   November 1, 2016
             
Isaac Moss , British Columbia, Canada   50    Senior Vice-President, Operations   May 15, 2018

 

  (1) Mr. Kroll was appointed President, CEO and a director of our Company effective February 16, 2015. Mr. Kroll resigned from his position as President on May 15, 2018.  Mr. Kroll was appointed our Chairman on May 15, 2018.

 

  57  

 

 

  (2) Mr. Sandher was appointed CFO of our Company on June 15, 2016. Mr. Sandher was appointed as Secretary of our Company on August 8, 2016.

(3) Mr. Reisner was appointed as President of our Company on May 15, 2018.
(4) Member of the Audit Committee, the Nominating Committee, the Corporate Governance and Human Resources Committee, the Compensation Committee, the Enterprise Risk Oversight Committee and the Social Media Committee.

 

Business Experience

 

The following summarizes the occupation and business experience during the past five years or more for our directors, and executive officers as of the date of this prospectus:

 

Jerry Kroll – Chief Executive Officer and Chairman

 

Mr. Kroll has an extensive background working in small businesses and start-ups. His career began when he managed the production, strategic planning, and sales operations of Kroll Greenhouses, his family business. From there, Mr. Kroll served in other management roles in the floral and food services industries, overseeing the import/export of floral products, managing employees, managing food franchises, and establishing supplier/distributor relationships.

 

In 1996, Mr. Kroll became involved in air racing as the owner of Vancouver International Air Races and Airshow, which featured large scale events attracting over 15,000 spectators and 31 corporate sponsors. From then on, Mr. Kroll became increasingly involved in air racing and motor races. He eventually became the president and CEO of Corbin Motors Vancouver Inc. in 2001 where he organized the sales of the firm’s three-wheeled commuter vehicle in Canada.

 

In 2007, Mr. Kroll founded KleenSpeed Technologies, a firm focused on stationary energy storage products. He began researching and developing an EV for the everyday commuter. As an entrepreneur, Mr. Kroll also founded Ascend Sportmanagement Inc., a sports property and technology management firm.

 

Mr. Kroll’s experience and skillset in innovative technology and start-ups, coupled with his passion for clean technology developments, allows Mr. Kroll to coordinate, manage, and execute strategies for our company.

 

Mr. Kroll is also actively involved in the Vancouver venture capital community and has been a member of the Vancouver Angel Technology Network, an investing and mentoring network for new technology start-ups, since 2003. From February 2013 to February 2015, Mr. Kroll was the President and CEO of Ascend Sports Management Inc. 

 

Kulwant Sandher, Chief Financial Officer and Secretary

 

Kulwant Sandher is a Chartered Professional Accountant with over 25 years of experience in business and finance. Mr. Sandher graduated from Queen Mary, University of London (formerly known as Queen Mary College) in 1986 with a B.Sc. degree (Eng.) in Avionics. Mr. Sandher became a Chartered Accountant in England in 1991 and received his Chartered Professional Accountant designation in Canada in 1997.

 

Mr. Sandher has considerable private and public company experience. He served as CFO of MineSense Technologies Inc. from August 2013 until July 2015; as CFO of Alba Mineral Ltd. from June 2017 to April 1, 2018; as CFO of Delta Oil & Gas from October 2008 to September 2017; as CFO of Astorius Resources Ltd. from June 2017 to February 1, 2018; as CFO of Hillcrest Petroleum from December 2011 to April 2015; as CFO of Intigold Mines Ltd. from December 2010 to April 2017; and as COO & CFO for Marketrend Interactive Inc., from March 2004 to March 2006. Currently, Mr. Sandher serves as President of Hurricane Corporate Services Ltd. and as CFO of Alba Resources Ltd. (TSX-V). Furthermore, Mr. Sandher is currently serving as a director of The Cloud Nine Education Group Inc since December 2015.  Prior to August 2013, Mr. Sandher had also served as CFO of several publicly listed companies, including: Hillcrest Petroleum (TSX-V), Millrock Resources Inc. (TSX-V) and St. Elias Mines (TSX-V).

 

Iain Ball, Vice-President, Finance

 

Mr. Ball is an experienced financial executive with over 25 years of international corporate financial and general management experience. He has been providing CFO services, along with strategic and financial advice, to growing companies and start-ups since 2012, and served as our CFO from June 2015 to June 2016.  Mr. Ball served as the CFO for BC Water & Waste Association from January 2014 to May 2015 and has served as the CFO of Nomad Micro Homes Inc. since August 2014.

 

  58  

 

 

He is the former Chief Financial Officer and Director of Progressive Solutions Inc. (“Progressive Solutions”), an enterprise resource planning software company that grew (both organically and by acquisition) from 40 employees to 135 employees in the United States, the United Kingdom, and Canada. Mr. Ball was responsible for debt and equity financings that were instrumental to Progressive Solutions’ acquisitions and international growth. Progressive Solutions was successfully sold to a strategic buyer in 2012.

 

Mr. Ball graduated from the University of Aberdeen in 1975 with a Bachelor of Science (Honours), as well as a Master of Business Administration from Simon Fraser University in 1999. He became a Chartered Accountant in Scotland in 1979 and obtained his Chartered Professional Accountant designation in 1982 from the Canadian Institute of Chartered Professional Accountants.

 

Henry Reisner, President and Chief Operating Officer

 

Mr. Reisner is the current President of Intermeccanica, a subsidiary of our company, which is an automobile manufacturer, and has held this position since 2001. He is experienced in the automotive industry and has a background in manufacturing.

 

Mr. Reisner holds a Bachelor of Arts degree in political science from the University of British Columbia in 1989.

 

Ed Theobald, General Manager

 

Mr. Theobald is a seasoned operational manager with over 40 years of experience in finance, industrial sales, construction, retail, and oil & gas industries. This experience includes over 20 years as at Envirotest Canada from when he started in 1995 through to his current position as general manager which he has held since January 2015. He also oversaw the operations of 16 automotive repair shops as Regional Manager of Speedy Glass. Mr. Theobald became our General Manager in February 2015.

 

Shaun Greffard, Director

 

Mr. Greffard is a management professional with over 25 years of experience in telecommunications, information technology and government. During his career as a management professional, Mr. Greffard has successfully led the P&L of multiple national companies and has experience in large complex contracts being responsible for negotiating commercial and contractual terms for the largest private public partnership telecommunications deal in North America valued over US$600M including a three-year Design/Build contract and 30 year Operations contract. He has experiences negotiating numerous U.S. contracts between the public and private sectors, working with and for local and federal government entities including delivery of one of the largest Canadian telecommunications deals with the Federal government.  Mr. Greffard has been responsible for conducting labor negotiations and transforming people, culture and corporate image after a prolonged labor dispute and has run the marketing organization for a $100M division of Telus. He is adept at overhauling under-performing business units and analyzing and removing operational flaws to improve operational performance and profitability.

 

Mr. Greffard accumulated his experience and skill set from roles at Telus Communications Inc., the City of Surrey, and Ledcor Technical Services, where he served as Vice President - Strategic Projects from September 2012 to February 2018. He is currently the Vice President of Strategic Projects at the Ledcor Group and has served as the COO of Alpine Building Maintenance since March 2018. Shaun has served on not-for-profit Boards including the Beach House Theatre Society and the Pacific Sea Wolves Swim Club.

 

Mr. Greffard holds a Master’s in Business Administration from Royal Roads University.

 

Luisa Ingargiola, Director

 

Since 2017, Ms. Ingargiola has been the Chief Financial Officer of Avalon GloboCare, a leading biotech health care company that is developing cell based therapeutic technologies for cancer and neuromuscular disease. Luisa also serves as a director and audit chair of FTE Networks, a leading international network infrastructure solutions and cyber security company. Luisa was the chief financial officer of MagneGas Corporation from 2007 to 2016 and is a current board member. In addition, she has served as Audit Chair for several public companies in the technology, environmental and energy industries. Ms. Ingargiola received her Bachelor’s degree in Finance from Boston University and a Masters of Health Administration from the University of Florida.

 

  59  

 

 

Steven Sanders, Director

 

Since January 2017, Mr. Sanders has been Of Counsel to the law firm of Ortoli Rosenstadt LLP. From July 2007 until January 2017, Mr. Sanders was a Senior Partner of Ortoli Rosenstadt LLP. From January 1, 2004 until June 30, 2007, he was of counsel to the law firm of Rubin, Bailin, Ortoli, LLP.  From January 1, 2001 to December 31, 2003, he was counsel to the law firm of Spitzer & Feldman PC.  Mr. Sanders also serves as a Director of Helijet International, Inc.  Additionally, he has been a director at the American Academy of Dramatic Arts since October 2013 and has been a director of the Bay Street Theater since February 2015. Mr. Sanders received his JD from Cornell University and his BBA from The City College of New York.

 

Dr. Robert Tarzwell, Director

 

Dr. Tarzwell began his career as a psychiatrist at St. Paul’s Hospital in 2006. His experience and expertise led him to other clinical/consultant roles in medicine and academia, serving as external faculty member for Green College of the University of British Columbia, medical advisor for virtual healthcare application Medeo, and clinical assistant professor in the faculty of medicine at the University of British Columbia. Dr. Tarzwell is currently Clinical Director of Research for Mental Health at Lions Gate Hospital. For over five years, Dr. Tarzwell has run his own private medical practice.

 

In addition to his background in academia and medicine, Dr. Tarzwell is an enthusiast of high tech industries, multimedia innovations, and race cars. He is an investor/advisor for a number of Vancouver-based start-ups, including Medeo, Hothead Games, EM, and Viewers Like You Productions.

 

Dr. Tarzwell holds a Bachelor’s Degree in English and Literature from Simon Fraser University, a Doctor of Medicine from the University of Manitoba, a Psychiatrist certification from the Royal College of Physicians of Canada at Dalhousie University, and a Nuclear Medicine certification from the Royal College of Physicians of Canada at the University of British Columbia.

 

Mark West, Vice-President, Sales & Dealerships

 

Mark West has over 25 years of experience directing and expanding operations in the highly competitive food and beverage industry. Mr. West was instrumental in the local and international growth of Blenz Coffee from 10 stores to over 70 stores in Canada and Asia. Mr. West was the President of Blenz Coffee from September 2012 to December 2016 and previously held the positions of President, Vice-President, Manager of Operations and Manager of Franchising from 1996 to 2007. Mr. West was the Vice-President and an owner of MyCup Coffee and Tea from 2008 to 2012. Mr. West joined our team in November 2016.

 

Isaac Moss, Senior Vice President, Operations

 

Isaac Moss has 27 years of international multi-jurisdictional business, investment banking and corporate finance experience ranging across diverse industry sectors from media, forests products, hospitality, telecommunications, bio technology and green energy. Isaac is experienced in scaling and managing businesses from start up through operations phase. He has held senior executive positions including president of a European specialty chemical company, chief financial officer of a green energy company and chief operating officer of a software company and senior vice president of a mining company. Isaac has been semi-retired since 2012 pursuing private business interests. He is a graduate of the University of Cape Town with a Bachelor of Social Science and Masters Degree in Public Administration. Isaac also studied music, is an accomplished pianist and serves as an ambassador for the University of British Columbia’s School of Music.

 

  60  

 

 

Advisory Board

 

We have an Advisory Board in place, complete with individuals who have various backgrounds and experience to complement our operations, mission, and business strategy. The Advisory Board provides suggestions to our management on an as-needed basis. The Advisory Board does not have a charter and does not meet on a scheduled basis. It is comprised of the following individuals:

 

Name   State/province of residence   Position
Myron Trenne   Michigan, USA   Advisory Board member
Mike Volker   British Columbia, Canada   Advisory Board member

 

Myron Trenne, Advisory Board

 

Mr. Trenne’s background in the automotive industry includes research and development roles at the General Motors Technical Center before becoming a founding member and Vice President of Engineering at TRW Transportation Electronics.

 

Mr. Trenne further developed his management skills through his role of General Manager of Eaton’s automotive research and development center and Yazaki North America, Inc. During his time at Yazaki North America, Inc., Mr. Trenne was the Vice President of research and development and marketing and was the General Manager responsible for overseeing a US$100 million business unit.

 

As a pioneer of automotive digital technology, Mr. Trenne led the first team to apply a programmable microcomputer to a car, which integrated anti-lock braking system, traction, cruise control, ignition and digital instruments with a single digital processor. Subsequent system developments included gas and diesel electronic fuel injection, EVs, vehicle electrical architectures, vehicle fiber optics, high voltage EV components, and Intelligent Transportation Systems. Furthermore, Mr. Trenne has authored over a dozen vehicle system and control patents.

 

Mr. Trenne had previously served as Treasurer for the Convergence Transportation Electronics Association which merged with the Society of Automotive Engineers in 2009. Mr. Trenne has served many roles in the SAE including Committee Chair and Board positions.

 

Mr. Trenne received a Bachelor of Science in electrical engineering from Kettering University, formerly known as the General Motors Institute. He also received his Master of Science in electrical engineering from the University of Colorado and is a licensed Professional Engineer.

 

Mike Volker, Advisory Board

 

Mr. Volker is an entrepreneur and angel investor active in the development of new high technology ventures. Shortly after completing his education at the University of Waterloo, Mr. Volker founded Volker-Craig Ltd, a video terminal manufacturer, in 1973. After the sale of Volker-Craig Ltd. in 1981, Mr. Volker focused on supporting entrepreneurs in building their business and investing in start-ups. Mr. Volker’s dedication in helping entrepreneurs has led him to expand his reach into public education and leading entrepreneurship-centric organizations.

 

As an instructor, Mr. Volker teaches a business course and an intellectual property management course at Simon Fraser University where he is also the Director of the SFU’s Innovation Office, which facilitates the creation of new university-industry research and development partnerships and commercializes the university’s research results.

 

His recent projects include: GreenAngel Energy Corp, a public company that invests in green technologies and the Western Universities Technology Innovation Fund, an angel fund for start-ups. Mr. Volker runs the Vancouver Angel Technology Network and is actively involved with New Ventures BC, an annual business competition.

 

Mr. Volker holds a Bachelor’s degree in engineering and a Masters in Applied Science from the University of Waterloo.

 

Family Relationships

 

There are no family relationships among any of our directors and executive officers.

 

  61  

 

 

Term of Office

 

Each director of our company is to serve for a term of one year ending on the date of the subsequent annual meeting of shareholders following the annual meeting at which such director was elected. Notwithstanding the foregoing, each director is to serve until his successor is elected and qualified or until his death, resignation or removal. Our Board of Directors appoints our officers and each officer is to serve until his successor is appointed and qualified or until his or her death, resignation or removal.

 

Involvement in Certain Legal Proceedings

 

During the past ten years, none of our directors or executive officers have been the subject of the following events:

 

1. a petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

 

2. convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

3. the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities;

 

i) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

 

ii) engaging in any type of business practice; or

 

iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;

 

4. the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph 3.i in the preceding paragraph or to be associated with persons engaged in any such activity;

 

5. was found by a court of competent jurisdiction in a civil action or by the SEC to have violated any Federal or State securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated;

 

6. was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

 

7. was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

 

i) any Federal or State securities or commodities law or regulation; or

 

ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or

 

  62  

 

 

iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

8. was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Director Independence

 

Our Board has determined that the following directors are “independent” as such directors do not have a direct or indirect material relationship with our company. A material relationship is a relationship which could, in the view of our Board of Directors, be reasonably expected to interfere with the exercise of a director’s independent judgment.

 

· Shaun Greffard;

 

· Robert Tarzwell;

 

· Luisa Ingargiola; and

 

· Steven Sanders.

 

Code of Business Conduct and Ethics

 

On December 22, 2017, we adopted a Code of Conduct and Ethics that applies to our directors, officers and other employees.

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

This section sets out the objectives of our company’s executive compensation arrangements, our company’s executive compensation philosophy and the application of this philosophy to our company’s executive compensation arrangements. It also provides an analysis of the compensation design, and the decisions that the Board made in fiscal 2016 with respect to our Named Executive Officers (as defined below). When determining the compensation arrangements for the Named Executive Officers, our Board of Directors acting as the Compensation Committee considers the objectives of: (i) retaining an executive critical to our success and the enhancement of shareholder value; (ii) providing fair and competitive compensation; (iii) balancing the interests of management and our shareholders; and (iv) rewarding performance, both on an individual basis and with respect to the business in general.

 

Benchmarking

 

Our Board of Directors established a Compensation Committee in March 2018.  Prior to that, our Board of Directors handled matters relating to compensation, including benchmarking.

 

The Compensation Committee will consider a variety of factors when designing and establishing, reviewing and making recommendations for executive compensation arrangements for all our executive officers. The Compensation Committee does not intend to position executive pay to reflect a single percentile within the industry for each executive. Rather, in determining the compensation level for each executive, the Compensation Committee will look at factors such as the relative complexity of the executive’s role within the organization, the executive’s performance and potential for future advancement and pay equity considerations.

 

Elements of Compensation

 

The compensation paid to Named Executive Officers in any year consists of two primary components:

 

(a) base salary; and

 

(b) long-term incentives in the form of stock options granted under our Stock Option Plan (as defined below).

 

  63  

 

 

The key features of these two primary components of compensation are discussed below:

 

Base Salary

 

Base salary recognizes the value of an individual to our company based on his or her role, skill, performance, contributions, leadership and potential. It is critical in attracting and retaining executive talent in the markets in which we compete for talent. Base salaries for the Named Executive Officers are intended to be reviewed annually. Any change in base salary of a Named Executive Officer is generally determined by an assessment of such executive’s performance, a consideration of competitive compensation levels in companies similar to our company (in particular, companies in the EV industry) and a review of our performance as a whole and the role such executive officer played in such corporate performance.

 

Stock Option Awards

 

We provide long-term incentives to Named Executive Officers in the form of stock options as part of its overall executive compensation strategy. Our Board of Directors acting as the Compensation Committee believes that stock option grants serve our executive compensation philosophy in several ways: firstly, it helps attract, retain, and motivate talent; secondly, it aligns the interests of the Named Executive Officers with those of the shareholders by linking a specific portion of the officer’s total pay opportunity to the share price; and finally, it provides long-term accountability for Named Executive Officers.

 

Risks Associated with Compensation Policies and Practices

 

The oversight and administration of our executive compensation program requires the Board of Directors acting as the Compensation Committee to consider risks associated with our compensation policies and practices. Potential risks associated with compensation policies and compensation awards are considered at annual reviews and also throughout the year whenever it is deemed necessary by the Board of Directors acting as the Compensation Committee.

 

Our executive compensation policies and practices are intended to align management incentives with the long-term interests of the Corporation and its shareholders. In each case, the Corporation seeks an appropriate balance of risk and reward. Practices that are designed to avoid inappropriate or excessive risks include (i) financial controls that provide limits and authorities in areas such as capital and operating expenditures to mitigate risk taking that could affect compensation, (ii) balancing base salary and variable compensation elements and (iii) spreading compensation across short and long-term programs.

 

Compensation Governance

 

The Compensation Committee intends to conduct a yearly review of directors’ compensation having regard to various reports on current trends in directors’ compensation and compensation data for directors of reporting issuers of comparative our size. Director compensation is currently limited to the grant of stock options pursuant to the Stock Option Plan. It is anticipated that the Chief Executive Officer will review the compensation of our executive officers for the prior year and in comparison to industry standards via information disclosed publicly and obtained through copies of surveys. The Board expects that the Chief Executive Officer will make recommendations on compensation to the Compensation Committee. The Compensation Committee will review and make suggestions with respect to compensation proposals, and then makes a recommendation to the Board.

 

The Compensation Committee is currently comprised of Jerry Kroll, Shaun Greffard and Robert Tarzwell, which is currently the entire Board of Directors.

 

The Compensation Committee’s responsibility is to formulate and make recommendations to our directors in respect of compensation issues relating to our directors and executive officers. Without limiting the generality of the foregoing, the Compensation Committee has the following duties:

 

(a) to review the compensation philosophy and remuneration policy for our executive officers and to recommend to our directors changes to improve our ability to recruit, retain and motivate executive officers;

 

  64  

 

 

(b) to review and recommend to the Board the retainer and fees, if any, to be paid to our directors;

 

(c) to review and approve corporate goals and objectives relevant to the compensation of the CEO, evaluate the CEO’s performance in light of those corporate goals and objectives, and determine (or make recommendations to our directors with respect to) the CEO’s compensation level based on such evaluation;

 

(d) to recommend to our directors with respect to non-CEO officer and director compensation including reviewing management’s recommendations for proposed stock options and other incentive-compensation plans and equity-based plans, if any, for non-CEO officer and director compensation and make recommendations in respect thereof to our directors;

 

(e) to administer the stock option plan approved by our directors in accordance with its terms including the recommendation to our directors of the grant of stock options in accordance with the terms thereof; and

 

(f) to determine and recommend for the approval of our directors bonuses to be paid to our executive officers and employees and to establish targets or criteria for the payment of such bonuses, if appropriate. Pursuant to the mandate and terms of reference of the Compensation Committee, meetings of the Compensation Committee are to take place at least once per year and at such other times as the Chair of the Compensation Committee may determine.

 

Summary Compensation Table

 

The following table sets forth all annual and long-term compensation for services in all capacities to our Company during the fiscal periods indicated in respect of the executive officers set out below (the “Named Executive Officers”):

 

Named Executive Officer

and   Principal Position

  Year    

Salary

($)

   

Share-   based

awards   ($)

 

Option-   based

awards   ($)(1)

   

Annual
Incentive

Plan   ($)

 

Long-

term   Incentive

Plan   ($)

 

Pension

Value   ($)

 

All

Other

Compensation   ($)

 

Total

Compensation   ($)

 
Jerry Kroll(2)     2017       60,000     Nil     358,694     Nil   Nil   Nil   Nil     418,694  
President and Chief Executive Officer     2016       30,000     Nil     887,605     Nil   Nil   Nil   Nil     917,605  
Kulwant Sandher(3)     2017       65,000     Nil     125,777     Nil   Nil   Nil   Nil     190,777  
Chief Financial Officer and Secretary     2016       31,000     Nil     Nil     Nil   Nil   Nil   Nil     31,000  
Iain Ball(4)     2017       60,000     Nil     37,883     Nil   Nil   Nil   Nil     97,883  
Vice-President, Finance     2016       52,500     Nil     87,958     Nil   Nil   Nil   Nil     140,458  
Henry Reisner(5)     2017       60,000     Nil     70,405     Nil   Nil   Nil   Nil     130,405  
Chief Operating Officer     2016       53,000     Nil     168,494     Nil   Nil   Nil   Nil     221,494  
Ed Theobald(6)     2017       60,000     Nil     37,883     Nil   Nil   Nil   Nil     97,883  
General Manager     2016       45,000     Nil     87,958     Nil   Nil   Nil   Nil     132,958  
Mark West(7)     2017       144,000     Nil     102,729     Nil   Nil   Nil   16,167     262,896  
Vice-President, Sales & Dealerships     2016       16,000     Nil     Nil     Nil   Nil   Nil   Nil     16,000  

 

  65  

 

 

(1) The grant date fair values of the share option awards are determined using a Black-Scholes option pricing model. For a discussion of the assumptions made in the valuation, refer to Note 11 to our financial statements for the fiscal year ended December 31, 2017.

  (2) Mr. Kroll was appointed the President and Chief Executive Officer of our Company on February 16, 2015, and served as the Secretary of our Company from June 11, 2015 to August 8, 2016. On May 15, 2018, Mr. Kroll resigned from his position as President of our Company.

  (3) Mr. Sandher was appointed Chief Financial Officer of our Company on June 15, 2016. Mr. Sandher was appointed as Secretary of our Company on August 8, 2016.

  (4) Mr. Ball was appointed Chief Financial Officer of our Company on June 4, 2015 and subsequently was appointed Vice- President, Finance of our Company on June 27, 2016.

  (5) Mr. Reisner was appointed Chief Operating Officer of our Company on February 16, 2015. On May 15, 2018, Mr. Reisner was appointed as President of our Company.

  (6) Mr. Theobald was appointed General Manager of our Company on February 16, 2015.

  (7) Mr. West was appointed Vice-President, Sales & Dealerships of our Company on November 1, 2016.

 

Executive Compensation Agreements

 

Jerry Kroll

 

On July 1, 2016, our Board of Directors approved the entering into of an executive services agreement with Jerry Kroll with a term expiring on July 1, 2019 (the “Kroll Agreement”).

 

The Kroll Agreement is subject to automatic renewal on a one-month to one-month term renewal basis unless either we or Mr. Kroll provides written notice not to renew the Kroll Agreement no later than 30 days prior to the end of the then current or renewal term.

 

Pursuant to the terms and provisions of the Kroll Agreement: (a) Mr. Kroll is appointed as our President and Chief Executive Officer and will undertake and perform the duties and responsibilities normally and reasonably associated with such office; (b) we shall pay to Mr. Kroll a monthly fee of $5,000; (c) grant to Mr. Kroll 22,500,000 stock options exercisable into 22,500,000 common shares at an exercise price of $0.30 per share expiring on June 11, 2022 and 2,500,000 stock options exercisable into 2,500,000 common shares at an exercise price of $0.80 per share expiring on December 9, 2022 (such options have already been granted prior to the Kroll Agreement); (d) provide Mr. Kroll with employee benefits, including group health insurance, accidental death and dismemberment insurance, travel accident insurance, group life insurance, short-term disability insurance, long-term disability insurance, drug coverage and dental coverage (the “Group Benefits”); and (e) four weeks’ paid annual vacation per calendar year.  On May 15, 2018, Mr. Kroll resigned from his position as President of our Company.

 

  66  

 

 

We may terminate the employment of Mr. Kroll under the Kroll Agreement without any notice or any payment in lieu of notice for just cause. Mr. Kroll may terminate his employment under the Kroll Agreement for any reason by providing not less than 90 calendar days’ notice in writing to us, provided, however, that we may waive or abridge any notice period specified in such notice in our sole and absolute discretion.

 

The employment of Mr. Kroll will terminate upon the death of Mr. Kroll. Upon the death or Mr. Kroll during the continuance of the Kroll Agreement, we will provide Mr. Kroll’s estate and, if applicable, Mr. Kroll’s immediate family members with the following: (a) three month’s base salary, less any required statutory deductions, if any; (b) that portion of any then declared and/or earned or accrued bonus, prorated to the end of the three-month period from the effective date of termination that our chairman determines would likely have been paid to Mr. Kroll; (c) any outstanding vacation pay as at the effective date of termination; (d) any outstanding expenses owing to Mr. Kroll as at the effective date of termination; and (e) subject to our then Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Mr. Kroll’s estate to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.

 

If we elect to terminate the Kroll Agreement without just cause, and provided that Mr. Kroll is in compliance with the relevant terms and conditions of the Kroll Agreement, we shall be obligated to provide a severance package to Mr. Kroll as follows: (a) a cash payment equating to an aggregate of 12 months of the then monthly fee, less any required statutory deductions, if any; (b) that portion of any then declared and/or earned or accrued bonus, prorated to the end of the three-month period from the effective date of termination that our chairman determines would likely have been paid to Mr. Kroll; (c) the present value, as determined by us, acting reasonably, of each of the Group Benefits that would have been enjoyed by Mr. Kroll during the next three months from the effective date of termination; (d) any outstanding vacation pay as at the effective date of termination; (e) any outstanding expenses owing to Mr. Kroll as at the effective date of termination; (f) maintain Mr. Kroll’s Group Benefits for a period of one year from the effective date of termination; and (g) subject to our then Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Mr. Kroll to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.

 

Mr. Kroll may terminate his employment under the Kroll Agreement in connection with any change in control of us by providing not less than 90 calendar days’ notice in writing to us after the change in control has been effected; provided, however, that we may waive or abridge any notice period specified in such notice in our sole and absolute discretion. If Mr. Kroll terminates his employment under the Kroll Agreement as a consequence of a change in control of us, we will: (a) pay the total of (i) 24 months’ base salary, less any required statutory deductions, if any; (ii) that portion of any then declared and/or earned or accrued bonus, prorated to the end of the six-month period from the effective date of termination that our chairman determines would likely have been paid to Mr. Kroll; (iii) the present value, as determined by us, acting reasonably, of each of the Group Benefits that would have been enjoyed by Mr. Kroll during the next six months from the effective date of termination assuming Mr. Kroll’s employment was not terminated and assuming the then currently level of Group Benefits were continued for that six months; (iv) any outstanding vacation pay as at the effective date of termination; (v) any outstanding expenses owing to Mr. Kroll as at the effective date of termination; (b) maintain Mr. Kroll’s Group Benefits for a period of one year from the effective date of termination; and (c) subject to our then Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Mr. Kroll to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.

 

Iain Ball

 

On July 1, 2016, our Board of Directors approved the entering into of an executive services agreement with Iain Ball with a term expiring on July 1, 2019 (the “Ball Agreement”).

 

The Ball Agreement is subject to automatic renewal on a one-month to one-month term renewal basis unless either we or Mr. Ball provides written notice not to renew the Ball Agreement no later than 30 days prior to the end of the then current or renewal term.

 

  67  

 

 

Pursuant to the terms and provisions of the Ball Agreement: (a) Mr. Ball is appointed as our Vice-President, Finance and will undertake and perform the duties and responsibilities normally and reasonably associated with such office; (b) we shall pay to Mr. Ball a monthly fee of $5,000; (c) grant to Mr. Ball 250,000 stock options exercisable into 250,000 common shares at an exercise price of $0.30 per share expiring on August 13, 2022 and 375,000 stock options exercisable into 375,000 common shares at an exercise price of $0.80 per share expiring on December 9, 2022 (such options have already been granted prior to the Ball Agreement); (d) provide Mr. Ball with Group Benefits,; and (e) four weeks’ paid annual vacation per calendar year.

 

We may terminate the employment of Mr. Ball under the Ball Agreement without any notice or any payment in lieu of notice for just cause. Mr. Ball may terminate his employment under the Ball Agreement for any reason by providing not less than 90 calendar days’ notice in writing to us, provided, however, that we may waive or abridge any notice period specified in such notice in our sole and absolute discretion.

 

The employment of Mr. Ball will terminate upon the death of Mr. Ball. Upon the death or Mr. Ball during the continuance of the Ball Agreement, we will provide Mr. Ball’s estate and, if applicable, Mr. Balls’ immediate family members with the following: (a) three month’s base salary, less any required statutory deductions, if any; (b) that portion of any then declared and/or earned or accrued bonus, prorated to the end of the three-month period from the effective date of termination that our President determines would likely have been paid to Mr. Ball; (c) any outstanding vacation pay as at the effective date of termination; (d) any outstanding expenses owing to Mr. Ball as at the effective date of termination; and (e) subject to our then Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Mr. Ball’s estate to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.

 

If we elect to terminate the Ball Agreement without just cause, and provided that Mr. Ball is in compliance with the relevant terms and conditions of the Ball Agreement, we shall be obligated to provide a severance package to Mr. Ball as follows: (a) a cash payment equating to an aggregate of six month’s base salary, less any required statutory deductions, if any; (b) that portion of any then declared and/or earned or accrued bonus, prorated to the end of the three-month period from the effective date of termination that our President determines would likely have been paid to Mr. Ball; (c) the present value, as determined by us, acting reasonably, of each of the Group Benefits that would have been enjoyed by Mr. Ball during the next three months from the effective date of termination; (d) any outstanding vacation pay as at the effective date of termination; (e) any outstanding expenses owing to Mr. Ball as at the effective date of termination; (f) maintain Mr. Ball’s Group Benefits for a period of six months from the effective date of termination; and (g) subject to our then Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Mr. Ball to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.

 

Mr. Ball may terminate his employment under the Ball Agreement in connection with any change in control of us by providing not less than 90 calendar days’ notice in writing to us after the change in control has been effected; provided, however, that we may waive or abridge any notice period specified in such notice in our sole and absolute discretion. If Mr. Ball terminates his employment under the Ball Agreement as a consequence of a change in control of us, we will: (a) pay the total of (i) 12 months’ base salary, less any required statutory deductions, if any; (ii) that portion of any then declared and/or earned or accrued bonus, prorated to the end of the six-month period from the effective date of termination that our President determines would likely have been paid to Mr. Ball; (iii) the present value, as determined by us, acting reasonably, of each of the Group Benefits that would have been enjoyed by Mr. Ball during the next six months from the effective date of termination assuming Mr. Ball’s employment was not terminated and assuming the then currently level of Group Benefits were continued for that six months; (iv) any outstanding vacation pay as at the effective date of termination; (v) any outstanding expenses owing to Mr. Ball as at the effective date of termination; (b) maintain Mr. Ball’s Group Benefits for a period of six months from the effective date of termination; and (c) subject to our then Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Mr. Ball to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.

 

Ed Theobald

 

On July 1, 2016, our Board of Directors approved the entering into of an executive services agreement with Edward Theobald with a term expiring on July 1, 2019 (the “Theobald Agreement”).

 

  68  

 

 

The Theobald Agreement is subject to automatic renewal on a one-month to one-month term renewal basis unless either we or Mr. Theobald provides written notice not to renew the Theobald Agreement no later than 30 days prior to the end of the then current or renewal term.

 

Pursuant to the terms and provisions of the Theobald Agreement: (a) Mr. Theobald is appointed as our General Manager and will undertake and perform the duties and responsibilities normally and reasonably associated with such office; (b) we shall pay to Mr. Theobald a monthly fee of $5,000; (c) grant to Mr. Theobald 250,000 stock options exercisable into 250,000 common shares at an exercise price of $0.30 per share expiring on August 13, 2022 and 375,000 stock options exercisable into 375,000 common shares at an exercise price of $0.80 per share expiring on December 9, 2022 (such options have already been granted prior to the Theobald Agreement); (d) provide Mr. Theobald with Group Benefits; and (e) four weeks’ paid annual vacation per calendar year.

 

We may terminate the employment of Mr. Theobald under the Theobald Agreement without any notice or any payment in lieu of notice for just cause. Mr. Theobald may terminate his employment under the Theobald Agreement for any reason by providing not less than 90 calendar days’ notice in writing to us, provided, however, that we may waive or abridge any notice period specified in such notice in our sole and absolute discretion.

 

The employment of Mr. Theobald will terminate upon the death of Mr. Theobald. Upon the death or Mr. Theobald during the continuance of the Theobald Agreement, we will provide Mr. Theobald’s estate and, if applicable, Mr. Theobalds’ immediate family members with the following: (a) three month’s base salary, less any required statutory deductions, if any; (b) that portion of any then declared and/or earned or accrued bonus, prorated to the end of the three-month period from the effective date of termination that our President determines would likely have been paid to Mr. Theobald; (c) any outstanding vacation pay as at the effective date of termination; (d) any outstanding expenses owing to Mr. Theobald as at the effective date of termination; and (e) subject to our then Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Mr. Theobald’s estate to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.

 

If we elect to terminate the Theobald Agreement without just cause, and provided that Mr. Theobald is in compliance with the relevant terms and conditions of the Theobald Agreement, we shall be obligated to provide a severance package to Mr. Theobald as follows: (a) a cash payment equating to an aggregate of six month’s base salary, less any required statutory deductions, if any; (b) that portion of any then declared and/or earned or accrued bonus, prorated to the end of the three-month period from the effective date of termination that our President determines would likely have been paid to Mr. Theobald; (c) the present value, as determined by us, acting reasonably, of each of the Group Benefits that would have been enjoyed by Mr. Theobald during the next three months from the effective date of termination; (d) any outstanding vacation pay as at the effective date of termination; (e) any outstanding expenses owing to Mr. Theobald as at the effective date of termination; (f) maintain Mr. Theobald’s Group Benefits for a period of six months from the effective date of termination; and (g) subject to our then Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Mr. Theobald to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.

 

Mr. Theobald may terminate his employment under the Theobald Agreement in connection with any change in control of us by providing not less than 90 calendar days’ notice in writing to us after the change in control has been effected; provided, however, that we may waive or abridge any notice period specified in such notice in our sole and absolute discretion. If Mr. Theobald terminates his employment under the Theobald Agreement as a consequence of a change in control of us, we will: (a) pay the total of (i) 12 months’ base salary, less any required statutory deductions, if any; (ii) that portion of any then declared and/or earned or accrued bonus, prorated to the end of the six-month period from the effective date of termination that our President determines would likely have been paid to Mr. Theobald; (iii) the present value, as determined by us, acting reasonably, of each of the Group Benefits that would have been enjoyed by Mr. Theobald during the next six months from the effective date of termination assuming Mr. Theobald’s employment was not terminated and assuming the then currently level of Group Benefits were continued for that six months; (iv) any outstanding vacation pay as at the effective date of termination; (v) any outstanding expenses owing to Mr. Theobald as at the effective date of termination; (b) maintain Mr. Theobald’s Group Benefits for a period of six months from the effective date of termination; and (c) subject to our then Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Mr. Theobald to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.

 

  69  

 

 

Kulwant Sandher

 

On July 1, 2016, our Board of Directors approved the entering into of an executive services agreement with Hurricane Corporate Services Ltd. (“Hurricane Corp.”), Mr. Sandher’s services corporation, with a term expiring on July 1, 2019 (the “Sandher Agreement”).

 

The Sandher Agreement is subject to automatic renewal on a one-month to one-month term renewal basis unless either we or Hurricane Corp. provides written notice not to renew the Sandher Agreement no later than 30 days prior to the end of the then current or renewal term.

 

Pursuant to the terms and provisions of the Sandher Agreement: (a) through Hurricane Corp, Mr. Sandher is appointed as our Chief Financial Officer and will undertake and perform the duties and responsibilities normally and reasonably associated with such office; (b) we shall pay to Hurricane Corp. a monthly fee of $10,000; (c) grant to Hurricane Corp. and/or Mr. Sandher as soon as reasonably practicable after the effective date of the Sandher Agreement stock options to purchase a certain number of common shares on terms reasonably consistent with our other recent executive officers; (d) provide Hurricane Corp. and/or Mr. Sandher with Group Benefits; and (e) four weeks’ paid annual vacation per calendar year.

 

We may terminate the engagement of Hurricane Corp. under the Sandher Agreement without any notice or any payment in lieu of notice for just cause. Hurricane Corp. may terminate its engagement under the Sandher Agreement for any reason by providing not less than 90 calendar days’ notice in writing to us, provided, however, that we may waive or abridge any notice period specified in such notice in our sole and absolute discretion.

 

The engagement of Hurricane Corp. will terminate upon the death of Mr. Sandher. Upon the death or Mr. Sandher during the continuance of the Sandher Agreement, we will provide Mr. Sandher’s estate and, if applicable, Mr. Sandher’s immediate family members with the following: (a) three month’s base salary, less any required statutory deductions, if any; (b) that portion of any then declared and/or earned or accrued bonus, prorated to the end of the three-month period from the effective date of termination that our President determines would likely have been paid to Hurricane Corp.; (c) any outstanding vacation pay as at the effective date of termination; (d) any outstanding expenses owing to Hurricane Corp. as at the effective date of termination; and (e) subject to our then Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Mr. Sandher’s estate to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.

 

If we elect to terminate the Sandher Agreement without just cause, and provided that Hurricane Corp. is in compliance with the relevant terms and conditions of the Sandher Agreement, we shall be obligated to provide Hurricane Corp. with the following: (a) a cash payment equating to an aggregate of six month’s base salary, less any required statutory deductions, if any; (b) that portion of any then declared and/or earned or accrued bonus, prorated to the end of the three-month period from the effective date of termination that our President determines would likely have been paid to Hurricane Corp.; (c) the present value, as determined by us, acting reasonably, of each of the Group Benefits that would have been enjoyed by Hurricane Corp. and/or Mr. Sandher during the next three months from the effective date of termination; (d) any outstanding vacation pay as at the effective date of termination; (e) any outstanding expenses owing to Hurricane Corp. as at the effective date of termination; (f) maintain Hurricane Corp.’s and/or Mr. Sandher’s Group Benefits for a period of six months from the effective date of termination; and (g) subject to our then Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow the Executive and Mr. Sandher to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.

 

Hurricane Corp. may terminate its engagement under the Sandher Agreement in connection with any change in control of us by providing not less than 90 calendar days’ notice in writing to us after the change in control has been effected; provided, however, that we may waive or abridge any notice period specified in such notice in our sole and absolute discretion. If Hurricane Corp. terminates its engagement under the Sandher Agreement as a consequence of a change in control of us, we will: (a) pay the total of (i) 12 months’ base salary, less any required statutory deductions, if any; (ii) that portion of any then declared and/or earned or accrued bonus, prorated to the end of the six-month period from the effective date of termination that our President determines would likely have been paid to Hurricane Corp.; (iii) the present value, as determined by us, acting reasonably, of each of the Group Benefits that would have been enjoyed by Hurricane Corp. and/or Mr. Sandher during the next six months from the effective date of termination assuming Hurricane Corp.’s engagement was not terminated and assuming the then currently level of Group Benefits were continued for that six months; (iv) any outstanding vacation pay as at the effective date of termination; (v) any outstanding expenses owing to Hurricane Corp. as at the effective date of termination; (b) maintain Hurricane Corp.’s and/or Mr. Sandher’s Group Benefits for a period of six months from the effective date of termination; and (c) subject to our then Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Hurricane Corp. and Mr. Sandher to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.

 

  70  

 

 

Henry Reisner

 

On July 1, 2016, our Board of Directors approved the entering into of an executive services agreement with Henry Reisner with a term expiring on July 1, 2019 (the “Reisner Agreement”).

 

The Reisner Agreement is subject to automatic renewal on a one-month to one-month term renewal basis unless either we or Mr. Reisner provides written notice not to renew the Reisner Agreement no later than 30 days prior to the end of the then current or renewal term.

 

Pursuant to the terms and provisions of the Reisner Agreement: (a) Mr. Reisner is appointed as our Vice-President, Finance and will undertake and perform the duties and responsibilities normally and reasonably associated with such office; (b) we shall pay to Mr. Reisner a monthly fee of $5,000; (c) grant to Mr. Reisner 625,000 stock options exercisable into 625,000 common shares at an exercise price of $0.30 per share expiring on August 13, 2022 and 625,000 stock options exercisable into 625,000 common shares at an exercise price of $0.80 per share expiring on December 9, 2022 (such options have already been granted prior to the Reisner Agreement); (d) provide Mr. Reisner with Group Benefits; and (e) four weeks’ paid annual vacation per calendar year. On May 15, 2018, Mr. Reisner was appointed as President of our Company, and his executive services agreement covers this position as well.

 

We may terminate the employment of Mr. Reisner under the Reisner Agreement without any notice or any payment in lieu of notice for just cause. Mr. Reisner may terminate his employment under the Reisner Agreement for any reason by providing not less than 90 calendar days’ notice in writing to us, provided, however, that we may waive or abridge any notice period specified in such notice in our sole and absolute discretion.

 

The employment of Mr. Reisner will terminate upon the death of Mr. Reisner. Upon the death or Mr. Reisner during the continuance of the Reisner Agreement, we will provide Mr. Reisner’s estate and, if applicable, Mr. Reisner’s immediate family members with the following: (a) three month’s base salary, less any required statutory deductions, if any; (b) that portion of any then declared and/or earned or accrued bonus, prorated to the end of the three-month period from the effective date of termination that our President determines would likely have been paid to Mr. Reisner; (c) any outstanding vacation pay as at the effective date of termination; (d) any outstanding expenses owing to Mr. Reisner as at the effective date of termination; and (e) subject to our then Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Mr. Reisner’s estate to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.

 

If we elect to terminate the Reisner Agreement without just cause, and provided that Mr. Reisner is in compliance with the relevant terms and conditions of the Reisner Agreement, we shall be obligated to provide a severance package to Mr. Reisner as follows: (a) a cash payment equating to an aggregate of six month’s base salary, less any required statutory deductions, if any; (b) that portion of any then declared and/or earned or accrued bonus, prorated to the end of the three-month period from the effective date of termination that our President determines would likely have been paid to Mr. Reisner; (c) the present value, as determined by us, acting reasonably, of each of the Group Benefits that would have been enjoyed by Mr. Reisner during the next three months from the effective date of termination; (d) any outstanding vacation pay as at the effective date of termination; (e) any outstanding expenses owing to Mr. Reisner as at the effective date of termination; (f) maintain Mr. Reisner’s Group Benefits for a period of six months from the effective date of termination; and (g) subject to our then Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Mr. Reisner to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.

 

  71  

 

 

Mr. Reisner may terminate his employment under the Reisner Agreement in connection with any change in control of us by providing not less than 90 calendar days’ notice in writing to us after the change in control has been effected; provided, however, that we may waive or abridge any notice period specified in such notice in our sole and absolute discretion. If Mr. Reisner terminates his employment under the Reisner Agreement as a consequence of a change in control of us, we will: (a) pay the total of (i) 12 months’ base salary, less any required statutory deductions, if any; (ii) that portion of any then declared and/or earned or accrued bonus, prorated to the end of the six-month period from the effective date of termination that our President determines would likely have been paid to Mr. Reisner; (iii) the present value, as determined by us, acting reasonably, of each of the Group Benefits that would have been enjoyed by Mr. Reisner during the next six months from the effective date of termination assuming Mr. Reisner’s employment was not terminated and assuming the then currently level of Group Benefits were continued for that six months; (iv) any outstanding vacation pay as at the effective date of termination; (v) any outstanding expenses owing to Mr. Reisner as at the effective date of termination; (b) maintain Mr. Reisner’s Group Benefits for a period of six months from the effective date of termination; and (c) subject to our then Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Mr. Reisner to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.

 

Mark West

 

On November 1, 2016, our Board of Directors approved the entering into of an executive services agreement with Mark West with a term expiring on November 1, 2019 (the “West Agreement”).

 

The West Agreement is subject to automatic renewal on a one-month to one-month term renewal basis unless either we or Mr. West provides written notice not to renew the West Agreement no later than 30 days prior to the end of the then current or renewal term.

 

Pursuant to the terms and provisions of the West Agreement: (a) Mr. West is appointed as our Vice-President, Sales & Dealerships and will undertake and perform the duties and responsibilities normally and reasonably associated with such office; (b) we shall pay to Mr. West an initial monthly fee of $4,000 for the month of November 2016, and thereafter a monthly fee of $12,000; (c) pay Mr. West a commission of $10,000 for each and every dealership which is officially opened, which was directly sourced and completed by Mr. West and which is established under an authorization to sell and distribute our goods and services in a particular area; (c) grant to Mr. West as soon as reasonably practicable after the effective date of the West Agreement stock options to purchase a certain number of common shares on terms reasonably consistent with our other recent executive officers; (d) provide Mr. West with individual benefits of up to $10,000 per annum as a car allowance and up to $5,000 per annum as an education allowance (the “Individual Benefits”); (e) provide Mr. West with Group Benefits; and (f) four weeks’ paid annual vacation per calendar year.

 

We may terminate the employment of Mr. West under the West Agreement without any notice or any payment in lieu of notice for just cause. Mr. West may terminate his employment under the West Agreement for any reason by providing not less than 90 calendar days’ notice in writing to us, provided, however, that we may waive or abridge any notice period specified in such notice in our sole and absolute discretion.

 

The employment of Mr. West will terminate upon the death of Mr. West. Upon the death or Mr. West during the continuance of the West Agreement, we will provide Mr. West’s estate and, if applicable, Mr. West’s immediate family members with the following: (a) three month’s base salary, less any required statutory deductions, if any; (b) any outstanding commissions, less any required statutory deductions, if any; (c) that portion of any then declared and/or earned or accrued bonus, prorated to the end of the three-month period from the effective date of termination that our President determines would likely have been paid to Mr. West; (d) any outstanding vacation pay as at the effective date of termination; (e) any outstanding expenses owing to Mr. West as at the effective date of termination; and (f) subject to our then Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Mr. West’s estate to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.

 

  72  

 

 

If we elect to terminate the West Agreement without just cause, and provided that Mr. West is in compliance with the relevant terms and conditions of the West Agreement, we shall be obligated to provide a severance package to Mr. West as follows: (a) if the effective date of termination occurs within the first year of the West Agreement, a cash payment equating to an aggregate of nine month’s base salary, less any required statutory deductions, if any; (b) if the effective date of termination occurs after the first year but before November 1, 2019, a cash payment equating to an aggregate of twelve month’s base salary, less any required statutory deductions, if any; (c) if the effective date of termination occurs after November 1, 2019 and during any renewal period during the continuance of the West Agreement, a cash payment equating to the greater of (i) twelve month’s base salary, less any required statutory deductions, if any, and (ii) $100,000; (d) any outstanding commissions, less any required statutory deductions, if any; (e) that portion of any then declared and/or earned or accrued bonus, prorated to the end of the three-month period from the effective date of termination that our President determines would likely have been paid to Mr. West; (f) the present value, as determined by us, acting reasonably, of each of the Individual Benefits that would have been enjoyed by Mr. West during the next six months from the effective date of termination; (g) the present value, as determined by us, acting reasonably, of each of the Group Benefits that would have been enjoyed by Mr. West during the next six months from the effective date of termination; (h) any outstanding vacation pay as at the effective date of termination; (i) any outstanding expenses owing to Mr. West as at the effective date of termination; (j) maintain Mr. West’s Individual Benefits for a period of six months from the effective date of termination; (k) maintain Mr. West’s Group Benefits for a period of six months from the effective date of termination; and (l) subject to our then Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Mr. West to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.

 

Mr. West may terminate his employment under the West Agreement in connection with any change in control of us by providing not less than 90 calendar days’ notice in writing to us after the change in control has been effected; provided, however, that we may waive or abridge any notice period specified in such notice in our sole and absolute discretion. If Mr. West terminates his employment under the West Agreement as a consequence of a change in control of us, we will: (a) pay the total of (i) 12 months’ base salary, less any required statutory deductions, if any; (ii) any outstanding commissions, less any required statutory deductions, if any; (iii) that portion of any then declared and/or earned or accrued bonus, prorated to the end of the six-month period from the effective date of termination that our President determines would likely have been paid to Mr. West; (iv) the present value, as determined by us, acting reasonably, of each of the Individual Benefits that would have been enjoyed by Mr. West during the next six months from the effective date of termination assuming Mr. West’s employment was not terminated and assuming the then currently level of Individual Benefits were continued for that six months; (v) the present value, as determined by us, acting reasonably, of each of the Group Benefits that would have been enjoyed by Mr. West during the next six months from the effective date of termination assuming Mr. West’s employment was not terminated and assuming the then currently level of Group Benefits were continued for that six months; (vi) any outstanding vacation pay as at the effective date of termination; (vii) any outstanding expenses owing to Mr. West as at the effective date of termination; (b) maintain Mr. West’s Individual Benefits for a period of six months from the effective date of termination; (c) maintain Mr. West’s Group Benefits for a period of six months from the effective date of termination; and (d) subject to our then Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Mr. West to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.

 

Stock Option Plans and Stock Options

 

The following table sets forth, as at December 31, 2017, the equity compensation plans pursuant to which our equity securities may be issued:

 

   

Number of securities to be   issued

upon exercise of   outstanding

options,   warrants and rights

   

Weighted-average   exercise price

of   outstanding options,   warrants

and rights ($)

   

Number of

securities   remaining

available for   future

issuance under   equity

compensation   plans

(excluding

securities   reflected in

column (a))

 
Plan Category   (a)     (b)     (c)  
Equity compensation plans approved by securityholders     28,598,750     $ 0.40       1,401,250  
Equity compensation plans not approved by securityholders     28,598,750               1,401,250  
Total     28,598,750     $ 0.40       1,401,250  

 

  73  

 

 

2015 Stock Option Plan

 

On June 11, 2015, our Board of Directors adopted our 2015 Stock Option Plan (the “Stock Option Plan”) under which an aggregate of 30,000,000 shares may be issued, subject to adjustment as described in the Stock Option Plan.

 

As at December 31, 2017, there were 28,598,750 outstanding options under the Stock Option Plan leaving an additional 1,401,250 options to acquire common shares that may be granted under the Stock Option Plan.

 

The purpose of the Stock Option Plan is to retain the services of our valued key employees, directors and consultants and such other persons as the plan administrator, which is currently the Board of Directors, shall select in accordance with the eligibility requirements of the Stock Option Plan, and to encourage such persons to acquire a greater proprietary interest in our company, thereby strengthening their incentive to achieve the objectives of our shareholders, and to serve as an aid and inducement in the hiring of new employees and to provide an equity incentive to consultants and other persons selected by the plan administrator.

 

The Stock Option Plan shall be administered initially by our Board of Directors, except that the Board may, in its discretion, establish a committee composed of two or more members of the Board to administer the Stock Option Plan, which committee may be an executive, compensation or other committee, including a separate committee especially created for this purpose.

 

Unless accelerated in accordance with the Stock Option Plan, unvested options shall terminate immediately upon the optionee resigning from or our terminating the optionee’s employment or contractual relationship with us or any related company for any reason whatsoever, including death or disability. Options that have vested shall terminate, to the extent not previously exercised, upon the occurrence of the first of the following events: (i) the expiration of the option as designated by the plan administrator; (ii) the date of an optionee’s termination of employment or contractual relationship with us or any related company for cause (as determined in the sole discretion of the plan administrator); (iii) the expiration of three months from the date of an optionee’s termination of employment or contractual relationship with us or any related company for any reason whatsoever other than cause, death or disability; or (iv) the expiration of three months from termination of an optionee’s employment or contractual relationship by reason of death or disability. Upon the death of an optionee, any vested options held by the optionee shall be exercisable only by the person or persons to whom such optionee’s rights under such option shall pass by the optionee’s will or by the laws of descent and distribution of the optionee’s domicile at the time of death and only until such options terminate as provided above. For purposes of the Stock Option Plan, unless otherwise defined in the stock option agreement between us and the optionee, “disability” shall mean medically determinable physical or mental impairment which has lasted or can be expected to last for a continuous period of not less than six (6) months or that can be expected to result in death. The plan administrator shall determine whether an optionee has incurred a disability on the basis of medical evidence acceptable to the plan administrator. Upon making a determination of disability, the plan administrator shall, for purposes of the Stock Option Plan, determine the date of an optionee’s termination of employment or contractual relationship.

 

The foregoing summary of the Stock Option Plan is not completed and is qualified in its entirety by reference to the Stock Option Plan, which is filed as Exhibit 99.1 to our registration statement on Form F-1 under the U.S. Securities Act, as filed with the SEC on October 11, 2016, and is incorporated by reference herein.

 

Outstanding Option-based Awards for Named Executive Officers and Directors

 

The following table reflects all option-based awards for each Named Executive Officer and director outstanding as at December 31, 2017. We do not have any other equity incentive plans other than its Stock Option Plan. As of the date hereof there are no share based award plans for any of our directors or the Named Executive Officers or directors:

 

  74  

 

 

    Option–based Awards  

Named

Executive

Officer

or Director

 

Number of securities

underlying

unexercised options

(#)

   

Option   exercise

price   (US$)

   

Option   expiration

date

Jerry                    
Kroll  President,                    
Chief Executive     22,500,000     $ 0.30     June 11, 2022
Officer and a     2,500,000     $ 0.80     Dec. 9, 2022
director (1)     5,000     $ 2.00     Feb. 17, 2024
                     
Kulwant                    
Sandher  Chief                    
Financial Officer                    
and Secretary     125,000     $ 2.00     Feb. 17, 2024
                     
Iain Ball  Vice-     250,000     $ 0.30     Aug. 13, 2022
President,     375,000     $ 0.80     Dec. 9, 2022
Finance     5,000     $ 2.00     Feb. 17, 2024
                     
Henry                    
Reisner  Chief     625,000     $ 0.30     Aug. 13, 2022
Operating Officer     625,000     $ 0.80     Dec. 9, 2022
(1)     5,000     $ 2.00     Feb. 17, 2024
                     
Ed     250,000     $ 0.30     Aug. 13, 2022
Theobald  General     375,000     $ 0.80     Dec. 9, 2022
Manager     5,000     $ 2.00     Feb. 17, 2024
                     
Mark West  Vice-                    
President, Sales                    
& Dealerships     112,500     $ 2.00     Feb. 17, 2024
                     
Shaun Greffard     25,000     $ 0.30     Aug. 13, 2022
Director     12,500     $ 0.80     Dec. 9, 2022
      125,000     $ 2.00     Feb. 17, 2024
                     
Robert Tarzwell     12,500     $ 0.30     Aug. 13, 2022
Director     2,500     $ 2.00     Feb. 17, 2024

 

(1) On May 15, 2018, Mr. Kroll resigned from his position as President of our Company and Mr. Reisner was appointed as the President of our Company.

 

Incentive Plan Awards

 

The following table provides information concerning our incentive award plans with respect to each Named Executive Officer and directors during the fiscal year ended December 31, 2017. Our only incentive award plan during such fiscal year was the Stock Option Plan:

 

  75  

 

 

Named Executive Officer

and Director

 

Option-based Awards – Value   Vested

During the Year   ($)(1)

   

Non-Equity Incentive

Plan   Compensation – Value

Vested   During the Year   ($)

Jerry Kroll  President and Chief Executive Officer(2)   $ 80,139,063     Nil
Kulwant Sandher  Chief Financial Officer and Secretary   $ 523,699     Nil
Iain Ball  Vice-President, Finance   $ 1,964,414     Nil
Henry Reisner  Chief Operating Officer (2)   $ 3,944,453     Nil
Ed Theobald  General Manager   $ 1,964,414     Nil
Mark West  Vice-President, Sales & Dealerships   $ 366,589     Nil
Shaun Greffard , Director   $ 40,226     Nil
Robert Tarzwell , Director   $ 119,115     Nil

 

(1) The amount represents the aggregate dollar value that would have been realized if the options had been exercised on the vesting date, based on the difference between the last price that shares were sold by us pursuant to a private placement on the vesting date and the exercise price of the options.
(2) On May 15, 2018, Mr. Kroll resigned from his position as President of our Company and Mr. Reisner was appointed President of our Company.

 

Director Compensation for Fiscal 2017

 

Prior to March 2018, including for our fiscal year ended December 31, 2017, our Board of Directors handled all matters related to compensation. The Board as a whole made the final determination in respect of compensation matters. Remuneration was assessed and determined by taking into account such factors as our size and the level of compensation earned by directors and officers of companies of comparable size and industry.

 

The only arrangements we have, standard or otherwise, pursuant to which directors were compensated by us for their services in their capacity as directors, or for committee participation, involvement in special assignments or for services as consultants or experts for the financial year ended December 31, 2017, was through the issuance of stock options. The number of options to be granted from time to time is determined by the Board in its discretion.

 

During the fiscal year ended December 31, 2017, there were three directors, Jerry Kroll, Shaun Greffard and Robert Tarzwell. Mr. Kroll’s compensation information is reported in the Summary Compensation Table for Named Executive Officers above.

 

We reimburse out-of-pocket costs that are incurred by the directors. Neither we nor any of our subsidiaries has entered into a service contract with any director providing for benefits upon termination of such office.

 

In March 2018, our Board of Directors appointed a Compensation Committee to assess the appropriate level of remuneration for our directors and officers.

 

Pension Benefits

 

We do not have any defined benefit pension plans or any other plans providing for retirement payments or benefits.

 

Termination of Employment and Change of Control Benefits

 

Details with respect to termination of employment and change of control benefits for our directors and executive officers is reported above under the section titled “ Executive Services Agreements .”

 

PRINCIPAL SHAREHOLDERS

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth certain information regarding the beneficial ownership of our common share as of June 15, 2018 by (a) each shareholder who is known to us to own beneficially 5% or more of our outstanding common shares; (b) all directors; (c) our executive officers, and (d) all executive officers and directors as a group. Except as otherwise indicated, all persons listed below have (i) sole voting power and investment power with respect to their common shares, except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their common shares.

 

  76  

 

 

Name  

Common Shares

Beneficially Owned (1)

   

Percentage of

Common Shares

Beneficially

Owned (2)

 
Directors and Executive Officers:                
Jerry Kroll Vancouver, CEO and Chairman     28,676,875 (3)     63.6 %
                 
Iain Ball Vancouver, Vice-President, Finance     483,646 (4)     1.9 %
                 
Henry Reisner,   President, COO and a Director     3,938,334 (5)     15.2 %
                 
Kulwant Sandher,   CFO     65,104 (6)     *  
                 
Ed Theobald Vancouver,  General Manager     702,936 (7)     2.8 %
                 
Shaun Greffard Surrey,  Director     74,740 (8)     *  
                 
Robert Tarzwell,  Director     385,573 (9)     1.5 %
                 
Mark West,   Vice-President, Sales & Dealerships     64,719 (10)     *  
                 
Steven Sanders, Director     56,250 (11)     *  
                 
Luisa Ingargiola, Director     56,250 (12)     *  
                 
Isaac Moss, Senior Vice President, Operations     83,333 (13)     *  
                 
Directors and Executive Officers as a Group (Eleven Persons)     34,587,220 (14)     72.8 %
                 
Other 5% or more Shareholders:                
Megan Martin     2,700,000 (15)     9.9 %
                 
Yuan Sheng Zhang     2,700,000 (163     9.9 %
                 
Shang Wen Yang     2,000,000 (17)     7.7 %
                 
Unison International Holdings Ltd.     3,200,000 (18)     11.9 %
                 
Zongshen (Canada) Environtech Ltd.     2,800,000 (19)     10.6 %

 

* Less than 1%.

 

(1) Under Rule 13d–3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of common shares actually outstanding on June 15, 2018.

 

  77  

 

 

(2) The percentage is calculated based on 24,984,489 common shares that were outstanding as of June 15, 2018.

 

(3) This figure consists of (i) 3,587,500 common shares registered directly to Jerry Kroll, (ii) 5,000,000 common shares registered to Ascend Sportmanagement Inc., which Mr. Kroll has discretionary voting and investment authority over securities held by Ascend Sportmanagement Inc., (iii) 87,500 common shares issuable upon exercise of warrants registered directly to Mr. Kroll, (iv) 18,960,000 stock options to purchase 18,960,000 shares of our common share which have vested, and (v) 1,041,875 stock options to purchase 1,041,875 shares of our common share which will vest within 60 days of June 14, 2018.

 

(4) This figure consists of (i) 31,250 common shares registered directly to Iain Ball, (ii) 31,250 common shares issuable upon exercise of warrants registered directly to Mr. Ball, (iii) 426,146 stock options to purchase 426,146 shares of our common share which have vested, and (iv) 26,250 stock options to purchase 26,250 shares of our common share which will vest within 60 days of June 14, 2018.

 

(5) This figure consists of (i) 2,375,000 common shares registered directly to Henry Reisner, (ii) 525,000 common shares held of record by Mr. Reisner’s wife, (iii) 125,000 common shares held of record by Mr. Reisner’s daughter, (iv) 861,042 stock options to purchase 861,042 shares of our common share which have vested, and (v) 52,292 stock options to purchase 52,292 shares of our common share which will vest within 60 days of June 15, 2018.

 

(6) This figure consists of 59,896 stock options to purchase 59,896 shares of our common share which have vested and 5,208 stock options to purchase 5,208 of our common shares which will vest within 60 days of June 15, 2018.

 

(7) This figure consists of (i) 250,000 common shares registered directly to Ed Theobald, (ii) 426,146 stock options to purchase 426,146 shares of our common share which have vested, and (iii) 26,250 stock options to purchase 26,250 shares of our common share which will vest within 60 days of June 14, 2018.

 

(8) This figure consists of (i) 67,969 stock options to purchase 67,969 shares of our common share which have vested, and (ii) 6,771 stock options to purchase 6,771 shares of our common share which will vest within 60 days of June 14, 2018.

 

(9) This figure consists of (i) 93,750 common shares registered directly to Robert Tarzwell, (ii) 93,750 common shares held of record by Robert Tarzwell M.D. Inc., which Mr. Tarzwell has discretionary voting and investment authority over such securities, (iii) 93,750 common shares issuable upon exercise of warrants registered directly to Mr. Tarzwell, (iv) 93,750 common shares issuable upon exercise of warrants held of record by Robert Tarzwell M.D. Inc., (v) 9,948 stock options to purchase 9,948 shares of our common share which have vested, and (vi) 625 stock options to purchase 625 shares of our common share which will vest within 60 days of June 14, 2018.

 

(10) This figure consists of (i) 7,750 common shares registered directly to Mark West, (ii) 7,750 common shares issuable upon exercise of warrants registered directly to Mr. West, (iii) 44,531 stock options to purchase 44,531 shares of our common share which have vested, and (iv) 4,688 stock options to purchase 4,688 common shares which will vest within 60 days of June 14, 2018.

 

(11) This figure consists of 37,500 stock options to purchase 37,500 shares of our common share which have vested and 18,750 stock options to purchase 18,750 of our common shares which will vest within 60 days of June 15, 2018.

 

(12) This figure consists of 37,500 stock options to purchase 37,500 shares of our common share which have vested and 18,750 stock options to purchase 18,750 of our common shares which will vest within 60 days of June 15, 2018.

 

(13) This figure consists of 62,500 stock options to purchase 62,500 shares of our common share which have vested and 20,833 stock options to purchase 20,833 of our common shares which will vest within 60 days of June 15, 2018.

 

(14) This figure consists of (i) 12,089,000 common shares and (ii) 22,498,220 common shares underlying warrants and stock options which have vested or will vest within 60 days of June 14, 2018.

 

  78  

 

 

(15) This figure consists of (i) 625,000 common shares registered directly to Megan Martin, (ii) 625,000 common shares held of record by Ms. Martin’s husband, Yuan Sheng Zhang, (iii) 100,000 common shares held of record by Ms. Martin’s son, Bo Hong Zhang, (iv) 625,000 common shares issuable upon exercise of warrants registered directly to Ms. Martin, (v) 625,000 common shares issuable upon exercise of warrants held of record by Ms. Martin’s husband, and (vi) 100,000 common shares issuable upon exercise of warrants held of record by Ms. Martin’s son.

 

(16) This figure consists of (i) 625,000 common shares registered directly to Yuan Sheng Zhang, (ii) 625,000 common shares held of record by Mr. Zhang’s wife, Megan Martin, (iii) 100,000 common shares held of record by Mr. Zhang’s son, Bo Hong Zhang, (iv) 625,000 common shares issuable upon exercise of warrants registered directly to Mr. Zhang, (v) 625,000 common shares issuable upon exercise of warrants held of record by Mr. Zhang’s wife, and (vi) 100,000 common shares issuable upon exercise of warrants held of record by Mr. Zhang’s son.

 

(17) This figure consists of (i) 1,000,000 common shares registered directly to Shang Wen Yang and (ii) 1,000,000 common shares issuable upon exercise of warrants registered directly to Cheng Qun Sang.

 

(18) This figure consists of (i) 1,200,000 common shares registered to Unison International Holdings Ltd. and (ii) 2,000,000 common shares issuable upon exercise of warrants registered to Unison International Holdings Ltd. Mr. Ping Hui Lu is the President of Unison International Holdings Ltd. and has discretionary voting and investment authority over securities held by Unison International Holdings Ltd.

 

(19) This figure consists of (i) 1,400,000 common shares registered to Zongshen (Canada) Environtech Ltd. and (ii) 1,400,000 common shares issuable upon exercise of warrants registered to Zongshen (Canada) Environtech Ltd. Mr. Daxue Zhang is the sole director of Zongshen (Canada) Environtech Ltd. and has discretionary voting and investment authority over securities held by Zongshen (Canada) Environtech Ltd.

 

The information as to shares beneficially owned, not being within our knowledge, has been furnished by the officers and directors.

 

As at May 14, 2018, there were 98 holders of record of our common shares.

 

RELATED PARTY TRANSACTIONS

 

Jerry Kroll

 

On October 16, 2017, Jerry Kroll, our CEO and Chairman, entered into a Share Pledge Agreement with Zongshen to guarantee our payment for the cost of the prototype tooling and molds estimated to be $1.8 million through the pledge of 400,000 of our common shares at a deemed price of US$4.00. We have agreed to reimburse Mr. Kroll on a one-for-one basis for any pledged shares realized by Zongshen at a deemed issue price of $4.00 per common share.

 

From February 16, 2015 to November 13, 2015, Mr. Kroll provided us with a loan in the aggregate amount of $185,000. These loans were unsecured, non-interest bearing, and due on demand. No formal written agreements regarding these loans were signed, however, they are documented in our accounting records. On January 20, 2016, we repaid $135,000 of these loans and $50,000 was repaid through the issuance of 62,500 post-subdivision units at a price of $0.80 per unit.

 

On February 16, 2015, Mr. Kroll acquired 3,500,000 common shares and Ascend Sportmanagement Inc., a corporation under the control and direction of Mr. Kroll, acquired 5,000,000 common shares at a price of $0.0004 per common share pursuant to a private placement. In addition, on June 15, 2015, Mr. Kroll acquired 25,000 units at a price of $0.40 per unit pursuant to a private placement. Each unit consisted of one common share and one common share purchase warrant. Each warrant is exercisable for one additional common share at a price of $0.80 per common share until June 15, 2020. Furthermore, on January 22, 2016, Mr. Kroll acquired 62,500 units at a price of $0.80 per unit pursuant to a private placement. Each unit consisted of one common share and one common share purchase warrant. Each warrant is exercisable for one additional common share at a price of $2.00 per common share until January 22, 2021.

 

On June 11, 2015 we granted 22,500,000 stock options to Mr. Kroll having an exercise price of $0.30 per common share until June 11, 2022. In addition, on December 9, 2015 we granted 2,500,000 stock options to Mr. Kroll having an exercise price of $0.80 per common share until December 9, 022. Furthermore, on February 17, 2017 we granted 5,000 stock options to Mr. Kroll having an exercise price of $2.00 per common share until February 17, 2024.

 

Henry Reisner

 

On October 18, 2017, we entered into a Share Purchase Agreement (the “SPA”) to acquire Intermeccanica with Henry Reisner, our President and Chief Operating Officer, and two members of his family, which replaced a prior Joint Operating Agreement. Under the SPA, we agreed to purchase all the shares of Intermeccanica for $2,500,000, $300,000 of which had been previously paid under the Joint Operating Agreement. At closing, we paid the sellers $700,000 and issued a Note for the balance of $1,500,000. On January 28, 2018, we paid off all of the principal and interest due on the Note for $1,520,548.

 

  79  

 

 

On February 16, 2015, Mr. Henry Reisner acquired 2,375,000 common shares at a price of $0.0004 per common share pursuant to a private placement. Mr. Reisner’s wife and daughter acquired 525,000 common shares and 125,000 common shares, respectively, at a price of $0.0004 per common share pursuant to a private placement.

 

On July 15, 2015, as amended on September 19, 2016, we entered into a Joint Operating Agreement with Intermeccanica and Henry Reisner which is comprised of three underlying agreements. The Joint Operating Agreement was terminated upon the entry into the SPA.

 

On August 13, 2015, we granted 625,000 stock options to Mr. Reisner having an exercise price of $0.30 per common share until August 13, 2022. In addition, on December 9, 2015, we granted 625,000 stock options to Mr. Reisner having an exercise price of $0.80 per common share until December 9, 2022. Furthermore, on February 17, 2017, we granted 5,000 stock options to Mr. Reisner having an exercise price of $2.00 per common share until February 17, 2024.

 

Iain Ball

 

On August 13, 2015, we granted 250,000 stock option to Iain Ball having an exercise price of $0.30 per common share until August 13, 2022. In addition, on December 9, 2015, we granted 375,000 stock options to Mr. Ball having an exercise price of $0.80 per common share until December 9, 2022. Furthermore, on February 17, 2017 we granted 5,000 stock options to Mr. Ball having an exercise price of $2.00 per common share until February 17, 2024.

 

On August 19, 2015, Mr. Iain Ball acquired 31,250 units at a price of $0.80 per unit. Each unit consisted of one common share and one common share purchase warrant. Each warrant is exercisable for one additional common share at a price of $2.00 per common share until August 19, 2020.

 

Kulwant Sandher

 

On February 17, 2017, we granted 125,000 stock options to Mr. Sandher having an exercise price of $2.00 per common share until February 17, 2024.

 

Ed Theobald

 

On February 16, 2015, Mr. Ed Theobald acquired 250,000 common shares at a price of $0.0004 per common share pursuant to a private placement.

 

On August 13, 2015, we granted 250,000 stock options to Mr. Theobald having an exercise price of $0.30 per common share until August 13, 2022. In addition, on December 9, 2015, we granted 375,000 stock options to Mr. Theobald having an exercise price of $0.80 per common share until December 9, 2022. Furthermore, on February 17, 2017 we granted 5,000 stock options to Mr. Theobald having an exercise price of $2.00 per common share until February 17, 2024.

 

Shaun Greffard

 

On August 13, 2015, we granted 25,000 stock options to Mr. Sean Greffard having an exercise price of $0.30 per common share until August 13, 2022. In addition, on December 9, 2015, we granted 12,500 stock options to Mr. Greffard having an exercise price of $0.80 per common share until December 9, 2022. Furthermore, on February 17, 2017 we granted 125,000 stock options to Mr. Greffard having an exercise price of $2.00 per common share until February 17, 2024.

 

Robert Tarzwell

 

On June 26, 2015, Mr. Robert Tarzwell acquired 93,750 units and Robert Tarzwell M.D. Inc., a corporation under the control and direction of Mr. Tarzwell, acquired 93,750 units at a price of $0.40 per unit. Each unit consisted of one common share and one common share purchase warrant. Each warrant is exercisable for one additional common share at a price of $0.80 per common share until June 26, 2020.

 

  80  

 

 

On August 13, 2015, we granted 12,500 stock options to Mr. Tarzwell having an exercise price of $0.30 per common share until August 13, 2022. In addition, on February 17, 2017, we granted 2,500 stock options to Mr. Tarzwell having an exercise price of $2.00 per common share until February 17, 2024.

 

Mark West

 

On December 1, 2015, Mr. Mark West acquired 7,750 units at a price of $0.80 per unit. Each unit consisted of one common share and one common share purchase warrant. Each warrant is exercisable for one additional common share at a price of $2.00 per common share until December 1, 2020.

 

On February 17, 2017, we granted 112,500 stock options to Mr. West having an exercise price of $2.00 per common share until February 17, 2024.

 

Steven Sanders

 

On May 5, 2018, we issued options to purchase 75,000 of our common shares at US$9.00 to Steven Sanders in exchange for his services as a director of our company. The options vest in equal quarters every three months with the first quarter vesting on the date the options were granted.

 

Luisa Ingargiola

 

On May 5, 2018, we issued options to purchase 75,000 of our common shares at US$9.00 to Luisa Ingargiola in exchange for her services as a director of our company. The options vest in equal quarters every three months with the first quarter vesting on the date the options were granted.

 

Zongshen (Canada) Environtech Ltd.

 

On October 2, 2017, we announced a manufacturing agreement with Zongshen to produce 75,000 SOLO all-electric vehicles, which we expect to occur in the three full years from the commencement of production. Zongshen is an entity under common control with Zongshen (Canada) Environtech Ltd., which is the beneficial owner of approximately 10.8% of our common shares. Although, the plan called for the production of 5,000 SOLOs in 2018, 20,000 in 2019 and 50,000 in 2020, we now anticipate that 5,000 SOLOs will be produced in the first full year of production, 20,000 in the second full year of production and 50,000 in the third full year of production. Under the agreement, we agreed to reimburse Zongshen for the cost of the prototype tooling and molds estimated to be $1.8 million and the mass production tooling and molds estimated to be $6.0 million, which shall be payable 50% when Zongshen commences manufacturing the tooling and molds (which we expect will be in the third quarter of 2018), 40% when Zongshen completes manufacturing the tooling and molds (which we expect will be in the third quarter of 2018), and 10% upon delivery to us of the first production vehicle (which we expect will be in the fourth quarter of 2018).

 

MATERIAL AGREEMENTS

 

We have not entered into any material agreements other than in the ordinary course of business and other than those described below or in this prospectus.

 

Lease Agreement

 

Together with our subsidiary, Intermeccanica, we entered into a lease agreement with Cressey (Quebec Street) Development LLP (the “Landlord”) to jointly lease the premises located at 102 East 1stAvenue, Vancouver, British Columbia, Canada, V5T 1A4. The term of the lease is 60 months commencing November 1, 2015. We will pay half of the lease costs, including fees, taxes, and other charges associated with occupancy, to a maximum amount of $4,000 per month or $48,000 per year, paid in equal monthly installments. We will provide additional payment for any additional expenses incurred by Intermeccanica and us pursuant to the lease. Beginning August 1, 2015, we will also pay 25% of the costs associated with Intermeccanica’s existing lease at 39 Braid Street, New Westminster, British Columbia, Canada. We also advanced $10,000 (and whatever else is reasonably agreed upon mutually) to Intermeccanica prior to occupancy, which was used for improvement costs. We are not be able to sublease the premises.

 

SOLO Manufacturing Agreement

 

On October 2, 2017, we announced a manufacturing agreement with Zongshen to produce 75,000 SOLO all-electric vehicles. We anticipate the production will commence in the third quarter of 2018 and that the 75,000 SOLOs under the agreement will be completed in the three years from the commencement of production. Specifically, the plan calls for the production of 5,000 SOLOs in 2018; 20,000 in 2019; and 50,000 in 2020. Under the agreement we agreed to reimburse Zongshen for (i) the cost of the prototype tooling and molds estimated to be $1.8 million, which was due on or before March 18, 2018 and which has been postponed (we anticipate until the third quarter of 2018) due to Zongshen not completing prototype of the tooling and molds, and (ii) the mass production tooling and molds estimated to be $6.0 million, which shall be payable 50% when Zongshen commences manufacturing the tooling and molds (which we expect will be in the third quarter of 2018), 40% when Zongshen completes manufacturing the tooling and molds (which we expect will be in the third quarter of 2018), and 10% upon delivery to us of the first production vehicle (which we expect will be in the fourth quarter of 2018).

 

  81  

 

 

Share Pledge Agreement

 

In connection with the manufacturing agreement with Zongshen, on October 16, 2017, Jerry Kroll, our CEO and Chairman, entered into a Share Pledge Agreement to guarantee the payment by us for the cost of the prototype tooling and molds estimated to be $1.8 million to Zongshen through the pledge of 400,000 of our common shares at a deemed price of US$4.00. We have agreed to reimburse Mr. Kroll on a one-for-one basis for any pledged shares realized by Zongshen under the Share Pledge Agreement.

 

Share Purchase Agreement

 

On October 18, 2017 we entered into the SPA to acquire Intermeccanica, which replaced the Joint Operating Agreement. Under the SPA, we agreed to purchase all the shares of Intermeccanica for $2,500,000. In addition to an initial payment of $100,000 in 2016, during the nine months ended September 30, 2017 an additional $200,000 was paid. On October 18, 2017, we paid $700,000, and entered into a Note for the balance of $1,500,000 of the Purchase Price. On January 28, 2018, we paid off all of the principal and interest due on the Note for $1,520,548.

 

MARKET FOR OUR SECURITIES

 

On September 1, 2017, our common shares began to be quoted on the OTC Market Group Inc.’s Venture Market (the “OTCQB”) under the symbol “ECCTF”. As of June 15, 2018, the last reported sale price of our common share on the OTCQB was US$6.50 per share, and on June 15, 2018, we had 24,984,489 common shares outstanding. The market for our common shares is limited, volatile and sporadic. The following table sets forth, for the periods indicated, the high and low bid prices of our common shares on the OTCQB as reported by Google Finance. The following quotations reflect inter-dealer prices, without retail mark-up, markdown, or commissions, and may not reflect actual transactions.

 

    High Bid     Low Bid  
Quarter ended            
December 31, 2017   US$ 15.00      US$ 10.00  
March 31, 2018   US$ 10.70      US$ 9.00  
                 
Month ended                
January 31, 2018   US$ 10.70     US$ 9.48  
February 28, 2018   US$ 10.00     US$ 9.12  
March 31, 2018   US$ 10.00     US$ 9.00  
April 30, 2018   US$ 9.88     US$ 8.40  
May 31, 2018   US$ 9.00     US$ 6.18  
June 30, 2018   US$ 8.20     US$ 4.25  

 

We have applied to have our common shares and the warrants included in the units listed on the Nasdaq Capital Market under the symbols “SOLO” and “SOLOW”, respectively. Currently, there is no established public trading market for the warrants included in the units, and such a market might never develop.  

 

SECURITIES ELIGIBLE FOR FUTURE SALE

 

Common Shares

 

Upon completion of this offering, we will have                                common shares outstanding, not including (i) shares underlying the warrants included in the units, (ii) shares underlying underwriters’ warrants (please see below “Underwriters’ Warrants”), (iii) any shares that may be sold pursuant to the underwriters’ over-allotment option or (iv) any shares underlying warrants that may be sold pursuant to the underwriters’ over-allotment option. All of the common shares sold in this offering will be freely transferable by persons other than by our “affiliates” without restriction or further registration under the Securities Act. Sales of substantial amounts of our common share in the public market could adversely affect prevailing market prices of our common share . Prior to this offering, there has been a limited public market for our common shares . We have applied to list the common shares on the Nasdaq Capital Market under the symbols “SOLO”.

 

  82  

 

 

Additionally, we had approximately 21,367,839 vested options and 12,407,009 warrants outstanding as of June 15, 2018. The exercise price of the majority of these options and warrants is significantly below our current market price.

 

Warrants Underlying Units

 

Upon completion of this offering,                        warrants underlying the units sold in this offering will be outstanding, not including any warrants that may be sold pursuant to the underwriters’ over-allotment option. All of the warrants underlying the units sold in this offering will be freely transferable by persons other than by our “affiliates” without restriction or further registration under the Securities Act. Sales of substantial amounts of our warrants in the public market could adversely affect prevailing market prices of our common share . Prior to this offering, there has been no public market for our warrants . We have applied to list the warrants included in the units on the Nasdaq Capital Market under the symbol “SOLOW”.

 

Underwriters’ Warrants

 

In addition to cash compensation, we have agreed to issue to the underwriters’ warrants to purchase up to a total of                      common shares (equal to 1.5% of the common shares and common shares underlying the warrants sold in this offering to investors introduced to the underwriters by us and 4% of all other common shares and all other common shares underlying the warrants sold in this offering). The warrants will be exercisable from time to time, in whole or in part, from six months after the effective date of the registration statement of which this prospectus forms a part until five years from the effective date of the registration statement. The warrants are exercisable at a per share price equal to 125% of the per unit offering price of US$      . The warrants are also exercisable on a cashless basis. The warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The underwriters (or permitted assignees under FINRA Rule 5110(g)(1)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will it engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from the effective date of the offering, except as provided for in FINRA Conduct Rule 5110(g)(2). The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, subdivisions, combinations, reclassification, merger or consolidation.

 

Rule 144

 

As of June 15, 2018, our transfer agent has recorded 21,764,344 of our outstanding common shares as restricted. These shares may be resold publicly in the United States only if they are subject to an effective registration statement under the Securities Act or pursuant to an exemption from the registration requirement such as that provided by Rule 144 promulgated under the Securities Act. In general, a person (or persons whose shares are aggregated) who at the time of a sale is not, and has not been during the three months preceding the sale, an affiliate of ours and has beneficially owned our restricted securities for at least six months will be entitled to sell the restricted securities without registration under the Securities Act, subject only to the availability of current public information about us, and will be entitled to sell restricted securities beneficially owned for at least one year without restriction. Persons who are our affiliates and have beneficially owned our restricted securities for at least six months may sell a number of restricted securities within any three-month period that does not exceed the greater of the following:

 

· 1% of the then outstanding common shares of the same class, which immediately after this offering will equal approximately                                      common shares assuming the over-allotment option is not exercised; or

 

· if our common shares are listed on a national securities exchange (such as the Nasdaq Capital Market), the average weekly trading volume of our common share, during the four calendar weeks preceding the date on which notice of the sale is filed with the SEC.

 

  83  

 

 

Sales by our affiliates under Rule 144 are also subject to certain requirements relating to manner of sale, notice and the availability of current public information about us.

 

NOTICE OF ARTICLES AND ARTICLES OF OUR COMPANY

 

As discussed above under the heading “Company Information”, our company was incorporated under the laws of the Province of British Columbia, Canada on February 16, 2015.

 

Remuneration of Directors

 

Our directors are entitled to the remuneration, if any, for acting as directors as the directors may from time to time determine. If the directors so decide, the remuneration of the directors will be determined by the shareholders. That remuneration may be in addition to any salary or other remuneration paid to a director in such director’s capacity as an officer or employee of ours.

 

Number of Directors

 

According to Article 11.1 of our Articles, the number of directors, excluding additional directors appointed under Article 12.7 is set at:

 

(a) subject to paragraphs (b) and (c), the number of directors that is equal to the number of our first directors;

 

(b) if we are a public company, the greater of three and the number most recently elected by ordinary resolution (whether or not previous notice of the resolution was given); and

 

(c) if we are not a public company, the number most recently elected by ordinary resolution (whether or not previous notice of the resolution was given).

 

Directors

 

Our directors are elected annually at each annual meeting of our company’s shareholders. Our Articles provide that the Board of Directors may, between annual meetings, appoint one or more additional directors to serve until the next annual meeting, but the number of additional directors must not at any time exceed:

 

(a) one-third of the number of first directors, if, at the time of the appointments, one or more of the first directors have not yet completed their first term of office; or

 

(b) in any other case, one-third of the number of the current directors who were elected or appointed as directors at the expiration of the last annual meeting of our company’s shareholders.

 

Our Articles provide that our directors may from time to time on behalf of our company, without shareholder approval:

 

· create one or more classes or series of shares or, if none of the shares of a class or series of shares are allotted or issued, eliminate that class or series of shares;

 

· increase, reduce or eliminate the maximum number of shares that we are authorized to issue out of any class or series of shares or establish a maximum number of shares that we are authorized to issue out of any class or series of shares for which no maximum is established;

 

· if we are authorized to issue shares of a class of shares with par value:

 

o decrease the par value of those shares;

 

o if none of the shares of that class of shares are allotted or issued, increase the par value of those shares;

 

o subdivide all or any of its unissued or fully paid issued shares with par value into shares of smaller par value; or

 

  84  

 

 

o consolidate all or any of its unissued or fully paid issued shares with par value into share of larger par value;

 

· subdivide all or any of its unissued or fully paid issued shares without par value;

 

· change all or any of its unissued or fully paid issued shares with par value into shares without par value or all or any of its unissued shares without par value into shares with par value;

 

· alter the identifying name of any of its shares;

 

· consolidate all or any of its unissued or fully paid issued shares without par value;

 

· otherwise alter it shares or authorized share structure when required or permitted to do so by the Business Corporations Act ;

 

· borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate;

 

· issue bonds, debentures and other debt obligations either outright or as security for any liability or obligation of the Company or any other person, and at any discount or premium and on such terms as they consider appropriate;

 

· guarantee the repayment of money by any other person or the performance of any obligation of any other person; or

 

· mortgage or charge, whether by way of specific or floating charge, or give other security on the whole or any part of the present and future assets and undertaking of the Company.

 

Our Articles also provide that, we may by resolution of the directors authorize an alteration to our Notice of Articles to change our name or adopt or change any translation of that name.

 

Our Articles provide that the directors may meet together for the conduct of business, adjourn and otherwise regulate their meetings as they think fit, and meetings of the Board held at regular intervals may be held at the place and at the time that the Board may by resolution from time to time determine. Questions arising at any meeting of directors are to be decided by a majority of votes and, in the case of an equality of votes, the chair of the meeting does not have a second or casting vote. A director may participate in a meeting of the directors or of any committee of the directors in person, or by telephone or other communications medium, if all directors participating in the meeting are able to communicate with each other. A director may participate in a meeting of the directors or of any committee of the directors by a communications medium other than telephone if all directors participating in the meeting, whether in person or by telephone or other communications medium, are able to communicate with each other and if all directors who wish to participate in the meeting agree to such participation. A director who participates in a meeting in a manner contemplated by such provisions of our Articles is deemed for all purposes of the  Business Corporations Act and our Articles to be present at the meeting and to have agreed to participate in that manner.

 

Our Articles provide that the quorum necessary for the transaction of the business of the directors may be set by the directors and, if not so set, is a majority of the directors.

 

Our Articles do not restrict: (i) a director’s power to vote on a proposal, arrangement or contract in which the director is materially interested (although the  Business Corporations Act  (British Columbia) generally requires a director who is materially interested in a material contract or material transaction to disclose his or her interest to the Board, and to abstain from voting on any resolution to approve the contract or transaction, failing which the British Columbia Supreme Court may, on application of our company or any of our shareholders, set aside the material contract or material transaction on any terms that it thinks fit, or require the director to account to us for any profit or gain realized on it, or both); or (ii) our directors’ power, in the absence of an independent quorum, to vote compensation to themselves or any members of their body.

 

  85  

 

 

Our Articles do not set out a mandatory retirement age for our directors. Our directors are not required to own securities of our company to serve as directors.

 

Authorized Capital

 

Our Notice of Articles provide that our authorized capital consists of an unlimited number of common shares, without par value, and an unlimited number of preferred shares, without par value, which have special rights or restrictions.

 

Rights, Preferences and Restrictions Attaching to Our Shares

 

The  Business Corporations Act  provides the following rights, privileges, restrictions and conditions attaching to our common shares:

 

· to vote at meetings of shareholders, except meetings at which only holders of a specified class of shares are entitled to vote;

 

· subject to the rights, privileges, restrictions and conditions attaching to any other class of shares of our company, to share equally in the remaining property of our company on liquidation, dissolution or winding-up of our company; and

 

· subject to the rights of the preferred shares, the common shares are entitled to receive dividends if, as, and when declared by the Board of Directors.

 

Our preferred shares may include one or more series and, subject to the  Business Corporations Act  , the directors may, by resolution, if none of the shares of that particular series are issued, alter our Articles and authorize the alteration of our Notice of Articles, as the case may be, to do one or more of the following:

 

(a) determine the maximum number of shares of that series that we are authorized to issue, determine that there is no such maximum number, or alter any such determination;

 

(b) create an identifying name for the shares of that series, or alter any such identifying name; and

 

(c) attach special rights or restrictions to the shares of that series, or alter any such special rights or restrictions.

 

The provisions in our Articles attaching to our common shares and our preferred shares may be altered, amended, repealed, suspended or changed by the affirmative vote of the holders of not less than two-thirds of the outstanding common shares and two-thirds of the preferred shares, as applicable.

 

With the exception of special resolutions (i.e. resolutions in respect of fundamental changes to our company, including: the sale of all or substantially all of our assets, a merger or other arrangement or an alteration to our authorized capital that is not allowed by resolution of the directors) that require the approval of holders of two-thirds of the outstanding common shares entitled to vote at a meeting, either in person or by proxy, resolutions to approve matters brought before a meeting of our shareholders require approval by a simple majority of the votes cast by shareholders entitled to vote at a meeting, either in person or by proxy.

 

Shareholder Meetings

 

The  Business Corporations Act provides that: (i) a general meetings of shareholders must be held in British Columbia, or may be held at a location outside British Columbia since our Articles do not restrict our company from approving a location outside of British Columbia for the holding of the general meeting and the location for the meeting is approved by ordinary resolution, or the location for the meeting is approving in writing by the British Columbia Registrar of Companies before the meeting is held; (ii) directors must call an annual meeting of shareholders not later than 15 months after the last preceding annual meeting; (iii) for the purpose of determining shareholders entitled to receive notice of or vote at meetings of shareholders, the directors may fix in advance a date as the record date for that determination, provided that such date shall not precede by more than two months or by less than 21 days the date on which the meeting is to be held; (iv) the holders of not less than 5% of the issued shares entitled to vote at a meeting may requisition the directors to call a meeting of shareholders for the purposes stated in the requisition; (v) only shareholders entitled to vote at the meeting, our directors and our auditor are entitled to be present at a meeting of shareholders; and (vi) upon the application of a director or shareholder entitled to vote at the meeting, the British Columbia Supreme Court may order a meeting to be called, held and conducted in a manner that the Court directs.

 

  86  

 

 

Pursuant to Article 8.20 of our Articles, a shareholder or proxy holder who is entitled to participate in a meeting of shareholders may do so in person, or by telephone or other communications medium, if all shareholders and proxy holders participating in the meeting are able to communicate with each other; provided, however, that nothing in Article 8.20 of our Articles shall obligate us to take any action or provide any facility to permit or facilitate the use of any communications medium at a meeting of shareholders. If one or more shareholders or proxy holders participate in a meeting of shareholders in a matter contemplated by Article 8.20 of our Articles:

 

(a) each such shareholder or proxy holder shall be deemed to be present at the meeting; and

 

(b) the meeting shall be deemed to be help at the location specified in the notice of the meeting.

 

Pursuant to our Articles, the quorum for the transaction of business at a meeting of our shareholders is one or more persons, present in person or by proxy.

 

LIMITATIONS ON RIGHTS OF NON-CANADIANS

 

Electrameccanica is incorporated pursuant to the laws of the Province of British Columbia, Canada. There is no law or governmental decree or regulation in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest or other payments to a non-resident holder of common shares, other than withholding tax requirements. Any such remittances to United States residents are generally subject to withholding tax, however no such remittances are likely in the foreseeable future. See “Canadian Federal Income Tax Considerations For United States Residents,” below.

 

There is no limitation imposed by Canadian law or by the charter or other constituent documents of our company on the right of a non-resident to hold or vote common shares of our company. However, the Investment Canada Act  (Canada) (the “Investment Act”) has rules regarding certain acquisitions of shares by non-residents, along with other requirements under that legislation.

 

The following discussion summarizes the principal features of the Investment Act for a non-resident who proposes to acquire common shares of our company. The discussion is general only; it is not a substitute for independent legal advice from an investor’s own advisor; and it does not anticipate statutory or regulatory amendments.

 

The Investment Act is a federal statute of broad application regulating the establishment and acquisition of Canadian businesses by non-Canadians, including individuals, governments or agencies thereof, corporations, partnerships, trusts or joint ventures (each an “entity”). Investments by non-Canadians to acquire control over existing Canadian businesses or to establish new ones are either reviewable or notifiable under the Investment Act. If an investment by a non-Canadian to acquire control over an existing Canadian business is reviewable under the Investment Act, the Investment Act generally prohibits implementation of the investment unless, after review, the Minister of Industry, is satisfied that the investment is likely to be of net benefit to Canada.

 

A non-Canadian would acquire control of our company for the purposes of the Investment Act through the acquisition of common shares if the non-Canadian acquired a majority of the common shares of our company.

 

Further, the acquisition of less than a majority but one-third or more of the common shares of our company would be presumed to be an acquisition of control of our company unless it could be established that, on the acquisition, our company was not controlled in fact by the acquirer through the ownership of common shares.

 

For a direct acquisition that would result in an acquisition of control of our company, subject to the exception for “WTO-investors” that are controlled by persons who are resident in World Trade Organization (“WTO”) member nations, a proposed investment would be reviewable where the value of the acquired assets is $5 million or more, or if an order for review was made by the federal cabinet on the grounds that the investment related to Canada’s cultural heritage or national identity, where the value of the acquired assets is less than $5 million.

 

  87  

 

 

For a proposed indirect acquisition that by an investor other than a so-called WTO investor that would result in an acquisition of control of our company through the acquisition of a non-Canadian parent entity, the investment would be reviewable where the value of the assets of the entity carrying on the Canadian business, and of all other entities in Canada, the control of which is acquired, directly or indirectly is $50 million or more.  The threshold is reduced to $5 million or more for a direct acquisition of control of the company by a non-WTO investor.

 

In the case of a direct acquisition by or from a “WTO investor”, the threshold is significantly higher. An investment in common shares of our company by a WTO investor would be reviewable only if it was an investment to acquire control of the company and the enterprise value of the assets of the company was equal to or greater than a specified amount, which is published by the Minister after its determination for any particular year. This amount is currently $1 billion (unless the WTO member is party to one of a list of certain free trade agreements, in which case the amount is currently $1.5 billion); beginning January 1, 2019, both thresholds will be adjusted annually by a GDP (Gross Domestic Product) based index.

 

The higher WTO threshold for direct investments and the exemption for indirect investments do not apply where the relevant Canadian business is carrying on a “cultural business”. The acquisition of a Canadian business that is a “cultural business” is subject to lower review thresholds under the Investment Act because of the perceived sensitivity of the cultural sector.

 

In 2009, amendments were enacted to the Investment Act concerning investments that may be considered injurious to national security. If the Minister of Industry has reasonable grounds to believe that an investment by a non-Canadian “could be injurious to national security,” the Minister of Industry may send the non-Canadian a notice indicating that an order for review of the investment may be made. The review of an investment on the grounds of national security may occur whether or not an investment is otherwise subject to review on the basis of net benefit to Canada or otherwise subject to notification under the Investment Act. To date, there is neither legislation nor guidelines published, or anticipated to be published, on the meaning of “injurious to national security.” Discussions with government officials suggest that very few investment proposals will cause a review under these new sections.

 

Certain transactions, except those to which the national security provisions of the Investment Act may apply, relating to common shares of our company are exempt from the Investment Act, including

 

(a) the acquisition of our common shares by a person in the ordinary course of that person’s business as a trader or dealer in securities,

 

(b) the acquisition of control of our company in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions on the Investment Act, and

 

(c) the acquisition of control of our company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of our company, through the ownership of common shares, remained unchanged.

 

MATERIAL INCOME TAX INFORMATION

 

Certain Canadian Federal Income Tax Considerations For United States Residents

 

The following is a summary of certain Canadian federal income tax considerations generally applicable to the holding and disposition of our securities acquired by a holder who, at all relevant times, (a) for the purposes of the  Income Tax Act  (Canada) (the “Tax Act”) (i) is not resident, or deemed to be resident, in Canada, (ii) deals at arm’s length with us and the underwriters, and is not affiliated with us or the underwriters, (iii) holds our common shares or warrants as capital property, (iv) does not use or hold the common shares or warrants in the course of carrying on, or otherwise in connection with, a business carried on or deemed to be carried on in Canada and (v) is not a “registered non-resident insurer” or “authorized foreign bank” (each as defined in the Tax Act), or other holder of special status, and (b) for the purposes of the Canada-U.S. Tax Convention (the “Tax Treaty”), is a resident of the United States, has never been a resident of Canada, does not have and has not had, at any time, a permanent establishment or fixed base in Canada, and who otherwise qualifies for the full benefits of the Tax Treaty. Holders who meet all the criteria in clauses (a) and (b) above are referred to herein as “U.S. Holders”, and this summary only addresses such U.S. Holders.

 

This summary does not deal with special situations, such as the particular circumstances of traders or dealers, tax exempt entities, insurers or financial institutions, or other holders of special status or in special circumstances. Such holders, and all other holders who do not meet the criteria in clauses (a) and (b) above, should consult their own tax advisors.

 

  88  

 

 

This summary is based on the current provisions of the Tax Act, the regulations thereunder in force at the date hereof (“Regulations”), the current provisions of the Tax Treaty, and our understanding of the administrative and assessing practices of the Canada Revenue Agency published in writing prior to the date hereof. This summary takes into account all specific proposals to amend the Tax Act and Regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Proposed Amendments”) and assumes that such Proposed Amendments will be enacted in the form proposed. However, such Proposed Amendments might not be enacted in the form proposed, or at all. This summary does not otherwise take into account or anticipate any changes in law or administrative or assessing practices, whether by legislative, governmental or judicial decision or action, nor does it take into account tax laws of any province or territory of Canada or of any other jurisdiction outside Canada, which may differ significantly from those discussed in this summary.

 

For the purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of our securities must generally be expressed in Canadian dollars. Amounts denominated in United States currency generally must be converted into Canadian dollars using the rate of exchange that is acceptable to the Canada Revenue Agency.

 

This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular U.S. Holder, and no representation with respect to the Canadian federal income tax consequences to any particular U.S. Holder or prospective U.S. Holder is made. This summary is not exhaustive of all Canadian federal income tax considerations. Accordingly, all prospective purchasers (including U.S. Holders as defined above) should consult with their own tax advisors for advice with respect to their own particular circumstances.

 

Withholding Tax on Dividends

 

Amounts paid or credited or deemed to be paid or credited as, on account or in lieu of payment of, or in satisfaction of, dividends on our common shares to a U.S. Holder will be subject to Canadian withholding tax. Under the Tax Treaty, the rate of Canadian withholding tax on dividends paid or credited by us to a U.S. Holder that beneficially owns such dividends and substantiates eligibility for the benefits of the Tax Treaty is generally 15% (unless the beneficial owner is a company that owns at least 10% of our voting stock at that time, in which case the rate of Canadian withholding tax is generally reduced to 5%)

 

Dispositions

 

A U.S. Holder will not be subject to tax under the Tax Act on a capital gain realized on a disposition or deemed disposition of a security, unless the security is “taxable Canadian property” to the U.S. Holder for purposes of the Tax Act and the U.S. Holder is not entitled to relief under the Tax Treaty.

 

Generally, the common shares and warrants will not constitute “taxable Canadian property” to a U.S. Holder at a particular time unless, at any time during the 60 month period immediately preceding the disposition, more than 50% of the fair market value of such security was derived, directly or indirectly, from one or any combination of: (i) real or immoveable property situated in Canada, (ii) “Canadian resource properties” (as defined in the Tax Act), (iii) “timber resource properties” (as defined in the Tax Act), and (iv) options in respect of, or interests in, or for civil law rights in, property described in any of the foregoing whether or not the property exists. Notwithstanding the foregoing, in certain other circumstances set out in the Tax Act, common shares or warrants could also be deemed to be “taxable Canadian property”.

 

If the common shares become listed on a “designated stock exchange” as defined in the Tax Act and are so listed at the time of disposition, the common shares and warrants generally will not constitute “taxable Canadian property” of a U.S. Holder at that time unless, at any time during the 60 month period immediately preceding the disposition, the following two conditions are met: (i) the U.S. Holder, persons with whom the U.S. Holder did not deal at arm’s length, partnerships in which the U.S. Holder or such non-arm’s length person holds a membership interest (either directly or indirectly through one or more partnerships), or the U.S. Holder together with all such persons, owned 25% or more of the issued shares of any class or series of shares of our company; and (ii) more than 50% of the fair market value of the shares of the company was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, Canadian resource properties (as defined in the Tax Act), timber resource properties (as defined in the Tax Act) or options in respect of, or interests in, or for civil law rights in, property described in any of the foregoing whether or not the property exists. Notwithstanding the foregoing, in certain other circumstances set out in the Tax Act, common shares or warrants could also be deemed to be “taxable Canadian property”.

 

U.S. Holders who may hold common shares or warrants as “taxable Canadian property” should consult their own tax advisors with respect to the application of Canadian capital gains taxation, any potential relief under the Tax Treaty, and special compliance procedures under the Tax Act, none of which is described in this summary.

 

  89  

 

 

Certain Material United States Federal Income Tax Considerations

 

The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from the acquisition, ownership and disposition of our securities. This summary applies only to U.S. Holders that acquire securities pursuant to this prospectus and does not apply to any subsequent U.S. Holder of our common shares or warrants.

 

This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder as a result of the acquisition, ownership and disposition of our common shares or warrants. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any particular U.S. Holder.   In addition, this summary does not address the U.S. federal alternative minimum, net investment income, U.S. federal estate and gift, U.S. Medicare contribution, U.S. state and local, or non-U.S. tax consequences of the acquisition, ownership or disposition of our common shares or warrants. Except as specifically set forth below, this summary does not discuss applicable tax reporting requirements.  Each U.S. Holder should consult its own tax advisor regarding all U.S. federal, U.S. state and local and non-U.S. tax consequences of the acquisition, ownership and disposition of our common shares or warrants.

 

No opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership or disposition of our common shares or warrants. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, or contrary to, any position taken in this summary. In addition, because the authorities upon which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the positions taken in this summary.

 

Scope of This Disclosure

 

Authorities

 

This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”), and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date hereof. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive or prospective basis, which could affect the U.S. federal income tax considerations described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis.

 

U.S. Holders

 

For purposes of this summary, the term “U.S. Holder” means a beneficial owner of our common shares or warrants that is for U.S. federal income tax purposes:

 

  an individual who is a citizen or resident of the U.S.;
     
  a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the U.S., any state thereof or the District of Columbia;
     
  an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
     
  a trust that (a) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (b) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

 

  90  

 

 

Transactions Not Addressed

 

This summary does not address the tax consequences of transactions effected prior or subsequent to, or concurrently with, any purchase of units pursuant to this prospectus (whether or not any such transactions are undertaken in connection with the purchase of units pursuant to this prospectus).

 

U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed

 

This summary does not address the U.S. federal income tax considerations of the acquisition, ownership or disposition of our securities by U.S. Holders that are subject to special provisions under the Code, including, but not limited to, the following: (a) tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) broker-dealers, dealers, or traders in securities or currencies that elect to apply a “mark-to-market” accounting method; (d) U.S. Holders that have a “functional currency” other than the U.S. dollar; (e) U.S. Holders that own our securities as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) U.S. Holders that acquire our securities in connection with the exercise of employee stock options or otherwise as compensation for services; (g) U.S. Holders that hold our securities other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); and (h) U.S. Holders that own directly, indirectly, or by attribution, 10% or more, by voting power, of our outstanding stock. This summary also does not address the U.S. federal income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Income Tax Act (Canada); (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold our securities in connection with carrying on a business in Canada; (d) persons whose securities in our company constitute “taxable Canadian property” under the Income Tax Act (Canada); or (e) persons that have a permanent establishment in Canada for purposes of the Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described immediately above, should consult their own tax advisors regarding all U.S. federal, U.S. state and local, and non-U.S. tax consequences (including the potential application and operation of any income tax treaties) relating to the acquisition, ownership or disposition of our common shares or warrants.

 

If an entity or arrangement that is classified as a partnership (or other “pass-through” entity) for U.S. federal income tax purposes holds our common shares or warrants, the U.S. federal income tax consequences to such partnership and the partners (or other owners) of such partnership of the acquisition, ownership or disposition of our common shares or warrants generally will depend on the activities of the partnership and the status of such partners (or other owners). This summary does not address the U.S. federal income tax considerations for any such partner or partnership (or other “pass-through” entity or its owners). Owners of entities and arrangements that are classified as partnerships (or other “pass-through” entities) for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences of the acquisition, ownership or disposition of our common shares or warrants.

 

Acquisition of Our Securities

 

A U.S. Holder generally will not recognize gain or loss upon the acquisition of our securities for cash pursuant to this prospectus. A U.S. Holder’s holding period for such common shares will begin on the day after the acquisition.

 

Ownership and Disposition of Our Common Shares and Warrants

 

Distributions on Our Common Shares

 

Subject to the “passive foreign investment company” (“PFIC”) rules discussed below (see “Tax Consequences if the Company is a PFIC”), a U.S. Holder that receives a distribution, including a constructive distribution, with respect to our common shares will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of the current or accumulated “earnings and profits” of the Company, as computed for U.S. federal income tax purposes. To the extent that a distribution exceeds the current and accumulated “earnings and profits” of the Company, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder’s tax basis in our common shares and thereafter as gain from the sale or exchange of such common shares (see “Sale or Other Taxable Disposition of Our Common Shares” below). However, the Company may not maintain calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder should therefore assume that any distribution by the Company with respect to our common shares will constitute a dividend. Dividends received on our common shares generally will not be eligible for the “dividends received deduction” available to U.S. corporate shareholders receiving dividends from U.S. corporations. If the Company is eligible for the benefits of the Canada-U.S. Tax Convention or our common shares is readily tradable on an established securities market in the U.S., dividends paid by the Company to non-corporate U.S. Holders generally will be eligible for the preferential tax rates applicable to long-term capital gains, provided certain holding period and other conditions are satisfied, including that the Company not be classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.

 

  91  

 

 

Sale or Other Taxable Disposition of Our Common Shares and Warrants

 

Subject to the PFIC rules discussed below, upon the sale or other taxable disposition of our common shares or warrants, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the amount of cash plus the fair market value of any property received and such U.S. Holder’s tax basis in the common shares or warrants sold or otherwise disposed of. Such capital gain or loss will be long-term capital gain or loss if, at the time of the sale or other taxable disposition, the U.S. Holder’s holding period for such security is more than one year. Preferential tax rates apply to long-term capital gains of non-corporate U.S. Holders. There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.

 

PFIC Status of the Company

 

If the Company is or becomes a PFIC, the preceding sections of this summary may not describe the U.S. federal income tax consequences to U.S. Holders of the ownership and disposition of our common shares or warrants. The U.S. federal income tax consequences of owning and disposing of our common shares or warrants if the Company is or becomes a PFIC are described below under the heading “Tax Consequences if the Company is a PFIC.”

 

A non-U.S. corporation is a PFIC for each tax year in which (i) 75% or more of its gross income is passive income (as defined for U.S. federal income tax purposes) (the “income test”) or (ii) on average for such tax year, 50% or more (by value) of its assets either produces or is held for the production of passive income (the “asset test”). For purposes of the PFIC provisions, “gross income” generally includes sales revenues less cost of goods sold, plus income from investments and from incidental or outside operations or sources, and “passive income” generally includes dividends, interest, certain rents and royalties, and certain gains from commodities or securities transactions. In determining whether or not it is a PFIC, a non-U.S. corporation is required to take into account its pro rata portion of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value). If certain conditions are met, a start-up non-U.S. corporation is not a PFIC in the first year that it has gross income, but could be a PFIC in one or more earlier years in which it has no gross income but satisfies the asset test.

 

Under certain attribution and indirect ownership rules, if the Company is a PFIC, U.S. Holders will generally be deemed to own their proportionate shares of the Company’s direct or indirect equity interest in any company that is also a PFIC (a “Subsidiary PFIC”).

 

The Company does not know if it currently is a PFIC or was a PFIC in a prior year and, based on current business plans and financial projections, does not know if it will be a PFIC in subsequent tax years. The determination of PFIC status is inherently factual, is subject to a number of uncertainties, and can be determined only annually after the close of the tax year in question. Additionally, the analysis depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. We might be determined to be a PFIC for the current tax year or any prior or future tax year, and no opinion of legal counsel or ruling from the IRS concerning the status of the Company as a PFIC has been obtained or will be requested. U.S. Holders should consult their own U.S. tax advisors regarding the PFIC status of the Company.

 

Tax Consequences if the Company is a PFIC

 

If the Company is a PFIC for any tax year during which a U.S. Holder owns our common shares or warrants, special rules may increase such U.S. Holder’s U.S. federal income tax liability with respect to the ownership and disposition of such common shares or warrants. If the Company meets the income test or the asset test for any tax year during which a U.S. Holder owns our common shares or warrants, the Company will be treated as a PFIC with respect to such U.S. Holder for that tax year and for all subsequent tax years, regardless of whether the Company meets the income test or the asset test for such subsequent tax years, unless the U.S. Holder elects to recognize any unrealized gain in such common shares or warrants or makes a timely and effective QEF Election or, if applicable, Mark-to-Market Election.

 

  92  

 

 

Under the default PFIC rules:

 

  any gain realized on the sale or other disposition (including dispositions and certain other events that would not otherwise be treated as taxable events) of our common shares or warrants (including an indirect disposition of the stock of any Subsidiary PFIC) and any “excess distribution” (defined as a distribution to the extent it, together with all other distributions received in the relevant tax year, exceeds 125% of the average annual distribution received during the preceding three years) received on our common shares or with respect to the stock of a Subsidiary PFIC will be allocated ratably to each day of such U.S. Holder’s holding period for our common shares;
     
  the amount allocated to the current tax year and any year prior to the first year in which the Company was a PFIC will be taxed as ordinary income in the current year;
     
  the amount allocated to each of the other tax years (the “Prior PFIC Years”) will be subject to tax at the highest ordinary income tax rate in effect for the applicable class of taxpayer for that year;
     
  an interest charge will be imposed with respect to the resulting tax attributable to each Prior PFIC Year, which interest charge is not deductible by non-corporate U.S. Holders; and
     
  any loss realized on the disposition of our common shares or warrants generally will not be recognized.

 

A U.S. Holder that makes a timely and effective “mark-to-market” election under Section 1296 of the Code (a “Mark-to-Market Election”) or a timely and effective election to treat the Company and each Subsidiary PFIC as a “qualified electing fund” (a “QEF”) under Section 1295 of the Code (a “QEF Election”) may generally mitigate or avoid the PFIC consequences described above with respect to our common shares or warrants.

 

If a U.S. Holder makes a timely and effective QEF Election, the U.S. Holder must include currently in gross income each year its pro rata share of the Company’s ordinary income and net capital gains, regardless of whether such income and gains are actually distributed. Thus, a U.S. Holder could have a tax liability with respect to such ordinary income or gains without a corresponding receipt of cash from the Company. If the Company is a QEF with respect to a U.S. Holder, the U.S. Holder’s basis in our common shares will be increased to reflect the amount of the taxed but undistributed income. Distributions of income that had previously been taxed will result in a corresponding reduction of basis in our common shares and will not be taxed again as a distribution to a U.S. Holder. Taxable gains on the disposition of our common shares by a U.S. Holder that has made a timely and effective QEF Election are generally capital gains. A U.S. Holder must make a QEF Election for the Company and each Subsidiary PFIC if it wishes to have this treatment. To make a QEF Election, a U.S. Holder will need to have an annual information statement from the Company setting forth the ordinary income and net capital gains for the year.   U.S. Holders should be aware that we might not satisfy the recordkeeping requirements that apply to a QEF or supply U.S. Holders with information such U.S. Holders require to report under the QEF rules in the event that the Company is a PFIC for any tax year.

 

In general, a U.S. Holder must make a QEF Election on or before the due date for filing its income tax return for the first year to which the QEF Election applies. Under applicable Treasury Regulations, a U.S. Holder will be permitted to make retroactive elections in particular circumstances, including if it had a reasonable belief that the Company was not a PFIC and filed a protective election. If a U.S. Holder owns PFIC stock indirectly through another PFIC, separate QEF Elections must be made for the PFIC in which the U.S. Holder is a direct shareholder and the Subsidiary PFIC for the QEF rules to apply to both PFICs. Each U.S. Holder should consult its own tax advisor regarding the availability and desirability of, and procedure for, making a timely and effective QEF Election for the Company and any Subsidiary PFIC.

 

A Mark-to-Market Election may be made with respect to stock in a PFIC if such stock is “regularly traded” on a “qualified exchange or other market” (within the meaning of the Code and the applicable Treasury Regulations). A class of stock that is traded on one or more qualified exchanges or other markets is considered to be “regularly traded” for any calendar year during which such class of stock is traded in other than de minimis quantities on at least 15 days during each calendar quarter. If our common shares or warrants are considered to be “regularly traded” within this meaning, then a U.S. Holder generally will be eligible to make a Mark-to-Market Election with respect to such security but not with respect to a Subsidiary PFIC. Upon closing our common shares and warrants will be listed or posted for trading on a stock quotation system and therefore considered to be “regularly traded” for this purpose.

 

  93  

 

 

When these securities become “regularly traded,” a U.S. Holder that makes a timely and effective Mark-to-Market Election with respect to such securities generally will be required to recognize as ordinary income in each tax year in which the Company is a PFIC an amount equal to the excess, if any, of the fair market value of such stock as of the close of such taxable year over the U.S. Holder’s adjusted tax basis in such stock as of the close of such taxable year. A U.S. Holder’s adjusted tax basis in our securities generally will be increased by the amount of ordinary income recognized with respect to such stock. If the U.S. Holder’s adjusted tax basis in our securities as of the close of a tax year exceeds the fair market value of such stock as of the close of such taxable year, the U.S. Holder generally will recognize an ordinary loss, but only to the extent of net mark-to-market income recognized with respect to such stock for all prior taxable years. A U.S. Holder’s adjusted tax basis in our securities generally will be decreased by the amount of ordinary loss recognized with respect to such stock. Any gain recognized upon a disposition of our common shares or warrants generally will be treated as ordinary income, and any loss recognized upon a disposition generally will be treated as ordinary loss to the extent of the net mark-to-market income recognized for all prior taxable years. Any loss recognized in excess thereof will be taxed as a capital loss. Capital losses are subject to significant limitations under the Code. Each U.S. Holder should consult its own tax advisor regarding the availability and desirability of, and procedure for, making a timely and effective Mark-to-Market Election with respect to our common shares or warrants.

 

Foreign Tax Credit

 

A U.S. Holder that pays (whether directly or through withholding) Canadian income tax in connection with the ownership or disposition of our common shares or warrants may be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all creditable foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.

 

Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” Generally, dividends paid by a non-U.S. corporation should be treated as foreign source for this purpose, and gains recognized on the sale of securities of a non-U.S. corporation by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty, and if an election is properly made under the Code. However, the amount of a distribution with respect to our common shares that is treated as a “dividend” may be lower for U.S. federal income tax purposes than it is for Canadian federal income tax purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In addition, this limitation is calculated separately with respect to specific categories of income. The foreign tax credit rules are complex, and each U.S. Holder should consult its own U.S. tax advisor regarding the foreign tax credit rules.

 

Special rules apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution, including a constructive distribution, from a PFIC. Subject to such special rules, non-U.S. taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit The rules relating to distributions by a PFIC and their eligibility for the foreign tax credit are complicated, and a U.S. Holder should consult its own tax advisor regarding their application to the U.S. Holder.

 

Receipt of Foreign Currency

 

The amount of any distribution or proceeds paid in Canadian dollars to a U.S. Holder in connection with the ownership, sale or other taxable disposition of our common shares, will be included in the gross income of a U.S. Holder as translated into U.S. dollars calculated by reference to the exchange rate prevailing on the date of actual or constructive receipt of the payment, regardless of whether the Canadian dollars are converted into U.S. dollars at that time. If the Canadian dollars received are not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a basis in the Canadian dollars equal to their U.S. dollar value on the date of receipt. Any U.S. Holder who receives payment in Canadian dollars and engages in a subsequent conversion or other disposition of the Canadian dollars may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method with respect to foreign currency. Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of Canadian dollars.

 

  94  

 

 

Information Reporting; Backup Withholding

 

Under U.S. federal income tax law, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a non-U.S. corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess of certain threshold amounts. The definition of “specified foreign financial assets” includes not only financial accounts maintained in non-U.S. financial institutions, but also, if held for investment and not in an account maintained by certain financial institutions, any stock or security issued by a non-U.S. person, any financial instrument or contract that has an issuer or counterparty other than a U.S. person and any interest in a non-U.S. entity. A U.S. Holder may be subject to these reporting requirements unless such U.S. Holder’s shares of our common shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult with their own tax advisors regarding the requirements of filing information returns on IRS Form 8938 for specified foreign financial assets, filing obligations relating to the PFIC rules including possible reporting on IRS Form 8621, and any other applicable reporting requirements.

 

Payments made within the U.S. or by a U.S. payor or U.S. middleman of (a) distributions on our common shares, and (b) proceeds arising from the sale or other taxable disposition of our common shares generally will be subject to information reporting. In addition, backup withholding, currently at a rate of 24%, may apply to such payments if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (“TIN”) (generally on Form W-9), (b) furnishes an incorrect U.S. TIN, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. TIN and that the IRS has not notified such U.S. Holder that it is subject to backup withholding. Certain exempt persons generally are excluded from these information reporting and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding rules are allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner. The information reporting and backup withholding rules may apply even if, under the Canada-U.S. Tax Convention, payments are exempt from dividend withholding tax or otherwise eligible for a reduced withholding rate.

 

The discussion of reporting requirements set forth above is not intended to constitute an exhaustive description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax, and, under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisor regarding the information reporting and backup withholding rules.

 

Certain Reporting Requirements

 

A U.S. Holder that acquires common shares generally will be required to file Form 926 with the IRS if (1) immediately after the acquisition such U.S. Holder, directly or indirectly, owns at least 10% of the common shares, or (2) the amount of cash transferred in exchange for common shares during the 12-month period ending on the date of the acquisition exceeds US$100,000. Significant penalties may apply for failing to satisfy these filing requirements. U.S. Holders are urged to contact their tax advisors regarding these filing requirements.

 

THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL U.S. TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE ACQUISITION, OWNERSHIP OR DISPOSITION OF OUR COMMON SHARES OR WARRANTS. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO THEM IN THEIR PARTICULAR CIRCUMSTANCES.

 

UNDERWRITING

 

In connection with this offering, we will enter into an underwriting agreement with The Benchmark Company, LLC as representative of the underwriters in this offering. Each underwriter named below has severally agreed to purchase from us, on a firm commitment basis the number of units set forth opposite its name below, at the public offering price less the underwriting discounts set forth on the cover page of this prospectus:

 

Name of Underwriter   Number of Units  
The Benchmark Company, LLC               
ThinkEquity, a division of Fordham Financial Management, Inc.         
Cuttone & Co., LLC        
         
Total        

 

  95  

 

 

The underwriters are committed to purchase all the units offered by this prospectus if they purchase any units. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated. The underwriters are not obligated to purchase the common shares and/or warrants covered by the underwriters’ over-allotment option to purchase common shares and/or warrants described below. The underwriters are offering the units, common shares and warrants, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer’s certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

 

Over-Allotment Option

 

We have granted to the underwriters a 45-day option to purchase up to an aggregate of additional common shares and/or warrants to purchase common shares (equal to 15% of the number of shares and warrants underlying the units sold in the offering), in any combination thereof, at the public offering price per share and per warrant, respectively, less underwriting discounts and commissions. The underwriters may exercise this option for 45 days from the date of this prospectus solely to cover sales of common shares and/or warrants by the underwriters in excess of the total number of common shares and/or warrants underlying the units set forth in the table above. If any of the additional common shares are purchased, the underwriters will offer the additional common shares at US$         per common share, the public offering price of each common share contained in a unit. If any of the additional warrants are purchased, the underwriters will offer the additional warrants at US$         per warrant, the public offering price of each warrant contained in a unit.

 

Discounts and Commissions

 

The underwriters propose initially to offer the units to the public at the public offering price set forth on the cover page of this prospectus and to dealers at those prices less the underwriting discounts and commissions set forth on the cover page of this prospectus. If all of the units offered by us are not sold at the public offering price, the underwriters may change the offering price and other selling terms by means of a supplement to this prospectus.

 

We will pay the underwriters a success fee of 5.5% for those gross proceeds originating from investors introduced by us and 7% on all other gross proceeds.

 

The following table shows the public offering price, underwriting discounts, non-accountable expense allowance and proceeds, before expenses, to us. The information assumes either no exercise or full exercise of the over-allotment option to purchase common shares and/or warrants we granted to the representative of the underwriters.

 

    Per Unit     Total Without
Over-Allotment
Option
    Total With Full
Over-Allotment
Option
 
Public offering price   US$       US$ 25,000,000     US$ 28,750,000  
Underwriting discount (1)   US$       US$ 1,750,000     US$ 2,012,500  
Non-accountable expense allowance (2)   US$       US$ 250,000     US$ 287,500  
Proceeds, before expenses, to us   US$       US$ 23,000,000     US$ 26,450,000  

 

(1)  This represents the maximum underwriting discount if none of the investors in the offering are introduced by us.

 

(2)  We have agreed to pay a non-accountable expense allowance to the underwriters equal to 1% of the gross proceeds received at the closing of this offering (excluding any proceeds received upon any subsequent exercise of the over-allotment option to purchase shares and/or warrants).

 

  96  

 

 

We have also agreed to pay the underwriters’ expenses relating to the offering, including expenses and disbursements relating to background checks of our officers and directors, commemorative mementos and lucite tombstones, fees and expenses of the underwriters’ legal counsel (US$55,000 of which has been paid in advance and will be returned to us to the extent that offering expenses are not actually incurred in compliance with FINRA Rule 5110(f)(2)(C)), book-building, prospectus tracking and compliance software for this offering, and up to US$ of the underwriters’ actual accountable road show expenses for the offering, provided, however, that the accountable expenses to be reimbursed shall not exceed US$150,000 in the aggregate (including US$100,000 for legal and due diligence expenses).

 

In addition, we have agreed to issue to the underwriters warrants to purchase up to a total of common shares which is equal to 1.5% of the common shares and common shares underlying the warrants included in the units sold to investors introduced to the underwriters by us and 4% of the common shares and common shares underlying the warrants included in the units sold to all other investors in the offering. The underwriters’ warrants will be exercisable commencing six months after the effective date of the registration statement of which this prospectus forms a part (“Effective Date”) at a price per share equal to 125% of the price of the units sold in this offering and will expire five years from the Effective Date. The underwriters’ warrants will provide for cashless exercise, registration rights (including a one-time demand registration right and unlimited piggyback rights) and customary anti-dilution provisions (for stock dividends and splits and recapitalizations) consistent with FINRA Rule 5110(f)(2)(G).

 

The total estimated expenses of the offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding underwriting discounts, commissions and expenses, are approximately US$239,186 and are payable by us.

 

Discretionary Accounts

 

The underwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.

 

Lock-Up Agreements

 

Pursuant to “lock-up” agreements, we, our executive officers and directors, and certain of our stockholders, have agreed, without the prior written consent of the representative, not to directly or indirectly, offer to sell, sell, pledge or otherwise transfer or dispose of any of shares of (or enter into any transaction or device that is designed to, or could be expected to, result in the transfer or disposition by any person at any time in the future of) our common shares, enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of shares of our common shares, make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any shares of common shares or securities convertible into or exercisable or exchangeable for common shares or any other securities of the Company or publicly disclose the intention to do any of the foregoing, subject to customary exceptions, for a period of 180 days from the date of this prospectus for our directors, officers and certain stockholders.

 

Right of First Refusal

 

We have granted each of the underwriters a right of first refusal, for a period of eighteen (18) months from the commencement of sales, to act as sole and exclusive investment bankers, book-runners, financial advisors, underwriters and/or placement agents, at the underwriters’ sole and exclusive discretion, for each and every future public and private equity and debt offering in the United States requiring an investment banker or placement agent, including all equity linked financings (each, a “Subject Transaction”) of the Company, or any successor to or subsidiary of the Company, on terms and conditions customary to the representative for such Subject Transactions.

 

Indemnification

 

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act and the Exchange Act, and to contribute to payments that the underwriters may be required to make for these liabilities. We have been advised that, in the opinion of the Securities and Exchange Commission, indemnification of liabilities under the Securities Act is against public policy as expressed in the Securities Act, and is therefore, unenforceable.

 

  97  

 

 

OTCQB Marketplace and Nasdaq Capital Market

 

Our common shares are currently quoted on the OTCQB Marketplace under the symbol “ECCTF”.

 

We have applied to have our common shares and warrants included in the units listed on the Nasdaq Capital Market under the symbols “SOLO” and “SOLOW”, respectively. Our application might not be approved. There is no established public trading market for the warrants included in the units, and such a market might never develop.

 

Price Stabilization, Short Positions and Penalty Bids

 

In order to facilitate the offering of our securities, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our securities. In connection with the offering, the underwriters may purchase and sell our securities in the open market. These transactions may include short sales, purchases on the open market to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the underwriters of a greater number of shares of securities than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares of securities in the offering. The underwriters may close out any covered short position by either exercising the over-allotment option to purchase shares and/or warrants or purchasing shares of securities in the open market. In determining the source of shares of securities to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option to purchase shares and/or warrants. “Naked” short sales are sales in excess of the over-allotment option to purchase shares and/or warrants. The underwriters must close out any naked short position by purchasing securities in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our securities in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of shares of securities made by the underwriters in the open market before the completion of the offering.

 

Similar to other purchase transactions, the underwriters’ purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our securities or preventing or retarding a decline in the market price of our securities. As result, the price of our securities may be higher than the price that might otherwise exist in the open market.

 

The underwriters have advised us that, pursuant to Regulation M under the Exchange Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of our securities, including the imposition of penalty bids. This means that if the representative of the underwriters purchases securities in the open market in stabilizing transactions or to cover short sales, the representative can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.

 

The underwriters make no representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our securities. In addition, neither we nor the underwriters make any representation that the underwriters will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

 

Electronic Offer, Sale and Distribution of Securities

 

A prospectus in electronic format may be made available on the websites maintained by one or more underwriters or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares of securities to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representative to underwriters and selling group members that may make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on the underwriters’ websites and any information contained in any other website maintained by the underwriters is not part of this prospectus or the registration statement of which this prospectus forms a part.

 

Other Relationships

 

From time to time, certain of the underwriters and their affiliates may provide in the future, various advisory, investment and commercial banking and other services to us in the ordinary course of business, for which they will receive customary fees and commissions. However, except as disclosed in this prospectus, we have no present arrangements with any of the underwriters for any further services.

 

  98  

 

 

Pricing of the Offering

 

The public offering price was determined by negotiations between us and the representative. Among the factors considered in determining the public offering price were our future prospects and those of our industry in general, our sales, earnings, share price as quoted on the OTCQB Marketplace and certain other financial and operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities, and certain financial and operating information of companies engaged in activities similar to ours. Neither we nor the underwriters can assure investors that an active trading market for the shares or the warrants will develop, or that after the offering the shares will trade in the public market at or above the public offering price.

 

Offer Restrictions Outside the United States

 

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

 

Canada

 

The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws. Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

 

China

 

The information in this document does not constitute a public offer of the securities, whether by way of sale or subscription, in the People’s Republic of China (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan). The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly to “qualified domestic institutional investors.”

 

United Kingdom

 

Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (“FSMA”)) has been published or is intended to be published in respect of the securities. This document is issued on a confidential basis to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the securities may not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any other document, except in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.

 

  99  

 

 

Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the securities has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply to our Company.

 

In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (“FPO”), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

 

Hong Kong

 

Neither the information in this document nor any other document relating to the offer has been delivered for registration to the Registrar of Companies in Hong Kong, and its contents have not been reviewed or approved by any regulatory authority in Hong Kong, nor has the Company been authorized by the Securities and Futures Commission in Hong Kong. This document does not constitute an offer or invitation to the public in Hong Kong to acquire shares. Accordingly, unless permitted by the securities laws of Hong Kong, no person may issue or have in its possession for the purpose of issue, this document or any advertisement, invitation or document relating to the shares, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong other than in relation to shares which are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” (as such term is defined in the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (“SFO”) and the subsidiary legislation made thereunder) or in circumstances which do not result in this document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance of Hong Kong (Cap. 32 of the Laws of Hong Kong) (the “CO”) or which do not constitute an offer or an invitation to the public for the purposes of the SFO or the CO. The offer of the shares is personal to the person to whom this document has been delivered by or on behalf of our company, and a subscription for shares will only be accepted from such person. No person to whom a copy of this document is issued may issue, circulate or distribute this document in Hong Kong or make or give a copy of this document to any other person. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. No document may be distributed, published or reproduced (in whole or in part), disclosed by or to any other person in Hong Kong or to any person to whom the offer of sale of the shares would be a breach of the CO or SFO.

 

EXPENSES RELATING TO THIS OFFERING

 

Set forth below is an itemization of the total expenses, excluding placement discounts and commissions, that we expect to incur in connection with this offering. With the exception of the SEC registration fee, the FINRA filing fee and the Nasdaq Capital Market listing fee, all amounts are estimates.

 

Securities and Exchange Commission Registration Fee   US$ 4,936  
Nasdaq Capital Market Listing Fee   US$ 50,000  
FINRA   US$ 4,250  
Legal Fees and Expenses   US$ 150,000  
Accounting Fees and Expenses   US$ 20,000  
Printing and Engraving Expenses   US$ 5,000  
Miscellaneous Expenses   US$ 5,000  
Total Expenses   US$ 239,186  

 

  100  

 

 

Under the Underwriting Agreement, we will pay our underwriters a fee and commission equal to 5.5% for those gross proceeds originating from investors introduced by us and 7% on all other gross proceeds of this offering. In addition to the cash commission, we will also reimburse the underwriters for the full amount of its reasonable, non-accountable expenses of up to 1% of the gross proceeds raised in the offering, in addition to its expenses relating to the offering, including but not limited to (i) reasonable travel and out-of-pocket expenses, including clearing charges and (ii) legal expense, up to US$100,000.

 

LEGAL MATTERS

 

Ortoli Rosenstadt LLP is acting as counsel to our company regarding U.S. securities law matters. The current address of Ortoli Rosenstadt LLP is 501 Madison Avenue, 14th Floor, New York, NY 10022. McMillan LLP   is acting as our Canadian counsel. The current address of McMillan LLP is Royal Centre, 1055 W. Georgia Street, Suite 1500, PO Box 11117, Vancouver, British Columbia V6E 4N7.

 

Ellenoff Grossman & Schole LLP is acting as counsel to the underwriters. Their current address is 1345 Avenue of the Americas, 11 th Floor, New York, NY 10105.

 

EXPERTS

 

The financial statements of Electrameccanica Vehicles Corp. as of December 31, 2017 and December 31, 2016 and for the years respectively then ended included in this prospectus and registration statement have been so included in reliance on the report of Dale Matheson Carr-Hilton Labonte LLP, an independent registered public accounting firm, given on the authority of said firm as experts in accounting and auditing. Dale Matheson Carr-Hilton Labonte LLP has offices at Suite 1500, 1140 West Pender Street, Vancouver, British Columbia, Canada, V6E 4G1. Their telephone number is (604) 687-4747.

 

INTERESTS OF EXPERTS AND COUNSEL

 

None of the named experts or legal counsel was employed on a contingent basis, owns an amount of shares in our company which is material to that person, or has a material, direct or indirect economic interest in our company or that depends on the success of the offering.

 

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We have filed with the SEC a registration statement on Form F-1 under the Securities Act with respect to the common shares offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits thereto, to which reference is hereby made. With respect to each contract, agreement or other document filed as an exhibit to the registration statement, reference is made to such exhibit for a more complete description of the matter involved. The registration statement and the exhibits thereto filed by us with the SEC may be inspected at the public reference facility of the SEC listed below.

 

The registration statement, reports and other information filed or to be filed with the SEC by us can be inspected and copied at the public reference facilities maintained by the SEC at 100 F. Street NW, Washington, D.C. 20549. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.

 

As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

 

  101  

 

 

INDEX TO FINANCIAL STATEMENTS

 

ELECTRAMECCANICA VEHICLES CORP.    
     
Annual Financial Statements for the Year Ended December 31, 2017    
Report of the Company’s Registered Independent Accounting Firm   F-2
Consolidated Statements of Financial Position as at December 31, 2017 and 2016   F-3
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2017 and 2016   F-4
Consolidated Statement of Changes in Shareholders’ Equity for the Years Ended December 31, 2017 and 2016   F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017 and 2016   F-6
Notes to the Consolidated Financial Statements for the Years Ended December 31, 2017 and 2016   F-7
     
Interim Financial Statements for the Three-Month Period Ended March 31, 2018    
Consolidated Statements of Financial Position as at March 31, 2017 and as at December 31, 2017   F-25
Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2018 and 2017   F-26
Consolidated Statement of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2018 and 2017   F-27
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017   F-28
Notes to the Consolidated Financial Statements for the Three Months Ended March 31, 2018   F-29
     
INTERMECCANICA INTERNATIONAL INC.    
     
Annual Financial Statements for the Year Ended March 31, 2017    
Report of Intermeccanica International Inc.’s Registered Independent Accounting Firm   F-44
Consolidated Statements of Financial Position as at March 31, 2017 and 2016   F -45
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended March 31, 2017 and 2016   F-46
Consolidated Statement of Changes in Equity for the Years Ended March 31, 2017, 2016 and 2015   F -47
Consolidated Statements of Cash Flows for the Years Ended March 31, 2017 and 2016   F -48
Notes to the Consolidated Financial Statements for the Years Ended March 31, 2017 and 2016   F -49
     
Interim Financial Statements for the Six-Month Period September 30, 2017    
Consolidated Statements of Financial Position as at September 30, 2017 and as at March 31, 2017   F-60
Consolidated Statements of Comprehensive Loss for the Six Months Ended September 30, 2018 and 2017   F -61
Consolidated Statement of Changes in Shareholders’ Equity for the Six Months Ended September 30, 2018 and 2017   F -62
Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2018 and 2017   F -63
Notes to the Consolidated Financial Statements for the Six Months Ended September 30, 2018   F -64

 

PRO-FORMA FINANCIAL STATEMENTS

   

  F- 1  

 

 

Report of Independent Registered Public Accounting Firm

 

To the Shareholders of Electrameccanica Vehicles Corp.

 

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial position of Electrameccanica Vehicles Corp. (the "Company") as of December 31, 2017 and 2016, and the consolidated statements of comprehensive loss, changes in equity and cash flows for the years ended December 31, 2017, 2016 and the period from inception on February 16, 2015 to December 31, 2015, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company  as of   December 31, 2017 and 2016, and the consolidated statements of comprehensive loss, changes in equity and cash flows for the years ended December 31, 2017, 2016 and the period from inception on February 16, 2015 to December 31, 2015, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred losses in developing its business, and further losses are anticipated. The Company requires additional funds to meet its obligations and the costs of its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's 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 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 in accordance with the standards of the PCAOB. 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 in accordance with the standards of the PCAOB.

 

Our audits included performing procedures to assess the risks of material misstatement of the 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

“DMCL”

DALE MATHESON CARR-HILTON LABONTE LLP

CHARTERED PROFESSIONAL ACCOUNTANTS

We have served as the Company’s auditor since 2015

Vancouver, Canada

April 2, 2018

 

 

  F- 2  

 

 

Electrameccanica Vehicles Corp.

Consolidated Statements of Financial Position

(Expressed in Canadian dollars)

 

    Note   December 31, 2017     December 31, 2016  
ASSETS                    
Current assets                    
Cash and cash equivalents   4   $ 8,610,996     $ 3,916,283  
Receivables   5     243,639       271,284  
Prepaid expenses         920,146       249,585  
Inventory         232,903       -  
          10,007,684       4,437,152  
                     
Non-current assets                    
Plant and equipment   6     1,393,683       225,269  
Investment   7     -       100,000  
Trademark and patents         -       23,175  
Goodwill and other intangible assets   7     1,260,014       2,170  
TOTAL ASSETS       $ 12,661,381     $ 4,787,766  
                     
LIABILITIES                    
Current liabilities                    
Bank overdraft and demand loan   9   $ 123,637     $ -  
Trade payables and accrued liabilities   8     1,123,790       468,000  
Customer deposits         447,071       169,500  
Convertible loan   11     -       243,676  
Shareholder loan         10,383       -  
Promissory note   7     1,500,000       -  
Deferred income tax   7     149,794       -  
          3,354,675       881,176  
                     
Non-current liabilities                    
Derivative liability 1   12     3,655,690       -  
TOTAL LIABILITIES         7,010,365       881,176  
                     
EQUITY                    
Share capital   13     22,718,282       11,383,996  
Common share subscription         750,000       101,500  
Share-based payment reserve   14     3,518,286       2,351,144  
Equity component reserve   14     -       39,130  
Deficit         (21,335,552 )     (9,969,180 )
TOTAL EQUITY         5,651,016       3,906,590  
TOTAL LIABILITIES AND EQUITY       $ 12,661,381     $ 4,787,766  

 

Commitments (Notes 6 and 9)

Subsequent events (Note 21)

 

On behalf of the Board of Directors.

 

/s/ Jerry Kroll   /s/ Robert Tarzwell  
Director   Director  

 

 

1 Footnote: The warrant derivative liability is valued at fair value in accordance with International Financial Reporting Standards (“IFRS”). There are no circumstances in which the Company would be required to pay cash upon exercise or expiry of the warrants. See Note 12.

 

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

 

  F- 3  

 

 

Electrameccanica Vehicles Corp.

Consolidated Statements of Comprehensive Loss

(Expressed in Canadian dollars)

 

           
    Note   Year ended
December 31,
2017
    Year ended
December 31,
2016
    Period from
inception February
16, 2015 to
December 31,
2015
 
                       
Revenue       $ 109,173     $ -     $ -  
Cost of revenue         63,950       -       -  
Gross profit         45,223       -       -  
                             
Operating expenses                            
Amortization   6     124,134       22,567       629  
General and administrative expenses   15     2,373,251       1,205,835       132,962  
Research and development expenses   16     4,430,386       2,778,295       486,809  
Sales and marketing expenses   17     631,381       209,455       19,691  
Stock-based compensation expense   13     889,511       1,461,189       354,015  
Share-based payment expense   13     1,085,716       3,264,681       -  
          (9,534,379 )     (8,942,022 )     (994,106 )
                             
Loss before other items         (9,489,156 )     (8,942,022 )     (994,014 )
                             
Other items                            
Accretion interest expense   11     69,562       25,908       -  
Changes in fair value of warrant derivative   12     186,269       -       -  
Finder’s fee on convertible loan   11     258,542       -       -  
Impairment of goodwill   7     1,342,794       -       -  
Foreign exchange loss         20,048       5,417       1,727  
                             
Net and comprehensive loss       $ (11,366,372 )   $ (8,973,347 )   $ (995,833 )
                             
Loss per share – basic and fully diluted       $ (0.35 )   $ (0.27 )   $ (0.04 )
                             
Weighted average number of shares outstanding – basic and fully diluted   13     43,636,629       32,684,868       25,769,510  

 

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

 

  F- 4  

 

 

Electrameccanica Vehicles Corp.

Consolidated Statements of Changes in Equity

(Expressed in Canadian dollars)

Years ended December 31, 2017, 2016 and period from inception February 16, 2015 to December 31, 2015

 

        Share capital                                      
    Note   Number of
shares
    Amount     Share
subscription
    Share
Issue cost
    Share-based
payment
reserve
    Equity
component
reserve
    Deficit     Total  
Balance at inception on February 16, 2015         -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
Shares issued for cash – seed capital   13     25,350,000       5,070       -       -       -       -       -       5,070  
Shares issued for cash – private placements   13     1,433,625       453,450       -       -       -       -       -       453,450  
Share subscription   13     -       -       50,000       -       -       -       -       50,000  
Stock-based compensation   13     -       -       -       -       354,015       -       -       354,015  
Comprehensive loss for the period         -       -       -       -       -       -       (995,833 )     (995,833 )
Balance at December 31, 2015         26,783,625       458,520       50,000       -       354,015       -       (995,833 )     (133,298 )
Shares issued for cash   13     13,575,200       8,375,519       -       (1,604,486 )     -       -       -       6,771,033  
Share issued for finders fees   13     1,273,512       823,512       -       -       519,088       -       -       1,342,600  
Shares issued for convertible debt issue cost   11,13     26,250       26,250       -       -       16,852       -       -       43,102  
Share issued to settle debt   13     125,000       50,000       -       -       -       -       -       50,000  
Share-based payment   13     -       3,264,681       -       -       -       -       -       3,264,681  
Stock-based compensation   13     -       -       -       -       1,461,189       -       -       1,416,189  
Share subscription   13     -       -       51,500       (10,000 )     -       -       -       41,500  
Equity component of convertible loan   11     -       -       -       -       -       39,130       -       39,130  
Net and comprehensive loss for the year         -       -       -       -       -       -       (8,973,347 )     (8,973,347 )
Balance at December 31, 2016         41,783,587       12,998,482       101,500       (1,614,486 )     2,351,144       39,130       (9,969,180 )     3,906,590  
Shares issued for cash   13     3,820,499       12,022,308       (101,500 )     (1,381,442 )     -       -       -       10,539,366  
Adjustment for warrant derivative liability                 (2,410,255 )                                             (2,410,255 )
Issuance of convertible debt   11                                             130,439               130,439  
Shares issued for finders fees   13     214,009       709,521       -       -       3,223       -       -       712,744  
Shares issued upon conversion of convertible debt   11,13     1,620,114       1,657,845       -       -       -       (169,569 )     -       1,488,276  
Shares and warrants issued to services   13     150,000       811,308       -       -       274,408       -       -       1,085,716  
Stock-based compensation   13     -       -       -       -       889,511       -       -       889,511  
Share subscription   13     -       -       750,000       (75,000 )     -       -       -       675,000  
Net and comprehensive loss for the year         -       -       -       -       -       -       (11,366,372 )     (11,366,372 )
                                                                     
Balance at December 31, 2017         47,588,209     $ 25,789,209     $ 750,000     $ (3,070,928 )   $ 3,518,286     $ -     $ (21,335,552 )   $ 5,651,015  

 

During the year ended December 31, 2016, the Company completed a 1:5 forward share split and all references to number of shares have been retroactively adjusted.

See Note 13 for further details.

 

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

 

  F- 5  

 

 

Electrameccanica Vehicles Corp.

Consolidated Statements of Cash Flows

(Expressed in Canadian dollars)

 

    Year ended
December 31,
2017
    Year ended
December 31,
2016
    Period from
inception
February 16, 2015
to December 31,
2015
 
Operating activities                        
Loss for the year   $ (11,366,372 )   $ (8,973,347 )   $ (995,833 )
Adjustments for:                        
Amortization     124,134       22,567       629  
Stock-based compensation expense     889,511       1,461,189       354,015  
Shares issued for services     1,085,716       3,264,681       -  
Interest accretion expense     69,562       25,908       -  
Finder’s fee on convertible loan     258,542       -       -  
Impairment of goodwill     1,342,794       -       -  
Impairment of trademark and patents     19,174       -       -  
Change in fair value of warrant derivative     186,269       -       -  
Changes in non-cash working capital items:                        
Receivables     93,210       (242,645 )     (28,639 )
Prepaid expenses     (657,713 )     (202,238 )     (47,347 )
Inventory     (44,092 )     14,966       (14,967 )
Trades payable and accrued liabilities     568,850       325,090       132,910  
Customer deposits     110,335       140,994       28,506  
Net cash flows used in operating activities     (7,320,080 )     (4,162,835 )     (570,725 )
                         
Investing activities                        
Expenditures on plant and equipment     (1,264,265 )     (232,027 )     (16,438 )
Purchase of Intermeccanica     (900,000 )     (100,000 )     -  
Cash received on business combination     59,449       -       -  
Expenditures on trademarks and patents     -       (25,345 )     -  
Net cash flows used in investing activities     (2,104,816 )     (357,372 )     (16,438 )
                         
Financing activities                        
Proceeds from bank loan     123,637       -       -  
Proceeds from convertible loans     2,441,225       300,000       -  
Repayment of shareholder loans     (33,155 )     (135,000 )     185,000  
Proceeds from share subscription     750,000       101,500       50,000  
Proceeds on issuance of common shares – net of issue costs     10,837,902       8,063,633       458,520  
Net cash flows from financing activities     14,119,609       8,330,133       693,520  
                         
Increase in cash and cash equivalents     4,694,713       3,809,926       106,357  
                         
Cash and cash equivalents, beginning     3,916,283       106,357       -  
Cash and cash equivalents, ending   $ 8,610,996     $ 3,916,283     $ 106,357  
                         
Non-cash financing and investing transactions:                  
Issuance of promissory note for acquisition of Intermeccanica   $ 1,500,000     $ -     $ -  

 

The accompanying notes are an integral part of these financial statements

 

  F- 6  

 

 

Electrameccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2017, 2016 and 2015

 

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 manufacture of electric vehicles. The Company acquired Intermeccanica International Inc. (“Intermeccanica”) on October 18, 2017, and its principal activity is the development and manufacture of high end custom built vehicles.

 

The head office and principal address of the Company are located at 102 East 1 st Avenue, Vancouver, British Columbia, Canada, V5T 1A4.

 

These consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. As at December 31, 2017 the Company’s principal activity, the development and manufacture of electric vehicles, is in the development stage, and the Company’s continuation as a going concern is dependent upon the successful results from its electric vehicle development and manufacturing activities and its ability to attain profitable operations and generate funds there from and/or raise equity capital or borrowings sufficient to meet current and future obligations. It is anticipated that significant additional funding will be required. These factors indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. Management intends to finance its operations over the next twelve months through private placement of equity capital. Should the Company be unable to continue as a going concern, the net realizable value of its assets may be materially less than the amounts on its statement of financial position.

 

2. Significant accounting policies and basis of preparation

 

The financial statements were authorized for issue on April 2, 2018 by the directors of the Company.

 

Statement of compliance with International Financial Reporting Standards

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”) and including interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”) as applicable to the preparation of annual financial statements.

 

Basis of preparation

The financial statements of the Company have been prepared on an accrual basis and are based on historical costs, modified where applicable. The Company’s functional and presentation currency is Canadian dollars.

 

Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Intermeccanica from the date of its acquisition on October 18, 2017 (Note 7). Inter-company balances and transactions, including unrealized income and expenses arising from inter-company transactions, are eliminated on consolidation.

 

Significant estimates and assumptions

The preparation of financial statements in accordance with IFRS requires the Company to make estimates and assumptions concerning the future. The Company’s management reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised.

 

Estimates and assumptions where there is significant risk of material adjustments to assets and liabilities in future accounting periods include the fair value of the identifiable assets and liabilities acquired from Intermeccanica, the estimated recoverable amount of goodwill, intangible assets and other long-lived assets, the useful lives of plant and equipment, fair value measurements for financial instruments and share-based payments, and the recoverability and measurement of deferred tax assets.

 

  F- 7  

 

 

Electrameccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2017, 2016 and 2015

 

Significant judgments

The preparation of financial statements in accordance with IFRS requires the Company to make judgments, apart from those involving estimates, in applying accounting policies. The most significant judgments in applying the Company’s financial statements include:

 

- The assessment of the Company’s ability to continue as a going concern and whether there are events or conditions that may give rise to significant uncertainty;
- the classification of financial instruments; and
- the calculation of income taxes require judgement in interpreting tax rules and regulations.

 

Share-based payments

Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to the option reserve. The fair value of options is determined using a Black–Scholes pricing model. The number of options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.

 

Loss per share

Basic loss per share is calculated by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding in the period. For all periods presented, the loss attributable to common shareholders equals the reported loss attributable to owners of the Company. Fully diluted loss per share is calculated by the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding for the calculation of fully diluted loss per share assumes that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during the period.

 

Financial instruments

The Company classifies its financial instruments in the following categories: at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale and financial liabilities. The classification depends on the purpose for which the financial instruments were acquired. Management determines the classification of its financial instruments at initial recognition. The Company has no financial instruments classified as fair value through profit or loss, held-to-maturity, or available for sale.

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortized cost. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. Cash and accounts receivable are classified as loans and receivables.

 

Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortized cost. The Company’s non-derivative financial liabilities consist of trade payables, customer deposits, convertible loans, promissory note and shareholder loans. Derivative financial liabilities are measured at fair value and are subsequently valued at fair value through profit or loss. The Company’s derivative liability consists of warrants exercisable in currencies other than the Company’s functional currency.

 

Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognized when the Company’s obligations are discharged, cancelled or expired.

 

At each reporting date, the Company assesses whether there is objective evidence that a financial instrument has been impaired. Any impairment is recorded in profit or loss. No impairment was required on the Company’s financial instruments.

 

The Company does not have any derivative financial assets.

 

  F- 8  

 

 

Electrameccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2017, 2016 and 2015

 

Impairment of assets

The carrying amount of the Company’s long-lived assets with finite useful lives (which include plant and equipment and intangible assets) is reviewed at each reporting date to determine whether there is any indication of impairment. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. An impairment loss is recognized whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognized in the statement of comprehensive loss.

 

The recoverable amount of assets is the greater of an asset’s fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

 

An impairment loss is only reversed if there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount. Any reversal of impairment cannot increase the carrying value of the asset to an amount higher than the carrying amount that would have been determined had no impairment loss been recognized in previous years.

 

Goodwill and other intangible assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment, or more frequently if indicators of impairment exist.

 

Income taxes

Current income tax:

Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries where the Company operates and generates taxable income. Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

 

Deferred income tax:

Deferred income tax is recognized, using the asset and liability method, on temporary differences at the reporting date arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

 

Cash and cash equivalents

Cash and cash equivalents include cash and short-term investments with original maturities of less than 90 days and are presented at cost, which approximates market value.

 

Inventory

Inventory consists of parts held for resale or for use in fixed fee contracts and is valued at the lower of cost and net realizable value. Cost is determined on the first-in, first-out basis.

 

Trademarks and patents

The Company expenses legal fees and filing costs associated with the development of its trademarks and patents.

 

  F- 9  

 

 

Electrameccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2017, 2016 and 2015

 

Plant and equipment

Plant and equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses.

 

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the statement of comprehensive loss during the financial period in which they are incurred.

 

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the statement of comprehensive loss.

 

Amortization is calculated on a straight-line method to write off the cost of the assets to their residual values over their estimated useful lives. The amortization rates applicable to each category of property, plant and equipment are as follows:

 

Class of plant and equipment   Amortization rate  
Office furniture and equipment        20 %
Shop equipment     20 %
Computer equipment     33 %
Computer software     50 %
Vehicles     33 %
Leasehold improvement     over term of lease  
Tooling     20 %
Production molds     per unit produced  

 

Research and development costs

Research costs are expensed when incurred and are stated net of government grants. Development costs including direct material, direct labour and contract service costs are capitalized as intangible assets when the Company can demonstrate that the technical feasibility of the project has been established; the Company intends to complete the asset for use or sale and has the ability to do so; the asset can generate probable future economic benefits; the technical and financial resources are available to complete the development; and the Company can reliably measure the expenditure attributable to the intangible asset during its development. After initial recognition, internally generated intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses. These costs are amortized on a straight-line basis over the estimated useful life. The Company did not have any development costs that met the capitalization criteria for the year ended December 31, 2017 or 2016.

 

Revenue recognition

Revenue is recognized to the extent that the amount of revenue can be measured reliably and collection is probable .

 

Part sales:

Sales of parts are recognized when the Company has transferred significant risks and rewards of ownership to the customer which generally occurs upon shipment.

 

Services, repairs and support services:

Services, repairs and support services are recognized in the accounting period when the services are rendered.

 

Sales of vehicles:

The Company manufactures and sells custom built vehicles typically on fixed fee arrangements with its customers. Revenue is recognized in the accounting period in which the services are rendered, by reference to the stage of completion of the project. The stage of completion is determined as a percentage based on the amount of costs incurred compared to the estimated cost of completion. Revenue recognized in excess of amounts billed is recorded as accounts receivable. Deposits received in excess of work performed is recorded as deferred revenue.

 

  F- 10  

 

 

Electrameccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2017, 2016 and 2015

 

3. Accounting standards issued but not yet effective

 

New standard IFRS 9 “Financial Instruments”

This new standard is a partial replacement of IAS 39 “Financial Instruments: Recognition and Measurement”. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets.

 

The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2018.

 

New standard IFRS 15 “Revenue from Contracts with Customers”

This new standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized.  IFRS 15 is effective for annual periods beginning on or after January 1, 2018 with early adoption permitted.

 

New standard IFRS 16 “Leases”

This new standard replaces IAS 17 “Leases” and the related interpretative guidance. IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset being leased. For those assets determined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees, introducing a single, on-balance sheet accounting model that is similar to current finance lease accounting, with limited exceptions for short-term leases or leases of low value assets. Lessor accounting is not substantially changed. The standard is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted for entities that have adopted IFRS 15.

 

The Company has not early adopted these new standards and is currently assessing the impact that these standards will have on its financial statements.

 

Other accounting standards or amendments to existing accounting standards that have been issued but have future effective dates are either not applicable or are not expected to have a significant impact on the Company’s financial statements.

 

4. Cash and cash equivalents

 

For the purposes of the cash flow statement, cash and cash equivalents comprise the following balances with original maturity of less than 90 days:

 

    December 31,
2017
    December 31,
2016
 
Cash   $ 6,715,996     $ 666,293  
Cash equivalent     1,895,000       3,249,990  
    $ 8,610,996     $ 3,916,283  

 

5.       Receivables

 

    December 31,
2017
    December 31,
2016
 
Trade receivable   $ 154,698     $ -  
GST receivable     84,566       155,498  
IRAP contribution receivable     -       108,535  
GIC interest receivable     4,375       6,000  
Other     -       1,251  
    $ 243,639     $ 271,284  

 

  F- 11  

 

 

Electrameccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2017, 2016 and 2015

 

6. Plant and equipment

 

    Furniture
and
equipment
    Computer
hardware
and
software
    Vehicles     Leasehold
Improvements
    Production
molds
deposit
    Total  
                                     
Cost:                                                
At December 31, 2015   $ 16,438     $ -     $ -     $ -     $ -     $ 16,438  
Additions     27,771       18,897       173,213       12,146       -       232,027  
At December 31, 2016     44,209       18,897       173,213       12,146       -       248,465  
Additions     246,634       54,757       216,837       89,055       914,060       1,521,343  
December 31, 2017     290,843       73,654       390,050       101,201       914,060       1,769,808  
                                                 
Amortization:                                                
At December 31, 2015     629       -       -       -       -       629  
Charge for the year     6,483       2,514       11,666       1,904       -       22,567  
At December 31, 2016     7,112       2,514       11,666       1,904       -       23,196  
Charge for the year     181,495       24,633       74,098       72,703       -       352,929  
At December 31, 2017     188,607       27,147       85,764       74,607       -       376,125  
                                                 
Net book value:                                                
At December 31, 2016   $ 37,097     $ 16,383     $ 161,547     $ 10,242     $ -     $ 225,269  
At December 31, 2017   $ 102,237     $ 46,507     $ 304,286     $ 26,594     $ 914,060     $ 1,393,683  

 

On September 29, 2017 the Company entered into a manufacturing agreement with Chongqing Zongshen Automobile Co., Ltd. (“Zongshen”). Under the agreement the Company agrees to reimburse Zongshen for the cost of prototype tooling and molds estimated to be CNY ¥9.5 million (CAD $1.8 million), which shall be payable on or before March 18, 2018, and mass production tooling and molds estimated to be CNY ¥29.3 million (CAD $6.0 million), which shall be payable 50% when Zongshen commences manufacturing the tooling and molds, 40% when Zongshen completes manufacturing the tooling and molds, and 10% upon delivery to the Company of the first production vehicle. At December 31, 2017 the Company had paid 50% of prototype tooling and molds.

 

Under the agreement, the Company agreed that the minimum purchase commitments for units of the Solo vehicle are to be as follows: in calendar 2018, 5,000; in 2019, 20,000; and in 2020, 50,000, and which shall be payable following issue of Company’s purchase orders as follows: 30% after Zongshen schedules production, and 70% after accepted vehicle delivery.

 

On October 16, 2017 the President and CEO of the Company (as “Pledgor”) entered into a Share Pledge Agreement (“Share Pledge”) to guarantee the payment by the Company for the cost of the prototype tooling and molds estimated to be CNY ¥9.5 million (CAD $1.8 million) to Zongshen through the pledge of 800,000 common shares of the Company. The Company approved its obligations under the Share Pledge and has agreed to reimburse the Pledgor on a one for one basis for any pledged shares realized by Zongshen.

 

7. Acquisition of Intermeccanica

 

On October 18, 2017 the Company completed the acquisition of all of the outstanding shares of Intermeccanica, a developer and manufacturer of high end custom built vehicles and the contract assembler of the Company’s electric vehicles located in Greater Vancouver, BC. The acquisition of Intermeccanica is expected to accelerate the Company’s manufacture and delivery of its vehicles to customers, and the Company will develop and manufacture electric versions of Intermeccanica’s custom built vehicles.

 

Total purchase consideration was $2,500,000. In addition to an initial payment of $100,000 in 2016, an additional $200,000 was paid prior to acquisition. On October 18, 2017 the Company paid $700,000, and entered into a Promissory Note (the “Note”) for the balance of $1,500,000. The Note bears interest at 5% per annum, and was payable in installments of $500,000 plus accrued interest on the 6 th , 12 th and 18 th month after purchase. Under the Note if the Company raises at least $10 million by way of equity or debt after October 18, 2017 the unpaid portion of the Note shall be paid within 30 days. The Promissory Note was secured over the assets of Intermeccanica. The Note was paid in full on January 28, 2018.

 

  F- 12  

 

 

Electrameccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2017, 2016 and 2015

 

The following table summarizes the consideration paid for Intermeccanica, the fair value of identifiable assets acquired, liabilities assumed, goodwill and other intangible assets and an impairment of goodwill and other intangible assets.

 

Fair value of purchase consideration at October 18, 2017        
Cash   $ 1,000,000  
Promissory note     1,500,000  
Total consideration   $ 2,500,000  
         
Fair value amounts of identifiable assets acquired and liabilities assumed
Cash   $ 59,449  
Receivables     65,565  
Prepaid expenses     12,848  
Inventory     188,811  
Plant and equipment     24,282  
Intangible assets:        
Customer relationships     87,000  
Contracted backlog     23,000  
Non-compete covenants     25,000  
Trade name     423,000  
Trades payable and accrued liabilities     (91,025 )
Customer deposits     (167,236 )
Shareholder loans     (43,538 )
Deferred income tax     (149,794 )
Total net identifiable assets     457,362  
Goodwill and other intangible assets     2,042,638  
Total   $ 2,500,000  

 

The Company performed an impairment test of the goodwill. The recoverable amount of the Intermeccanica cash-generating unit was determined to be $1,157,206 based on its fair value less costs to sell. The difference of $1,342,794 has been recorded as an impairment in net loss.

 

Goodwill and other intangible assets recognized was primarily attributed to expected synergies arising from the Intermeccanica acquisition and the expertise and reputation of the assembled management and workforce. Goodwill is not expected to be deductible for income tax purposes. During the period from October 18, 2017 to December 31, 2017 the Company did not record any amortization relating to the acquired intangible assets as the amortization amount was trivial. No further impairment was identified at December 31, 2017.

 

    Identifiable intangibles
on acquisition
    Goodwill on
acquisition
    Domain
name
    Total  
December 31, 2015 and 2016   $ -     $ -     $ 2,170     $ 2,170  
Acquired in year     558,000       2,042,638       -       2,600,638  
Impairment     -       (1,342,794 )     -       (1,342,794 )
December 31, 2017   $ 558,000     $ 699,844     $ 2,170     $ 1,260,014  

 

The following unaudited supplemental pro-forma data presents consolidated information as if the acquisition been completed on January 1, 2017. The pro-forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of 2017.

 

Pro-forma information   2017  
Revenue   $ 947,600  
Gross Profit     347,375  
Net and comprehensive loss     (8,848,308 )

 

Since October 19, 2017 Intermeccanica contributed revenue of $109,173 from the sale of custom built vehicles and realized net income of $23,598.

 

  F- 13  

 

 

Electrameccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2017, 2016 and 2015

 

8. Trade payables and accrued liabilities

 

    December 31,
2017
    December 31,
2016
 
Trade payables   $ 457,520     $ 70,401  
Wages payables     62,110       -  
Due to related parties (Note 18)     16,814       79,904  
Accrued liabilities     587,346       317,695  
    $ 1,123,790     $ 468,000  

 

9. Commitments

 

Intermeccanica, its President and his wife have a joint business line of credit with Bank of Montreal (BMO) with a limit of $200,000 that is payable on demand, bears interest at BMO’s personal line of credit base rate plus 1.5% and is secured by a general security agreement, a specific charge over a vehicle, and a charge over the personal home of the President and his wife. The balance outstanding at December 31, 2017 was $100,705 (2016 - $nil).

 

Lease obligations relate to the Company’s rent of office space and warehouse space. The term of the leases expire on November 1, 2020 and July 1, 2020 with the Company holding an option to renew for a further five years for the office space.

 

As at December 31, 2017, future payments required under non-cancellable operating leases contracted for but not capitalized in the financial statements are as follows:

 

    December 31,
2017
    December 31,
2016
 
Payable not later than one year   $ 310,034     $ 221,071  
Payable later than one year and not later than five years     507,036       601,542  
Payable later than five years     -       -  
    $ 817,070     $ 882,613  

 

10. Income tax expense and deferred tax assets and liabilities

 

A reconciliation of the expected income tax recovery to the actual income tax recovery is as follows:

 

    December 31,
2017
    December 31,
2016
    December 31,
2015
 
Net loss   $ (11,366,371 )   $ (8,973,347 )   $ (995,833 )
Statutory tax rate     26 %     26 %     26 %
Expected income tax recovery at the statutory tax rate     (2,955,257 )     (2,333,070 )     (134,437 )
Stock-based compensation     231,273       1,228,726       47,792  
Share issue cost and other     488,227       (231,643 )     -  
Effect of change in tax rate     (149,561 )     -       -  
SR&ED effects     183,351       -       -  
Temporary differences not recognized     2,385,319       1,335,987       86,645  
Income tax recovery   $ -     $ -     $ -  

 

The Company has the following deductible temporary differences:

 

    December 31,
2017
    December 31,
2016
    December 31,
2015
 
Non-capital loss carry-forwards   $ 11,436,565     $ 5,019,398     $ 641,189  
Property, plant and equipment     141,271       23,197       -  
Share issue costs     1,983,154       737,637       -  
SR&ED     1,397,672       -       -  
Other     (558,000 )     -       -  
      14,400,662       5,780,231       641,189  
Deferred tax assets not recognized     (14,955,454 )     (5,780,231 )     (641,189 )
Deferred tax liability     (554,794 )     -       -  
Deferred tax liability (tax effected at 27%)   $ (149,794 )   $ -     $ -  

 

The non-capital losses expire between 2035 and 2037.

 

  F- 14  

 

 

Electrameccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2017, 2016 and 2015

 

11. Convertible loan

 

On July 31, 2017 the unsecured convertible loan for $300,000, which was issued on September 7, 2016, was converted by the holder into units of the Company at a price of $1 per unit. Each unit consisted of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share for a period of five years from September 7, 2016. Previously, on October 5, 2016, the Company issued 26,250 units at a price of $1 per unit with a fair value of $43,102 for third party finder’s fees regarding the convertible loan.

 

The loan was non-interest bearing. The fair value of the liability component was calculated using a market interest rate for an equivalent non-convertible loan, which the Company determined to be 15%.  The residual amount, representing the value of the equity conversion option, was included in shareholders equity as the equity component of the convertible loan. The implicit interest rate for the convertible loan was 15% per annum. The carrying value of the liability component was being accreted to the face value of the convertible loan over the period from issuance to the maturity date of September 7, 2017.

 

Unsecured Convertible Loan issued September 7, 2016   December 31,
2017
    December 31,
2016
 
Balance, beginning   $ 243,676       -  
Proceeds from issue of convertible loan     -     $ 300,000  
Amount allocated to equity on issue of convertible loan     -       (39,130 )
Convertible loan issue costs     -       (43,102 )
Interest accretion expense     47,763       25,908  
Conversion to common shares (Note 13)     (291,439 )     -  
Balance, ending   $ -     $ 243,676  

 

On July 31, 2017 the Company issued an unsecured convertible loan in the amount of $1,000,034, convertible into units of the Company at a price of $1 per unit. Each unit consisted of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share for a period of five years from July 31, 2017. On September 30, 2017, the Company issued 100,001 common shares at a price of $1 per share with a fair value of $100,001 for third party finder’s fees regarding the convertible loan.

 

The loan was non-interest bearing. The fair value of the liability component was calculated using a market interest rate for an equivalent non-convertible loan, which the Company determined to be 15%. The residual amount, $130,439, representing the value of the equity conversion option, was included in shareholders equity as the equity component of the convertible loan. The implicit interest rate for the convertible loan was 15% per annum. The carrying value of the liability component was being accreted to the face value of the convertible loan over the period from issuance to the maturity date of July 31, 2018.

 

On September 29, 2017 the convertible loan was converted by the holder into 1,000,034 units of the Company at a price of $1 per unit.

 

Unsecured Convertible Loan issued July 31, 2017   December 31,
2017
 
Proceeds from issue of convertible loan   $ 1,000,034  
Amount allocated to equity on issue of convertible loan     (130,439 )
Debt issue costs     (86,958 )
Interest accretion expense     21,799  
finder’s fee accretion     14,533  
Conversion to common shares (Note 13)     (818,969 )
    $ -  

 

On October 17, 2017 the Company issued an unsecured convertible loan for USD $1,152,289 (CAD $1,441,191), which is convertible by the holder into units of the Company at a price of USD $3.60 (CAD $4.4897) per unit. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of USD $7.20 per share for a period of five years from date of issue. On November 27, 2017, the Company issued 32,008 common shares at a price of USD $6 (CAD $7.47) per share with a fair value of USD $192,048 (CAD $244,010) for third party finder’s fees regarding the convertible loan.

 

  F- 15  

 

 

Electrameccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2017, 2016 and 2015

 

The convertible loan is denominated in US dollars; however, the functional currency of the Company is the Canadian dollar. Consequently, the value of the proceeds on conversion is not fixed and will vary based on foreign exchange rate movements. The convertible loan is therefore a derivative liability comprising a derivative liability relating to the conversion feature and derivative liability relating to the warrant and each are measured at fair value at each reporting period. Any changes in fair value from period to period are recorded as non-cash gain or loss in the consolidated statement of net loss and comprehensive loss. Upon issue the fair value of the conversion feature was $708,319 and the fair value of the warrants was $732,772. $100 was allocated to the loan.

 

On November 27, 2017 the convertible loan for USD $1,152,289 (CAD $1,441,191) was converted by the holder into 320,080 units of the Company at a price of USD $3.60 (CAD $4.4897) per unit. Upon conversion the conversion feature was remeasured to fair value and $377,868 was credited to share capital, along with a gain on derivative liability of $330,551. Upon conversion, the warrants in the unit were also recorded as a derivative liability (Note 12).

 

Unsecured Convertible Loan issued October 17, 2017   December 31,
2017
 
Proceeds from issue of convertible loan (USD $1,152,289)   $ 1,441,191  
Amount allocated to fair value of conversion feature     (708,319 )
Amount allocated to fair value of warrants     (732,772 )
Conversion to common shares (Note 13)     (100 )
    $ -  

 

12. Derivative liability

 

The exercise price of certain warrants is denominated in US dollars; however, the functional currency of the Company is the Canadian dollar. Consequently, the value of the proceeds on exercise is not fixed and will vary based on foreign exchange rate movements. The warrants are therefore a derivative and are required to be recognized as a derivate liability and measured at fair value at each reporting period. Any changes in fair value from period to period are recorded as non-cash gain or loss in the consolidated statement of net loss and comprehensive loss. Upon exercise, the holders will pay the Company the respective exercise price for each warrant exercised in exchange for one common share of the Company and the fair value at the date of exercise and the associated non-cash liability will be reclassified to share capital. The non-cash liability associated with any warrants that expire unexercised will be recorded as a gain in the consolidated statement of net loss and comprehensive loss. There are no circumstances in which the Company would be required to pay any cash upon exercise or expiry of the warrants.

 

During the year ended December 31, 2017 the Company issued 2,000,595 warrants exercisable at prices from US $1 to US $11.70, expiring between September 30, 2019 and October 31, 2024.

 

A reconciliation of the changes in fair values of the derivative liability is below:

 

    December 31
2017
 
Balance, beginning   $ -  
Warrants issued     3,469,421  
Changes in fair value of derivative liabilities     186,269  
Balance, ending   $ 3,655,690  

 

The fair value of the warrants was calculated using a Black-Scholes Option Pricing Model. The weighted average assumptions used in the Black-Scholes Option Pricing Model are:

 

    At Issue     December 31
2017
 
Fair value of related warrants outstanding   $ 3,469,421     $ 3,655,690  
Risk-free interest rate     1.52 %     1.66 %
Expected term (in years)     3.04       2.44  
Expected share price volatility     60 %     60 %

 

  F- 16  

 

 

Electrameccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2017, 2016 and 2015

 

13. Share capital

 

Authorized share capital

Unlimited number of common shares without par value.

 

On June 22, 2016, the Company completed a stock split of one pre-split common share for five post-split shares. All information related to common shares, options and warrants presented in these financial statements and accompanying notes have been retroactively adjusted to reflect the increased number of common shares resulting from the stock split.

 

Issued share capital

At December 31, 2017 the Company had 47,588,209 issued and outstanding common shares (2016 – 41,783,587, 2015 – 26,783,625).

 

On February 16, 2015, the Company issued seed capital of 25,350,000 common shares for gross proceeds of $5,070, with a share and unit price of $.0002.

 

During the period ended December 31, 2015, the Company issued 1,433,625 common shares for gross proceeds of $453,450 with unit prices ranging from $0.20 to $0.40. The Company also received $50,000 as a subscription for common shares.

 

During the year ended December 31, 2016, the Company issued 13,575,200 common shares for gross proceeds of $8,375,519, with unit prices ranging from $0.3634 to $1.00. As the fair value of certain units issued was less than the fair value a share-based payment expense of $3,264,681 was recorded. Share issue costs related to these issuances was $1,604,486 and includes 1,273,512 common shares issued for finder’s fees with a fair value of $823,512. The Company also received $51,500 as subscriptions for common shares.

 

During the year ended December 31, 2016, the Company issued 26,250 common shares for finder’s fees with a fair value of $26,250.

 

During the year ended December 31, 2016, the Company issued 125,000 common shares in partial settlement a shareholder loan in the amount of $50,000.

 

During the year ended December 31, 2017, the Company issued 3,820,499 common shares for gross proceeds of $12,022,308, with unit or share prices ranging from $0.15 to USD $6.00 (CAD $7.47). Share issue costs related to these issuances was $1,466,442 and includes 214,009 common shares issued for finder’s fees with a fair value of $709,521. The Company also received $750,000 as a subscription for common shares at a price of $.85 per share (Note 22).

 

During the year ended December 31, 2017, the Company issued 150,000 common shares for services with a fair value of $811,308 and warrants to acquire 45,045 common shares for services with a fair value of $274,408.

 

During the year ended December 31, 2017, upon the conversion of convertible loans with a carrying value of $1,657,846 the Company issued 1,620,114 common shares (Note 11).

 

Basic and fully diluted loss per share

 

The calculation of basic and fully diluted loss per share for the year ended December 31, 2017 was based on the loss attributable to common shareholders of $11,366,371 (2016 $8,973,347, 2015 $995,833 ) and the weighted average number of common shares outstanding of 43,636,629 (2016 32,684,868, 2015 25,769,510). Fully diluted loss per share did not include the effect of stock options and warrants as the effect would be anti-dilutive.

 

Stock options

 

The Company has adopted an incentive stock option plan, which provides that the Board of Directors of the Company may from time to time, in its discretion, grant to directors, officers, employees and technical consultants to the Company, non-transferable stock options to purchase common shares, provided that the number of common shares reserved for issuance will not exceed 60,000,000. Such options will be exercisable for a period of up to 7 years from the date of grant. Options may be exercised no later than 90 days following cessation of the optionee’s position with the Company.

 

Options granted vest one-quarter on the first anniversary subsequent to the grant date and the remaining three-quarters vest in thirty-six equal monthly instalments commencing on the first anniversary of the grant date.

 

  F- 17  

 

 

Electrameccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2017, 2016 and 2015

 

On exercise, each option allows the holder to purchase one common share of the Company.

 

The changes in options during the years ended December 31, 2017 and 2016 are as follows:

 

    December 31, 2017     December 31, 2016  
    Number of
options
    Weighted
average exercise
price
    Number of
options
    Weighted
average
exercise price
 
Options outstanding, beginning     56,175,000     $ 0.19       56,150,000     $ 0.19  
Options granted     1,120,000       1.00       100,000       0.85  
Options exercised     (12,500 )     0.15       -       -  
Options expired and forfeited     (85,000 )     1.00       (75,000 )     0.40  
Options outstanding, ending     57,197,500     $ 0.20       56,175,000     $ 0.19  

 

Details of options outstanding as at December 31, 2017 are as follows:

 

Exercise price     Weighted average
contractual life
  Number of options
outstanding
    Number of
options
exercisable
 
$ 0.15     4.45 years     45,000,000       29,062,500  
$ 0.15     4.62 years     2,662,500       1,616,146  
$ 0.40     4.94 years     8,400,000       4,375,000  
$ 0.40     5.18 years     25,000       11,458  
$ 1.00     5.47 years     50,000       19,792  
$ 1.00     6.13 years     960,000       159,375  
$ 1.00     6.61 years     100,000       -  
        4.57 years     57,197,500       35,244,271  

 

The weighted average grant date fair value of options granted during the year ended December 31, 2017 was $0.74 (2016 $0.63). The fair value was calculated using the Black-Scholes option pricing model using the following weighted average assumptions:

 

    Year ended December 31, 2017  
Expected life of options     5 years  
Annualized volatility     60 %
Risk-free interest rate     1.02% - 1.43 %
Dividend rate     0 %

 

During the year ended December 31, 2017, the Company recognized stock-based compensation expense of $889,511 (2016 - $1,461,189; 2015 - $354,015).

 

Warrants

 

On exercise, each warrant allows the holder to purchase one common share of the Company.

 

The changes in warrants during the years ended December 31, 2017 and 2016 are as follows:

 

    December 31, 2017     December 31, 2016  
    Number of
warrants
    Weighted average
exercise price
    Number of
warrants
    Weighted average
exercise price
 
Warrants outstanding, beginning     18,533,587     $ 1.64       1,933,625     $ 0.66  
Warrants issued     5,185,129       4.91       16,599,962       1.75  
Warrants exercised     (5,000 )     2.00       -       -  
Warrants outstanding, ending     23,713,716     $ 2.35       18,533,587     $ 1.64  

 

  F- 18  

 

 

Electrameccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2017, 2016 and 2015

 

At December 31, 2017, all warrants outstanding were exercisable. Details of warrants outstanding as at December 31, 2017 are as follows:

 

Exercise price   Weighted average
contractual life
  Number of  warrants
outstanding
 
$0.40 CAD - $2.00 CAD   3.35 years     21,723,121  
$1.00 USD - $12.00 USD   0.26 years     2,000,595  

 

The fair value of the warrants issued as part of the third party finder’s fee at issue date on March 29, 2017 was $3,223 as calculated using the Black-Scholes option pricing model with the same assumptions used for stock options.

 

The fair value of the warrants issued for consulting services at issue date on September 30, 2017 was $274,407 as calculated using the Black-Scholes option pricing model using the following weighted average assumptions:

 

    Year ended December 31, 2017  
Expected life of warrants     2 years  
Annualized volatility     60 %
Risk-free interest rate     1.52 %
Dividend rate     0 %

 

14. Reserves

 

Share-based payment reserve

The share-based payment reserve records items recognized as stock-based compensation expense and other share-based payments until such time that the stock options or warrants are exercised, at which time the corresponding amount will be transferred to share capital. If the options, or warrants expire unexercised, the amount remains in the share-based payment reserve account.

 

Equity component reserve

The equity payment reserve records items recognized as the equity component of convertible loans until such time that the loans are converted, at which time the corresponding amount will be transferred to share capital. If the loans are repaid, the amount remains in the equity payment reserve account.

 

15. General and administrative expenses

 

    December 31,
2017
    December 31,
2016
    December 31,
2015
 
Rent   $ 269,716     $ 141,957     $ 17,936  
Office expenses     345,986       113,158       18,013  
Legal and professional     912,347       643,725       78,660  
Consulting fees     405,176       186,437       11,985  
Investor relations     113,256       -       -  
Salaries     326,770       120,558       6,276  
    $ 2,373,251     $ 1,205,835     $ 132,870  

 

16. Research and development expenses

 

    December 31,
2017
    December 31,
2016
    December 31,
2015
 
Labour   $ 1,971,946     $ 1,715,562     $ 382,047  
Materials     2,763,355       1,266,730       117,537  
Government grants     (304,914 )     (203,997 )     (12,775 )
    $ 4,430,387     $ 2,778,295     $ 486,809  

 

  F- 19  

 

 

Electrameccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2017, 2016 and 2015

 

17. Sales and marketing expenses

 

    December 31,
2017
    December 31,
2016
    December 31,
2015
 
Consulting   $ 143,275     $ 35,847     $ -  
Marketing     182,723       93,345       19,691  
Salaries     305,383       80,263       -  
    $ 631,381     $ 209,455     $ 19,691  

 

18. Segmented information

 

The Company operates in two reportable business segments in Canada.

 

The two reportable business segments offer different products, require different production processes, and are based on how the financial information is produced internally for the purposes of making operating decisions. The following summary describes the operations of each of the Company’s reportable business segments:

· Electric Vehicles – development and manufacture of electric vehicles for mass markets, and
· Custom build vehicles – development and manufacture of high end custom built vehicles.

 

Sales between segments are accounted for at prices that approximate fair value. No business segments have been aggregated to form the above reportable business segments.

 

    Year ended Dec 31, 2017     Year ended December 31, 2016  
    Electric Vehicles     Custom Built
Vehicles
    Electric Vehicles     Custom Built
Vehicles
 
Revenue   $ -     $ 109,173     $ -     $ -  
Gross profit     -       45,223       -       -  
Operating expenses     9,473,794       60,585       8,942,022       -  
Other items     1,879,208       (1,992 )     31,325       -  
Net and comprehensive loss     11,353,002       13,370       8,973,347       -  
                                 
Inventory     -       232,903       -       -  
Plant and equipment   $ 1,370,350     $ 23,333     $ 225,269     $ -  

 

19. Related party transactions

 

Related party balances

The following amounts are due to related parties

 

    December 31,
2017
    December 31,
2016
 
Shareholder loan   $ 10,383     $ -  
Due to related parties (Note 7)     16,814       79,904  
    $ 27,197     $ 79,904  

 

These amounts are unsecured, non-interest bearing and have no fixed terms of repayment.

 

Key management personnel compensation

    December 31,
2017
    December 31,
2016
    December 31,
2015
 
Consulting fees   $ 185,000     $ 136,500     $ -  
Salary     280,167       45,000       -  
Deferred salary for CEO     -       30,000       -  
Stock-based compensation     659,228       1,238,013       338,883  
    $ 1,124,395     $ 1,449,513     $ 338,883  

 

  F- 20  

 

 

Electrameccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2017, 2016 and 2015

 

20. Financial instruments and financial risk management

 

The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:

 

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s primary exposure to credit risk is on its cash and cash equivalents held in bank accounts. The majority of cash is deposited in bank accounts held with major financial institutions in Canada. As most of the Company’s cash is held by one financial institution there is a concentration of credit risk. This risk is managed by using major financial institutions that are high credit quality financial institutions as determined by rating agencies. The Company’s secondary exposure to risk is on its receivables. This risk is minimal as receivables consist primarily of government grant and refundable government goods and services taxes.

 

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has a planning and budgeting process in place to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis. The Company ensures that there are sufficient funds to meet its short-term business requirements, taking into account its anticipated cash flows from operations and its holdings of cash and cash equivalents.

 

Historically, the Company's source of funding has been shareholder loans and the issuance of equity securities for cash, primarily through private placements. The Company’s access to financing is always uncertain. There can be no assurance of continued access to significant equity funding.

 

The following is an analysis of the contractual maturities of the Company’s non-derivative financial liabilities as at December 31, 2017 and 2016:

 

At December 31, 2017   Within one year     Between one
and five years
    More than
five years
 
Bank loan   $ 123,637     $        -     $      -  
Trade payables     474,334       -       -  
Customer deposits     447,071       -       -  
Convertible loan     -       -       -  
Shareholder loan     10,383                  
Promissory note     1,500,000       -       -  
    $ 2,555,425     $ -     $ -  

 

At December 31, 2016   Within one year     Between one
and five years
    More than
five years
 
Trade payables   $ 150,305     $        -     $         -  
Customer deposits     169,500       -       -  
Shareholder loan     243,676       -       -  
    $ 563,481     $ -     $ -  

 

Foreign exchange risk

Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company is exposed to currency risk as it incurs expenditures that are denominated in US dollars while its functional currency is the Canadian dollar. The Company does not hedge its exposure to fluctuations in foreign exchange rates.

 

  F- 21  

 

 

Electrameccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2017, 2016 and 2015

 

The following is an analysis of Canadian dollar equivalent of financial assets and liabilities that are denominated in US dollars:

 

    December 31,
2017
    December 31,
2016
 
Cash and cash equivalents   $ 5,596,635     $ 98,762  
Trade payables     (138,794 )     (4,804 )
    $ 5,457,841     $ 93,958  

 

Based on the above net exposures, as at December 31, 2017, a 10% change in the US dollars to Canadian dollar exchange rate would impact the Company’s net loss by $545,784 (2016 - $9,396).

 

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on its cash equivalents as these instruments have original maturities of twelve months or less and are therefore exposed to interest rate fluctuations on renewal. A 1% change in market interest rates would have an impact on the Company’s net loss of $18,950 for the year ended December 31, 2017 (2016 - $32,499).

 

Classification of financial instruments

Financial assets included in the statement of financial position are as follows:

 

    December 31,
2017
    December 31,
2016
 
Loans and receivables:                
Cash and cash equivalents   $ 8,610,996     $ 3,916,283  
Other receivables     243,639       271,284  
    $ 8,854,635     $ 4,187,567  

 

Financial liabilities included in the statement of financial position are as follows:

 

    December 31,
2017
    December 31,
2016
 
Non-derivative financial liabilities:                
Bank loan   $ 123,637     $ -  
Trade payable     474,334       150,305  
Customer deposits     447,071       169,500  
Convertible loan     -       243,676  
Shareholder loan     10,383       -  
Promissory note     1,500,000       -  
Derivative financial liabilities:                
Warrant derivative liability     3,655,686       -  
    $ 6,2711,111     $ 563,481  

 

Fair value

The fair value of the Company’s financial assets and liabilities approximates the carrying amount.

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

· Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
· Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
· Level 3 – Inputs that are not based on observable market data.

 

Financial liabilities measured at fair value at December 31, 2017 consisted of the derivative liability, which is measured using level 3 inputs.

 

  F- 22  

 

 

Electrameccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2017, 2016 and 2015

 

The fair value of the derivative liability was calculated using the Black-Scholes Option Pricing Model using historical volatility as an estimate of future volatility. At December 31, 2017, if the volatility used was increased by 10% the impact would be an increase to the derivate liability of $482,021 with a corresponding increase in the net and comprehensive loss.

 

21. Capital management

 

The Company’s policy is to maintain a strong capital base so as to safeguard the Company’s ability to maintain its business and sustain future development of the business. The capital structure of the Company consists of equity. There were no changes in the Company’s approach to capital management during the year. The Company is not subject to any externally imposed capital requirements.

 

22. Subsequent events

 

On January 5, 2018, the Company completed a private placement of 1,000,000 common shares at a price of $0.85 per share for gross proceeds of $850,000. The Company incurred share issue costs of $85,000 relating to this private placement.

 

On January 5, 2018 the Company granted stock options to acquire 835,000 common shares of the Company at an exercise price of USD 4.80 per share for a period of 7 years. The options vest over a period of 4 years.

 

On January 5, 2018, the Company completed a private placement of 400,000 units at a price of USD $4.20 per unit for gross proceeds of USD $1,680,000 (CAD $2,092,456). Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of USD $8.40 per warrant share until January 21, 2019. The Company incurred share issue costs of USD $201,600 (CAD $248,874) relating to this private placement.

 

On January 28, 2018 the promissory note for $1,500,000 relating to the acquisition of Intermeccanica (Note 7) was paid in full.

 

On January 29 2018, the Company completed a private placement of 114,274 common shares at a price of $5.18 per unit for gross proceeds of $591,941. On January 29, 2018, the Company issued 4,571 common shares at a price of $5.18 per share for third party finder’s fees relating to this private placement. Additionally, the Company paid third party finder’s fees of $35,516 relating to this private placement.

 

On February 19, 2018 the Company issued 12,395 common shares pursuant the exercise of stock options at $1 per share for proceeds of $12,395.

 

  F- 23  

 

  

 

 

Electrameccanica Vehicles Corp.

 

Interim Consolidated Financial Statements

 

March 31, 2018

Unaudited - Expressed in Canadian Dollars

 

  F- 24  

 

  

Electrameccanica Vehicles Corp.

Interim Consolidated Statements of Financial Position

(Expressed in Canadian dollars)

 

    Note  

March 31, 2018

(Unaudited)

    December 31, 2017  
ASSETS                    
Current assets                    
Cash and cash equivalents   4   $ 5,861,327     $ 8,610,996  
Receivables   5     340,171       243,639  
Prepaid expenses         806,874       920,146  
Inventory         258,093       232,903  
          7,266,465       10,007,684  
                     
Non-current assets                    
Restricted cash         107,903       -  
Plant and equipment   6     2,518,557       1,393,683  
Goodwill and other intangible assets   7     1,260,014       1,260,014  
TOTAL ASSETS       $ 11,152,939     $ 12,661,381  
                     
LIABILITIES                    
Current liabilities                    
Bank overdraft and demand loan   9   $ -     $ 123,637  
Trade payables and accrued liabilities   8     1,576,336       1,123,790  
Customer deposits         407,844       447,071  
Shareholder loan   17     9,344       10,383  
Promissory note   7     -       1,500,000  
Deferred income tax         149,794       149,794  
          2,143,318       3,354,675  
                     
Non-current liabilities                    
Derivative liability 1   10     3,166,630       3,655,690  
TOTAL LIABILITIES         5,309,948       7,010,365  
                     
EQUITY                    
Share capital   11     25,293,271       22,718,282  
Common share subscription         -       750,000  
Share-based payment reserve   12     4,289,246       3,518,286  
Deficit         (23,739,526 )     (21,335,552 )
TOTAL EQUITY         5,842,991       5,651,016  
TOTAL LIABILITIES AND EQUITY       $ 11,152,939     $ 12,661,381  

 

Commitments (Notes 6 and 9)

Subsequent events (Note 20)

 

On behalf of the Board of Directors.

 

“Luisa Ingargiola”_____________   “Steven Sanders”____________  
Director   Director  

 

 

1 Footnote: The warrant derivative liability is valued at fair value in accordance with International Financial Reporting Standards (“IFRS”). There are no circumstances in which the Company would be required to pay cash upon exercise or expiry of the warrants. See Note 12.

 

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

 

  F- 25  

 

  

Electrameccanica Vehicles Corp.

Interim Consolidated Statements of Comprehensive Loss

(Unaudited - Expressed in Canadian dollars)

 

        3 months ended  
    Note  

March 31,

2018

   

March 31,

2017

 
                 
Revenue       $ 166,133     $ -  
Cost of revenue         102,668       -  
Gross profit         63,465       -  
                     
Operating expenses                    
Amortization   6     51,029       24,910  
General and administrative expenses   13     975,217       482,809  
Research and development expenses   14     1,560,177       1,283,729  
Sales and marketing expenses   15     279,630       124,266  
Stock-based compensation expense   11     790,234       247,656  
          (3,656,287 )     (2,163,370 )
                     
Loss before other items         (3,592,822 )     (2,163,370 )
                     
Other items                    
Accretion interest expense         -       20,277  
Changes in fair value of warrant derivative   10     (1,166,027 )     -  
Foreign exchange loss/(gain)         (22,821 )     5,922  
                     
Net and comprehensive loss       $ (2,403,974 )   $ (2,189,569 )
                     
Loss per share – basic and fully diluted       $ (0.10 )   $ (0.10 )
                     
Weighted average number of shares outstanding – basic and fully diluted   11     24,468,974       20,987,233  

 

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

 

  F- 26  

 

  

Electrameccanica Vehicles Corp.

Interim Consolidated Statements of Changes in Equity

(Expressed in Canadian dollars)

 

 

        Share capital                                      
    Note   Number of
shares
    Amount     Share
subscription
    Share
issue cost
    Share-based
payment
reserve
    Equity
component
reserve
    Deficit     Total  
                                                     
Balance at Dec 31, 2016         20,891,794     $ 12,998,482     $ 101,500     $ (1,614,486 )   $ 2,351,144     $ 39,130     $ (9,969,180 )   $ 3,906,590  
Shares issued for cash         264,000       528,000       (100,000 )     (55,266 )     -       -       -       372,734  
Share issued for finders fees         2,500       5,000       -       -       3,223       -       -       8,223  
Stock-based compensation         -       -       -       -       247,656       -       -       247,656  
Net and comprehensive loss for the period         -       -       -       -       -       -       (2,189,569 )     (2,189,569 )
Balance at March 31, 2017         21,158,294     $ 13,531,482     $ 1,500     $ (1,669,752 )   $ 2,602,023     $ 39,130     $ (12,158,749 )   $ 2,345,634  
                                                                     
Balance at December 31, 2017         23,794,106     $ 25,789,209     $ 750,000     $ (3,070,927 )   $ 3,518,286     $ -     $ (21,335,552 )   $ 5,651,016  
Shares issued for cash   11     757,138       3,534,397       (750,000 )     (337,787 )     -       -       -       2,446,610  
Shares issued on exercise of options   11     6,198       31,669                       (19,274 )                     12,395  
Adjustment for warrant derivative liability   10             (676,967 )                                             (676,967 )
Shares issued for finders fees   11     2,286       23,678       -       -       -       -       -       23,678  
Stock-based compensation   11     -       -       -       -       790,234       -       -       790,234  
Net and comprehensive loss for the period         -       -       -       -       -       -       (2,403,974 )     (2,403,974 )
Balance at March 31, 2018         24,559,728     $ 28,701,986     $ -     $ (3,408,715 )   $ 4,289,246     $ -     $ (23,739,526 )   $ 5,842,991  

 

During the year ended December 31, 2016, the Company completed a 1:5 forward share split and on May 15, 2018 the Company completed a reverse share split on a 2:1 basis, all references to number of shares have been retroactively adjusted. See Note 11 for further details.

 

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

 

  F- 27  

 

 

Electrameccanica Vehicles Corp.

Interim Consolidated Statements of Cash Flows

(Unaudited - Expressed in Canadian dollars)

 

    3 months ended  
   

March 31,

2018

   

March 31,

2017

 
Operating activities                
Loss for the year   $ (2,403,974 )   $ (2,189,569 )
Adjustments for:                
Amortization     51,029       24,910  
Stock-based compensation expense     790,234       247,656  
Non-cash services     23,678       -  
Interest accretion expense     -       20,277  
Change in fair value of warrant derivative     (1,166,027 )     -  
Changes in non-cash working capital items:                
Receivables     (96,532 )     (74,088 )
Prepaid expenses     113,272       34,477  
Inventory     (25,190 )     (3,475 )
Trades payable and accrued liabilities     452,546       62,415  
Customer deposits     (39,227 )     23,250  
Net cash flows used in operating activities     (2,300,191 )     (1,854,147 )
                 
Investing activities                
Restricted cash     (107,903 )     -  
Expenditures on plant and equipment     (1,175,903 )     (127,196 )
Purchase of Intermeccanica     -       (100,000 )
Expenditures on trademarks and patents     -       (14,063 )
Net cash flows used in investing activities     (1,283,806 )     (241,259 )
                 
Financing activities                
Repayment of bank loan     (123,637 )     -  
Repayment of shareholder loan     (1,040 )     -  
Repayment of promissory note     (1,500,000 )     -  
Proceeds on issuance of common shares – net of issue costs     2,459,005       380,957  
Net cash flows from financing activities     834,328       380,957  
                 
Decrease in cash and cash equivalents     (2,749,669 )     (1,714,449 )
                 
Cash and cash equivalents, beginning     8,610,996       3,916,283  
Cash and cash equivalents, ending   $ 5,861,327     $ 2,201,834  

 

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

 

  F- 28  

 

  

Electrameccanica Vehicles Corp.

Notes to the Interim Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the three months ended March 31, 2018

 

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 manufacture of electric vehicles. The Company acquired Intermeccanica International Inc. (“Intermeccanica”) on October 18, 2017, and its principal activity is the development and manufacture of high end custom built vehicles. On January 22, 2018 the Company incorporated a wholly-owned subsidiary EMV Automotive USA Inc. in Nevada, USA.

 

The head office and principal address of the Company are located at 102 East 1 st Avenue, Vancouver, British Columbia, Canada, V5T 1A4.

 

These consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. As at March 31, 2018, the Company’s principal activity, the development and manufacture of electric vehicles, is in the development stage, and the Company’s continuation as a going concern is dependent upon the successful results from its electric vehicle development and manufacturing activities and its ability to attain profitable operations and generate funds there from and/or raise equity capital or borrowings sufficient to meet current and future obligations. It is anticipated that significant additional funding will be required. These factors indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. Management intends to finance its operations over the next twelve months through private placement of equity capital. Should the Company be unable to continue as a going concern, the net realizable value of its assets may be materially less than the amounts on its statement of financial position.

 

2. Basis of preparation and significant accounting policies

 

The financial statements were authorized for issue on May 29, 2018 by the directors of the Company.

 

Statement of compliance with International Financial Reporting Standards

These interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). Therefore, these financial statements comply with International Accounting Standards (“IAS”) 34, Interim Financial Reporting.

 

Basis of preparation

The financial statements of the Company have been prepared on an accrual basis and are based on historical costs, modified where applicable. The Company’s functional and presentation currency is the Canadian dollar.

 

Consolidation

The interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, EMV Automotive USA Inc., and Intermeccanica from the date of its acquisition on October 18, 2017 (Note 7). Inter-company balances and transactions, including unrealized income and expenses arising from inter-company transactions, are eliminated on consolidation.

 

Significant estimates and assumptions

The preparation of financial statements in accordance with IFRS requires the Company to make estimates and assumptions concerning the future. The Company’s management reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised.

 

Estimates and assumptions where there is significant risk of material adjustments to assets and liabilities in future accounting periods include the fair value of the identifiable assets and liabilities acquired from Intermeccanica, the estimated recoverable amount of goodwill, intangible assets and other long-lived assets, the useful lives of plant and equipment, fair value measurements for financial instruments and share-based payments, and the recoverability and measurement of deferred tax assets.

 

  F- 29  

 

  

Electrameccanica Vehicles Corp.

Notes to the Interim Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the three months ended March 31, 2018

 

Significant judgments

The preparation of financial statements in accordance with IFRS requires the Company to make judgments, apart from those involving estimates, in applying accounting policies. The most significant judgments in applying the Company’s financial statements include:

 

- The assessment of the Company’s ability to continue as a going concern and whether there are events or conditions that may give rise to significant uncertainty;
- the classification of financial instruments; and
- the calculation of income taxes require judgement in interpreting tax rules and regulations.

 

Change in accounting policy - Financial Instruments

 

The Company adopted the requirements of IFRS 9 Financial Instruments (“IFRS 9”) as of January 1, 2018. IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 utilizes a revised model for recognition and measurement of financial instruments and a single, forward-looking “expected loss” impairment model. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward in IFRS 9, so the Company’s accounting policy with respect to financial liabilities is unchanged. As a result of the adoption of IFRS 9, management has changed its accounting policy for financial assets retrospectively, for assets that continued to be recognized at the date of initial application. The change did not impact the carrying value of any financial assets or financial liabilities on the transition date.

 

The following is the Company’s new accounting policy for financial instruments under IFRS 9:

 

The Company classifies its financial instruments in the following categories: at fair value through profit or loss (“FVTPL”), at fair value through other comprehensive income (loss) (“FVTOCI”) or at amortized cost. The Company determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by the Company’s business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or if the Company has opted to measure them at FVTPL.

 

The Company completed a detailed assessment of its financial assets and liabilities as at January 1, 2018. The following table shows the original classification under IAS 39 and the new classification under IFRS 9:

 

Financial assets/liabilities   Original classification IAS 39   New classification IFRS 9
Bank loan   Amortized cost   Amortized cost
Cash and cash equivalents   Amortized cost   Amortized cost
Accounts receivables   Amortized cost   Amortized cost
Accounts payable and accrued liabilities   Amortized cost   Amortized cost
Loans   Amortized cost   Amortized cost
Warrant derivative liability   FVTPL   FVTPL

 

The Company did not restate prior periods as it recognized the effects of retrospective application to shareholders’ equity at the beginning of the 2018 annual reporting period, which also includes the date of initial application. The adoption of IFRS 9 resulted in no impact to the opening accumulated deficit nor to the opening balance of accumulated comprehensive income on January 1, 2018.

 

Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.

 

Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the consolidated statements of comprehensive loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in the consolidated statements of comprehensive loss in the period in which they arise.

 

  F- 30  

 

  

Electrameccanica Vehicles Corp.

Notes to the Interim Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the three months ended March 31, 2018

 

The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost. At each reporting date, the Company measures the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the financial asset has not increased significantly since initial recognition, the Company measures the loss allowance for the financial asset at an amount equal to the twelve month expected credit losses. The Company shall recognize in the consolidated statements of comprehensive loss, as an impairment gain or loss, the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized.

 

The Company derecognizes financial assets only when the contractual rights to cash flows from the financial assets expire, or when it transfers the financial assets and substantially all of the associated risks and rewards of ownership to another entity. Gains and losses on derecognition are generally recognized in the consolidated statements of net (loss) income.

 

Changes in Accounting Policies – Revenue from contracts with customers

 

The Company adopted all of the requirements of IFRS 15 Revenue from Contracts with Customers (“IFRS 15”) as of January 1, 2018. IFRS 15 utilizes a methodical framework for entities to follow in order to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The change did not impact the cumulated revenue recognized or the related assets and liabilities on the transition date.

 

The following is the Company’s new accounting policy for revenue from contracts with customers under IFRS 15:

 

Revenue is recognized to the extent that the amount of revenue can be measured reliably and collection is probable .

 

Part sales:

Sales of parts are recognized when the Company has transferred control to the customer which generally occurs upon shipment.

 

Services, repairs and support services:

Services, repairs and support services are recognized in the accounting period when the services are rendered.

 

Sales of vehicles:

The Company manufactures and sells custom built vehicles typically on fixed fee arrangements with its customers. Revenue is recognized in the accounting period in which the services are rendered, by reference to the stage of completion. The stage of completion is determined as a percentage based on the amount of costs incurred compared to the estimated cost of completion. Revenue recognized in excess of amounts billed is recorded as accounts receivable. Amounts received in excess of work performed is recorded as deferred revenue.

 

Cash and cash equivalents

Cash and cash equivalents include cash and short-term investments with original maturities of less than 90 days and are presented at cost, which approximates market value.

 

Inventory

Inventory consists of parts held for resale or for use in fixed fee contracts and is valued at the lower of cost and net realizable value. Cost is determined on the first-in, first-out basis.

 

Trademarks and patents

The Company expenses legal fees and filing costs associated with the development of its trademarks and patents.

 

Plant and equipment

Plant and equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses.

 

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the statement of comprehensive loss during the financial period in which they are incurred.

 

  F- 31  

 

  

Electrameccanica Vehicles Corp.

Notes to the Interim Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the three months ended March 31, 2018

 

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the statement of comprehensive loss.

 

Amortization is calculated on a straight-line method to write off the cost of the assets to their residual values over their estimated useful lives. The amortization rates applicable to each category of property, plant and equipment are as follows:

 

Class of plant and equipment   Amortization rate  
Office furniture and equipment     20 %
Shop equipment     20 %
Computer equipment     33 %
Computer software     50 %
Vehicles     33 %
Leasehold improvement     over term of lease  
Tooling     20 %
Production molds     per unit produced  

 

Share-based payments

Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to the option reserve. The fair value of options is determined using a Black–Scholes pricing model. The number of options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.

 

Loss per share

Basic loss per share is calculated by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding in the period. For all periods presented, the loss attributable to common shareholders equals the reported loss attributable to owners of the Company. Fully diluted loss per share is calculated by the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding for the calculation of fully diluted loss per share assumes that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during the period.

 

Research and development costs

Research costs are expensed when incurred and are stated net of government grants. Development costs including direct material, direct labour and contract service costs are capitalized as intangible assets when the Company can demonstrate that the technical feasibility of the project has been established; the Company intends to complete the asset for use or sale and has the ability to do so; the asset can generate probable future economic benefits; the technical and financial resources are available to complete the development; and the Company can reliably measure the expenditure attributable to the intangible asset during its development. After initial recognition, internally generated intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses. These costs are amortized on a straight-line basis over the estimated useful life. To date, the Company did not have any development costs that met the capitalization criteria.

 

Impairment of assets

The carrying amount of the Company’s long-lived assets with finite useful lives (which include plant and equipment and intangible assets) is reviewed at each reporting date to determine whether there is any indication of impairment. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. An impairment loss is recognized whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognized in the statement of comprehensive loss.

 

The recoverable amount of assets is the greater of an asset’s fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

 

  F- 32  

 

  

Electrameccanica Vehicles Corp.

Notes to the Interim Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the three months ended March 31, 2018

 

An impairment loss is only reversed if there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount. Any reversal of impairment cannot increase the carrying value of the asset to an amount higher than the carrying amount that would have been determined had no impairment loss been recognized in previous years.

 

Goodwill and other intangible assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment, or more frequently if indicators of impairment exist.

 

Income taxes

Current income tax:

Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries where the Company operates and generates taxable income. Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

 

Deferred income tax:

Deferred income tax is recognized, using the asset and liability method, on temporary differences at the reporting date arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

 

3.        Accounting standards issued but not yet effective

 

New standard IFRS 16 “Leases”

This new standard replaces IAS 17 “Leases” and the related interpretative guidance. IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset being leased. For those assets determined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees, introducing a single, on-balance sheet accounting model that is similar to current finance lease accounting, with limited exceptions for short-term leases or leases of low value assets. Lessor accounting is not substantially changed. The standard is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted for entities that have adopted IFRS 15.

 

The Company has not early adopted this new standard and is currently assessing the impact that this standard will have on its financial statements.

 

Other accounting standards or amendments to existing accounting standards that have been issued but have future effective dates are either not applicable or are not expected to have a significant impact on the Company’s financial statements.

 

4. Cash and cash equivalents

 

For the purposes of the cash flow statement, cash and cash equivalents comprise the following balances with original maturity of less than 90 days:

 

   

March 31,

2018

   

December 31,

2017

 
Cash   $ 3,966,327     $ 6,715,996  
Cash equivalent     1,895,000       1,895,000  
    $ 5,861,327     $ 8,610,996  

 

  F- 33  

 

  

Electrameccanica Vehicles Corp.

Notes to the Interim Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the three months ended March 31, 2018

 

5. Receivables

 

   

March 31,

2018

   

December 31,

2017

 
Trade receivable   $ 144,093     $ 154,698  
GST receivable     182,989       84,566  
IRAP contribution receivable     5,565       -  
GIC interest receivable     7,524       4,375  
    $ 340,171     $ 243,639  

 

6. Plant and equipment

 

    Furniture
and
equipment
    Computer
hardware
and
software
    Vehicles     Leasehold
Improvements
    Production
molds
deposit
   

 

Total

 
                                     
Cost:                                                
At December 31, 2016   $ 44,209     $ 18,897     $ 173,213     $ 12,146     $ -     $ 248,465  
Additions     246,634       54,757       216,837       89,055       914,060       1,521,343  
December 31, 2017     290,843       73,654       390,050       101,201       914,060       1,769,808  
Additions     51,263       10,150       (2,000 )     -       1,116,490       1,175,903  
March 31, 2018     342,106       83,804       388,050       101,201       2,030,550       2,945,711  
                                                 
Amortization:                                                
At December 31, 2016     7,112       2,514       11,666       1,904       -       23,196  
Charge for the year     181,495       24,633       74,098       72,703       -       352,929  
At December 31, 2017     188,607       27,147       85,764       74,607       -       376,125  
Charge for the period     8,108       7,661       32,373       2,887       -       51,029  
At March 31, 2018     196,715       34,808       118,137       77,494       -       427,154  
                                                 
Net book value:                                                
At December 31, 2017   $ 102,237     $ 46,507     $ 304,286     $ 26,594     $ 914,060     $ 1,393,683  
At March 31, 2018   $ 145,391     $ 48,996     $ 269,913     $ 23,707     $ 2,030,550     $ 2,518,557  

 

On September 29, 2017 the Company entered into a manufacturing agreement with Chongqing Zongshen Automobile Co., Ltd. (“Zongshen”). Under the agreement the Company agrees to reimburse Zongshen for the cost of prototype tooling and molds estimated to be CNY ¥9.5 million (CAD $1.8 million), which was payable on or before March 18, 2018, subject to a 10% holdback, and mass production tooling and molds estimated to be CNY ¥29.3 million (CAD $6.0 million), which shall be payable 50% when Zongshen commences manufacturing the tooling and molds, 40% when Zongshen completes manufacturing the tooling and molds, and 10% upon delivery to the Company of the first production vehicle. At March 31, 2018 the Company had paid 90% of prototype tooling and molds and 5% of the mass production tooling and molds.

 

Under the agreement, the Company agreed that the minimum purchase commitments for units of the Solo vehicle are to be as follows: in calendar 2018, 5,000; in 2019, 20,000; and in 2020, 50,000, and which shall be payable following issue of Company’s purchase orders as follows: 30% after Zongshen schedules production, and 70% after accepted vehicle delivery.

 

On October 16, 2017 the President and CEO of the Company (as “Pledgor”) entered into a Share Pledge Agreement (“Share Pledge”) to guarantee the payment by the Company for the cost of the prototype tooling and molds estimated to be CNY ¥9.5 million (CAD $1.8 million) to Zongshen through the pledge of 800,000 common shares of the Company. The Company approved its obligations under the Share Pledge and has agreed to reimburse the Pledgor on a one for one basis for any pledged shares realized by Zongshen.

 

  F- 34  

 

  

Electrameccanica Vehicles Corp.

Notes to the Interim Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the three months ended March 31, 2018

 

7. Acquisition of Intermeccanica

 

On October 18, 2017 the Company completed the acquisition of all of the outstanding shares of Intermeccanica, a developer and manufacturer of high end custom built vehicles and the contract assembler of the Company’s electric vehicles located in Greater Vancouver, BC. The acquisition of Intermeccanica is expected to accelerate the Company’s manufacture and delivery of its vehicles to customers, and the Company will develop and manufacture electric versions of Intermeccanica’s custom built vehicles.

 

Total purchase consideration was $2,500,000. On or before October 18, 2017 the Company paid $1,000,000, and entered into a Promissory Note for the balance of $1,500,000. The Promissory Note which bore interest at 5% per annum and was secured over the assets of Intermeccanica was paid in full on January 28, 2018.

 

Goodwill and other intangible assets recognized was primarily attributed to expected synergies arising from the Intermeccanica acquisition and the expertise and reputation of the assembled management and workforce. Goodwill is not expected to be deductible for income tax purposes. During the period from October 18, 2017 to March 31, 2018 the Company did not record any amortization relating to the acquired intangible assets as the amortization amount was trivial. No further impairment was identified at March 31, 2018.

 

Total goodwill and other intangible assets consist of:

 

   

March 31,

2018

   

December 31,

2017

 
Domain name   $ 2,170     $ 2,170  
Identifiable intangibles on acquisition of Intermeccanica     558,000       558,000  
Goodwill and other intangibles on acquisition of Intermeccanica     699,844       699,844  
    $ 1,260,014     $ 1,260,014  

 

8. Trade payables and accrued liabilities

 

   

March 31,

2018

   

December 31,

2017

 
Trade payables   $ 671,925     $ 457,520  
Wages payables     23,663       62,110  
Due to related parties (Note 17)     60,855       16,814  
Accrued liabilities     819,893       587,346  
    $ 1,576,336     $ 1,123,790  

 

9. Commitments

 

On February 2, 2018 the joint business line of credit with Bank of Montreal (BMO), which was held by Intermeccanica, its President and his wife was paid in full. The line of credit was secured by a general security agreement, a specific charge over a vehicle, and a charge over the personal home of the President and his wife.

 

Lease obligations relate to the Company’s rent of office space and warehouse space. The term of the leases expire on November 1, 2020 and July 1, 2020 with the Company holding an option to renew for a further five years for the office space.

 

As at March 31, 2018, future payments required under non-cancellable operating leases contracted for but not capitalized in the financial statements are as follows:

 

   

March 31,

2018

   

December 31,

2017

 
Payable not later than one year   $ 232,130     $ 310,034  
Payable later than one year and not later than five years     303,569       507,036  
Payable later than five years     -       -  
    $ 535,699     $ 817,070  

 

  F- 35  

 

  

Electrameccanica Vehicles Corp.

Notes to the Interim Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the three months ended March 31, 2018

 

10. Derivative liability

 

The exercise price of certain warrants is denominated in US dollars; however, the functional currency of the Company is the Canadian dollar. Consequently, the value of the proceeds on exercise is not fixed and will vary based on foreign exchange rate movements. The warrants are therefore a derivative and are required to be recognized as a derivate liability and measured at fair value at each reporting period. Any changes in fair value from period to period are recorded as non-cash gain or loss in the consolidated statement of net loss and comprehensive loss. Upon exercise, the holders will pay the Company the respective exercise price for each warrant exercised in exchange for one common share of the Company and the fair value at the date of exercise and the associated non-cash liability will be reclassified to share capital. The non-cash liability associated with any warrants that expire unexercised will be recorded as a gain in the consolidated statement of net loss and comprehensive loss. There are no circumstances in which the Company would be required to pay any cash upon exercise or expiry of the warrants.

 

During the period ended March 31, 2018 the Company issued 200,000 warrants exercisable at USD $16.80, which expire on January 22, 2021.

 

A reconciliation of the changes in fair values of the derivative liability is below:

 

    March 31
2018
 
Balance, beginning   $ 3,655,690  
Warrants issued     676,967  
Changes in fair value of derivative liabilities     (1,166,027 )
Balance, ending   $ 3,166,630  

 

The fair value of the warrants was calculated using a Black-Scholes Option Pricing Model. The weighted average assumptions used in the Black-Scholes Option Pricing Model are:

 

    At Issue     March 31
2018
 
Fair value of related warrants outstanding   $ 676,967     $ 3,166,630  
Risk-free interest rate     1.96 %     1.94 %
Expected term (in years)     3       2.30  
Expected share price volatility     60 %     60 %

 

11. Share capital

 

Authorized share capital

Unlimited number of common shares without par value.

 

On May 15, 2018 the Company completed a share consolidation of two pre-split common shares for one post-split common share. Previously, on June 22, 2016, the Company completed a share split of one pre-split common share for five post-split shares. All information related to common shares, options, warrants and per share amounts presented in these financial statements and accompanying notes have been retroactively adjusted to reflect the revised number of common shares resulting from the share split and subsequent share consolidation.

 

Issued share capital

At March 31, 2018 the Company had 24,559,728 issued and outstanding common shares (December 31, 2017 – 23,794,106).

 

During the three month period ended March 31, 2018, the Company issued 763,336 common shares for gross proceeds of $3,566,066. Share issue costs related to these issuances was $337,787 and includes 2,286 common shares issued for finder’s fees with a fair value of $23,678. On exercise of 6,198 stock options included in the above, $19,274 was allocated to share capital from share-based payment reserve.

 

  F- 36  

 

  

Electrameccanica Vehicles Corp.

Notes to the Interim Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the three months ended March 31, 2018

 

Basic and fully diluted loss per share

 

The calculation of basic and fully diluted loss per share for the period ended March 31, 2018 was based on the loss attributable to common shareholders of $2,403,974 and the weighted average number of common shares outstanding of 24,468,974. Fully diluted loss per share did not include the effect of stock options and warrants as the effect would be anti-dilutive.

 

Stock options

 

The Company has adopted an incentive stock option plan, which provides that the Board of Directors of the Company may from time to time, in its discretion, grant to directors, officers, employees and technical consultants to the Company, non-transferable stock options to purchase common shares, provided that the number of common shares reserved for issuance will not exceed 30,000,000. Such options will be exercisable for a period of up to 7 years from the date of grant. Options may be exercised no later than 90 days following cessation of the optionee’s position with the Company.

 

Options granted typically vest one-quarter on the first anniversary subsequent to the grant date and the remaining three-quarters typically vest in thirty-six equal monthly instalments commencing on the first anniversary of the grant date.

 

On exercise, each option allows the holder to purchase one common share of the Company.

 

The changes in options during the period ended March 31, 2018 are as follows:

 

    March 31, 2018  
    Number of options     Weighted average exercise price  
Options outstanding, beginning     28,598,750     $ 0.40  
Options granted     352,500     USD 9.60  
Options exercised     (6,198 )     2.00  
Options expired and forfeited     (21,302 )     4.32  
Options outstanding, ending     28,923,750     $ 0.54  

 

Details of options outstanding as at March 31, 2018 are as follows:

 

Exercise price     Weighted average
contractual life
  Number of options
outstanding
    Number of
options
exercisable
 
$ 0.30     4.20 years     22,500,000       15,937,500  
$ 0.30     4.37 years     1,331,250       887,500  
$ 0.80     4.70 years     4,200,000       2,450,000  
$ 0.80     4.94 years     12,500       6,510  
$ 2.00     5.23 years     12,500       5,729  
$ 2.00     5.89 years     470,000       157,500  
$ 2.00     6.36 years     50,000       -  
USD $ 9.60     6.77 years     347,500       31,250  
        4.36 years     28,923,750       19,475,989  

 

The weighted average grant date fair value of options granted during the period ended March 31, 2018 was $6.20. The fair value was calculated using the Black-Scholes option pricing model using the following weighted average assumptions:

 

    Period ended March 31, 2018  
Expected life of options     5 years  
Annualized volatility     60 %
Risk-free interest rate     1.91 %
Dividend rate     0 %

 

During the period ended March 31, 2018, the Company recognized stock-based compensation expense of $790,234 (March 31, 2017 - $247,656).

 

  F- 37  

 

  

Electrameccanica Vehicles Corp.

Notes to the Interim Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the three months ended March 31, 2018

 

Warrants

 

On exercise, each warrant allows the holder to purchase one common share of the Company.

 

The changes in warrants during the period ended March 31, 2018 are as follows:

 

    March 31, 2018  
    Number of warrants     Weighted average exercise price  
Warrants outstanding, beginning     11,856,858     $ 4.70  
Warrants issued     200,000       20.92  
Warrants outstanding, ending     12,056,858     $ 5.00  

 

At March 31, 2018, all warrants outstanding were exercisable. Details of warrants outstanding as at March 31, 2018 are as follows:

 

Exercise price

  Weighted average
contractual life
    Number of warrants
outstanding
 
$0.80 CAD - $4.00 CAD     3.42 years       10,856,561  
$2.00 USD - $24.00 USD     2.85 years       1,200,298  

 

12. Reserve

 

Share-based payment reserve

The share-based payment reserve records items recognized as stock-based compensation expense and other share-based payments until such time that the stock options or warrants are exercised, at which time the corresponding amount will be transferred to share capital. If the options, or warrants expire unexercised, the amount remains in the share-based payment reserve account.

 

13. General and administrative expenses

 

    3 months ended  
   

March 31,

2018

   

March 31,

2017

 
Rent   $ 87,122     $ 58,285  
Office expenses     236,949       32,050  
Legal and professional     264,969       176,852  
Consulting fees     143,265       93,344  
Investor relations     90,058       22,223  
Salaries     152,854       100,055  
    $ 975,217     $ 482,809  

 

14. Research and development expenses

 

    3 months ended  
   

March 31,

2018

   

March 31,

2017

 
Labour   $ 685,568     $ 449,423  
Materials     880,174       937,840  
Government grants     (5,565 )     (103,534 )
    $ 1,560,177     $ 1,283,729  

 

  F- 38  

 

  

Electrameccanica Vehicles Corp.

Notes to the Interim Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the three months ended March 31, 2018

 

15. Sales and marketing expenses

 

    3 months ended  
   

March 31,

2018

   

March 31,

2017

 
Consulting   $ 62,221     $ 21,275  
Marketing     148,978       35,528  
Salaries     68,431       67,463  
    $ 279,630     $ 124,266  

 

16. Segmented information

 

The Company operates in two reportable business segments in Canada.

 

The two reportable business segments offer different products, require different production processes, and are based on how the financial information is produced internally for the purposes of making operating decisions. The following summary describes the operations of each of the Company’s reportable business segments:

 

· Electric Vehicles – development and manufacture of electric vehicles for mass markets, and
· Custom build vehicles – development and manufacture of high end custom built vehicles.

 

Sales between segments are accounted for at prices that approximate fair value. No business segments have been aggregated to form the above reportable business segments.

 

    3 months ended March 31, 2018     3 months ended March 31, 2017  
    Electric Vehicles     Custom Built
Vehicles
    Electric Vehicles     Custom Built
Vehicles
 
Revenue   $ -     $ 166,133     $ -     $ -  
Gross profit     -       63,465       -       -  
Operating expenses     3,584,411       71,876       2,163,370       -  
Other items     (1,196,739 )     7,891       26,199       -  
Net and comprehensive loss     2,387,672       16,302       2,189,569       -  

 

    March 31, 2018     December 31, 2017  
    Electric Vehicles     Custom Built
Vehicles
    Electric Vehicles     Custom Built
Vehicles
 
                                 
Inventory   $ -     $ 258,093     $ -     $ 232,903  
Plant and equipment     2,496,859       21,698       1,370,350       23,333  

 

17. Related party transactions

 

Related party balances

The following amounts are due to related parties

 

   

March 31,

2018

   

December 31,

2017

 
Shareholder loan   $ 9,344     $ 10,383  
Due to related parties (Note 8)     60,855       16,814  
    $ 70,199     $ 27,197  

 

These amounts are unsecured, non-interest bearing and have no fixed terms of repayment.

 

  F- 39  

 

  

Electrameccanica Vehicles Corp.

Notes to the Interim Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the three months ended March 31, 2018

 

Key management personnel compensation

 

    3 months ended  
   

March 31,

2018

   

March 31,

2017

 
Consulting fees   $ 60,000     $ 45,000  
Salary     88,000       51,000  
Deferred salary for CEO     -       15,000  
Stock-based compensation     121,562       202,637  
    $ 269,562     $ 313,637  

 

18. Financial instruments and financial risk management

 

The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:

 

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s primary exposure to credit risk is on its cash and cash equivalents held in bank accounts. The majority of cash is deposited in bank accounts held with major financial institutions in Canada. As most of the Company’s cash is held by one financial institution there is a concentration of credit risk. This risk is managed by using major financial institutions that are high credit quality financial institutions as determined by rating agencies. The Company’s secondary exposure to risk is on its receivables. This risk is minimal as receivables consist primarily of government grant and refundable government goods and services taxes.

 

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has a planning and budgeting process in place to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis. The Company ensures that there are sufficient funds to meet its short-term business requirements, taking into account its anticipated cash flows from operations and its holdings of cash and cash equivalents.

 

Historically, the Company's source of funding has been shareholder loans and the issuance of equity securities for cash, primarily through private placements. The Company’s access to financing is always uncertain. There can be no assurance of continued access to significant equity funding.

 

The following is an analysis of the contractual maturities of the Company’s non-derivative financial liabilities as at March 31, 2018:

 

At March 31, 2018   Within one year     Between one
and five years
   

More than

five years

 
Trade payables   $ 732,780     $ -     $ -  
Customer deposits     407,844       -       -  
Shareholder loan     9,344       -       -  
Promissory note     -       -       -  
    $ 1,149,968     $ -     $ -  

 

At December 31, 2017   Within one year     Between one
and five years
   

More than

five years

 
Bank loan   $ 123,637     $ -     $ -  
Trade payables     474,334       -       -  
Customer deposits     447,071       -       -  
Shareholder loan     10,383       -       -  
Promissory note     1,500,000       -       -  
    $ 2,555,425     $ -     $ -  

 

  F- 40  

 

   

Electrameccanica Vehicles Corp.

Notes to the Interim Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the three months ended March 31, 2018

Foreign exchange risk

 

Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company is exposed to currency risk as it incurs expenditures that are denominated in US dollars while its functional currency is the Canadian dollar. The Company does not hedge its exposure to fluctuations in foreign exchange rates.

 

The following is an analysis of Canadian dollar equivalent of financial assets and liabilities that are denominated in US dollars:

 

   

March 31,

2018

   

December 31,

2017

 
Cash and cash equivalents   $ 3,569,225     $ 5,596,635  
Trade receivables     3,607       -  
Trade payables     (326,470 )     (138,794 )
    $ 3,246,362     $ 5,457,841  

 

Based on the above net exposures, as at March 31, 2018, a 10% change in the US dollars to Canadian dollar exchange rate would impact the Company’s net loss by $251,751 (December 31, 2017 - $545,784).

 

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on its cash equivalents as these instruments have original maturities of twelve months or less and are therefore exposed to interest rate fluctuations on renewal. A 1% change in market interest rates would have an impact on the Company’s net loss of $18,950 for the year ended March 31, 2018 (December 31, 2017 - $18,950).

 

Classification of financial instruments

Financial assets included in the statement of financial position are as follows:

 

   

March 31,

2018

   

December 31,

2017

 
Loans and receivables:                
Cash and cash equivalents   $ 5,861,327     $ 8,610,996  
Receivables     340,170       243,639  
    $ 6,201,497     $ 8,854,635  

 

Financial liabilities included in the statement of financial position are as follows:

 

   

March 31,

2018

   

December 31,

2017

 
Non-derivative financial liabilities:                
Bank loan   $ -     $ 123,637  
Trade payable     732,780       474,334  
Customer deposits     407,844       447,071  
Shareholder loan     9,344       10,383  
Promissory note     -       1,500,000  
Derivative financial liabilities:                
Warrant derivative liability     3,166,630       3,655,686  
    $ 4,316,598     $ 6,2711,111  

 

  F- 41  

 

  

Electrameccanica Vehicles Corp.

Notes to the Interim Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the three months ended March 31, 2018

 

Fair value

The fair value of the Company’s financial assets and liabilities approximates the carrying amount.

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

· Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
· Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
· Level 3 – Inputs that are not based on observable market data.

 

Financial liabilities measured at fair value at March 31, 2018 consisted of the derivative liability, which is measured using level 3 inputs.

 

The fair value of the derivative liability was calculated using the Black-Scholes Option Pricing Model using volatility of a comparable company as an estimate of volatility.

 

19. Capital management

 

The Company’s policy is to maintain a strong capital base so as to safeguard the Company’s ability to maintain its business and sustain future development of the business. The capital structure of the Company consists of equity. There were no changes in the Company’s approach to capital management during the year. The Company is not subject to any externally imposed capital requirements.

 

20. Subsequent events

 

On April 17, 2018 the Company granted stock options to acquire 150,000 common shares of the Company at an exercise price of USD $9.00 for a period of 7 years. The options vest over a 9 month period.

 

On May 15, 2018 the Company completed a share consolidation on a 2:1 basis. All information related to common shares, options, warrants and per share amounts presented in these financial statements and accompanying notes have been retroactively adjusted to reflect the revised number of common shares resulting from this share consolidation (Note 11).

 

  F- 42  

 

 

Intermeccanica International Inc.

 

Financial Statements

 

Years Ended March 31, 2017 and 2016

 

Expressed in Canadian Dollars

 

  F- 43  

 

  

   

INDEPENDENT AUDITOR’S REPORT

 

To the Directors of Intermeccanica International Inc.

 

We have audited the accompanying financial statements of Intermeccanica International Inc. which comprise the statement of financial position as at March 31, 2017 and 2016, and the statements of comprehensive income (loss), changes in equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.

 

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of Intermeccanica International Inc. as at March 31, 2017 and 2016, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards.

 

 
DALE MATHESON CARR-HILTON LABONTE LLP
CHARTERED PROFESSIONAL ACCOUNTANTS
Vancouver, Canada
June 7, 2018

 

 

  F- 44  

 

 

Intermeccanica International Inc.

Statements of Financial Position

(Expressed in Canadian dollars)

 

    Note  

March 31,

2017

   

March 31,

2016

 
ASSETS                    
Current assets                    
Cash       $ 72,846     $ 19,986  
Receivables         210,677       115,133  
Inventory   4     193,836       155,424  
Taxes recoverable   5     8,216       8,216  
Prepaid expenses and deposits         16,952       16,606  
          502,527       315,365  
                     
Non-current assets                    
Plant and equipment   6     38,394       51,853  
                     
TOTAL ASSETS       $ 540,921     $ 367,218  
                     
LIABILITIES                    
Current liabilities                    
Bank indebtedness   7   $ -     $ 159,637  
Trade payables and accrued liabilities   8     80,103       84,241  
Customer deposits         189,853       122,584  
Income taxes payable         17,251       -  
Shareholder loans   14     167,512       83,324  
Current portion of long-term debt   9     4,153       4,153  
          458,872       453,939  
                     
Non-current liabilities                    
Long-term debt   9     9,344       13,498  
TOTAL LIABILITIES         468,216       467,437  
                     
EQUITY                    
Share capital   13     100       100  
Retained earnings (deficit)         72,605       (100,319 )
TOTAL EQUITY (DEFICIT)         72,705       (100,219 )
                     
TOTAL LIABILITIES AND EQUITY       $ 540,921     $ 367,218  

 

Commitments (Note 10)

Subsequent event (Note 16)

 

On behalf of the Board of Directors.

 

“Jerry Kroll”________ “Henry Reisner”______
Director Director

 

The accompanying notes are an integral part of these financial statements

 

  F- 45  

 

  

Intermeccanica International Inc.

Statements of Comprehensive Income (Loss)

(Expressed in Canadian dollars)

 

 

        Year ended  
   

 

Note

 

March 31,

2017

   

March 31,

2016

 
                 
Revenue   11, 14   $ 1,262,657     $ 1,001,549  
Cost of sales         700,000       681,399  
Gross profit         562,657       320,150  
                     
Operating expenses                    
Advertising and promotion         20,038       24,747  
Amortization of equipment   6     13,459       10,925  
Bad debts         1,511       1,262  
Bank charges & interest         9,998       12,526  
Computer expenses         1,044       1,363  
Insurance         15,394       13,522  
Office expenses         5,655       4,156  
Professional fees         8,059       8,799  
Rent, property taxes and licenses         77,727       76,384  
Research and development expenses         -       38,585  
Salaries and benefits         145,976       127,687  
Shop supplies         27,752       21,678  
Telephone and utilities         24,015       23,252  
Travel         21,855       11,924  
          372,482       376,810  
                     

Income (loss) before tax

        190,175       (56,660 )
                     

Provision (recovery) for income tax

  12     17,251       (1,500 )
                     
Net and comprehensive income (loss)       $ 172,924     $ (55,160 )
                     
Income (loss) per share       $ 190     $ (61 )

 

The accompanying notes are an integral part of these financial statements

 

  F- 46  

 

  

Intermeccanica International Inc.

Statements of Changes in Equity

(Expressed in Canadian dollars)

 

              Retained        
        Common shares     Preferred shares     Earnings        
    Note   Number     Amount     Number     Amount     (Deficit)     Total  
Balance at March 31, 2015   13     910     $ 9       9,100     $ 91     $ (45,159 )   $ (45,059 )
                                                     
Comprehensive loss for the year         -       -       -       -       (55,160 )     (56,160 )
                                                     
Balance at March 31, 2016   13     910       9       9,100       91       (100,319 )     (100,219 )
                                                     
Comprehensive income for the year                                         172,924       172,923  
                                                     
Balance at March 31, 2017   13     910     $ 9       9,100     $ 91     $ 72,605     $ 72,705  

 

The accompanying notes are an integral part of these financial statements

 

  F- 47  

 

  

Intermeccanica International Inc.

Statements of Cash Flows

(Expressed in Canadian dollars)

  

    Year ended  
   

March 31,

2017

   

March 31,

2016

 
Operating activities                
Income (loss) for the year   $ 172,924     $ (55,160 )
Adjustments for:                
Amortization     13,459       10,925  
Changes in non-cash working capital items:                
Receivables     (95,544 )     (30,328 )
Inventory     (38,412       244,199  
Prepaid expenses and deposits     (346 )     5,459  
Trades payable and accrued liabilities     (4,138 )     (64,348 )
Customer deposits     67,269       (89,738 )
Income taxes payable     17,251       -  
Net cash flows from operating activities     132,463       21,009  
                 
Investing activities                
Expenditures on plant and equipment     -       (24,280 )
Net cash flows used in investing activities     -       (24,280 )
                 
Financing activities                
Payment of bank indebtedness     (159,637 )     (13,963 )
Proceeds from (repayment of) loan     (4,154 )     17,651  
Proceeds from (repayment of) shareholder loans     84,188       (10,925 )
Net cash flows used in financing activities     (79,603 )     (7,237 )
                 
Increase (decrease) in cash     52,860       (10,508 )
                 
Cash, beginning     19,986       30,494  
Cash, ending   $ 72,846     $ 19,986  

 

The accompanying notes are an integral part of these financial statements

 

  F- 48  

 

   

Intermeccanica International Inc.

Notes to the Financial Statements

(Expressed in Canadian dollars)

For the years ended March 31, 2017 and 2016

 

1. Nature and continuance of operations

 

Intermeccanica International Inc. (the “Company”) was incorporated on October 23, 1981, under the laws of the province of British Columbia, Canada, and its principal activity is the development and manufacturing of custom built vehicles and provision of related services.

 

The head office and principal address of the Company are located at 49 Braid Street, New Westminster, British Columbia, Canada, V3L 5N7.

 

2. Significant accounting policies and basis of preparation

 

The financial statements were authorized for issue on June 7, 2018 by the directors of the Company.

 

Statement of compliance with International Financial Reporting Standards

These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

 

Basis of preparation

The financial statements of the Company have been prepared on an accrual basis and are based on historical costs, modified where applicable. The financial statements are presented in Canadian dollars.

 

Comparative figures

Certain comparative figures have been reclassified to conform to the current year’s presentation. There was no effect on reported earnings.

 

Significant estimates and assumptions

The preparation of financial statements in accordance with IFRS requires the Company to make estimates and assumptions concerning the future. The Company’s management reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised.

 

Estimates and assumptions where there is significant risk of material adjustments to assets and liabilities in future accounting periods include the useful lives of plant and equipment, the recoverability and measurement of receivables and inventory, fair value measurements for financial instruments, and the recoverability and measurement of deferred tax assets.

 

Significant judgments

The preparation of financial statements in accordance with IFRS requires the Company to make judgments, apart from those involving estimates, in applying accounting policies.

 

The most significant judgments in applying the Company’s financial statements include:

 

- recoverability and measurement of receivables and inventory
- the classification of financial instruments; and
- the calculation of income taxes requires judgement in interpreting tax rules and regulations.

 

Inventory

Inventory consists of work in progress under fixed price contracts, parts held for resale or for use in fixed fee contracts and is valued at the lower of cost and net realizable value. Cost is determined on the first-in, first-out basis.

 

  F- 49  

 

  

Intermeccanica International Inc.

Notes to the Financial Statements

(Expressed in Canadian dollars)

For the years ended March 31, 2017 and 2016

 

2. Significant accounting policies and basis of preparation (cont’d)

 

Income (loss) per share

Income (loss) per share is calculated by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding in the period. For all periods presented, the income (loss) attributable to common shareholders equals the reported loss attributable to owners of the Company.

 

Financial instruments

The Company classifies its financial instruments in the following categories: at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale and financial liabilities. The classification depends on the purpose for which the financial instruments were acquired. Management determines the classification of its financial instruments at initial recognition. The Company has no financial instruments classified as fair value through profit or loss, held-to-maturity, or available for sale.

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortized cost. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. Cash and accounts receivable are classified as loans and receivables.

 

Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortized cost. The Company’s non-derivative financial liabilities consist of trade payables, customer deposits, long-term debt and shareholder loans.

 

Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership.

 

At each reporting date, the Company assesses whether there is objective evidence that a financial instrument has been impaired. Any impairment is recorded in profit or loss. No impairment was required on the Company’s financial instruments.

 

The Company does not have any derivative financial assets and liabilities.

 

Impairment of assets

The carrying amount of the Company’s assets (which include plant and equipment and inventory) is reviewed at each reporting date to determine whether there is any indication of impairment. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. An impairment loss is recognized whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognized in the statement of comprehensive loss.

 

The recoverable amount of assets is the greater of an asset’s fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

 

An impairment loss is only reversed if there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount. Any reversal of impairment cannot increase the carrying value of the asset to an amount higher than the carrying amount that would have been determined had no impairment loss been recognized in previous years.

 

Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment.

 

  F- 50  

 

 

Intermeccanica International Inc.

Notes to the Financial Statements

(Expressed in Canadian dollars)

For the years ended March 31, 2017 and 2016

 

2. Significant accounting policies and basis of preparation (cont’d)

 

Income taxes

Current income tax:

Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries where the Company operates and generates taxable income.

 

Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

 

Deferred income tax:

Deferred income tax is recognized, using the asset and liability method, on temporary differences at the reporting date arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

 

The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.

 

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

 

Plant and Equipment

Plant and equipment is stated at historical cost less accumulated amortization and accumulated impairment losses.

 

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the statement of comprehensive loss during the financial period in which they are incurred.

 

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the statement of comprehensive loss.

 

Amortization is calculated on a declining balance method to write off the cost of the assets to their residual values over their estimated useful lives. The amortization rates applicable to each category of plant and equipment are as follows:

 

Class of plant and equipment   Amortization rate  
Computers     55 %
Vehicles     30 %
Office equipment     20 %
Shop equipment     20 %

 

  F- 51  

 

  

Intermeccanica International Inc.

Notes to the Financial Statements

(Expressed in Canadian dollars)

For the years ended March 31, 2017 and 2016

 

2. Significant accounting policies and basis of preparation (cont’d)

 

Warranty allowance

The Company recognizes its commitment under product warranties by charging to expense an amount based on the prior years’ experience to maintain an allowance based on the last two years’ vehicle sales.

 

Revenue recognition

Revenue is recognized to the extent that the amount of revenue can be measured reliably and collection is probable .

 

Part sales:

 

Sales of parts are recognized when the Company has transferred significant risks and rewards of ownership to the customer which generally occurs upon shipment.

 

Services, repairs and support services:

 

Services, repairs and support services are recognized in the accounting period when the services are rendered.

 

Sales of vehicles:

 

The Company manufactures and sells custom built vehicles typically on fixed fee arrangements with its customers. Revenue is recognized in the accounting period in which the services are rendered, by reference to the stage of completion of the project. The stage of completion is determined as a percentage based on the amount of costs incurred compared to the estimated cost of completion. Revenue recognized in excess of amounts billed is recorded as work in progress. Amounts billed in excess of work performed is recorded as deferred revenue.

 

3. Accounting standards issued but not yet effective

 

New standard IFRS 9 “Financial Instruments”

 

This new standard is a partial replacement of IAS 39 “Financial Instruments: Recognition and Measurement”. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2018.

 

New standard IFRS 15 “Revenue from Contracts with Customers”

 

This new standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized.  IFRS 15 is effective for annual periods beginning on or after January 1, 2018 with early adoption permitted.

 

  F- 52  

 

 

Intermeccanica International Inc.

Notes to the Financial Statements

(Expressed in Canadian dollars)

For the years ended March 31, 2017 and 2016

  

3. Accounting standards issued but not yet effective (cont’d)

 

New standard IFRS 16 “Leases”

 

This new standard replaces IAS 17 “Leases” and the related interpretative guidance. IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset being leased. For those assets determined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees, introducing a single, on-balance sheet accounting model that is similar to current finance lease accounting, with limited exceptions for short-term leases or leases of low value assets. Lessor accounting is not substantially changed. The standard is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted for entities that have adopted IFRS 15.

 

The Company has not early adopted these new standards and is currently assessing the impact that these standards will have on its financial statements.

 

Other accounting standards or amendments to existing accounting standards that have been issued but have future effective dates are either not applicable or are not expected to have a significant impact on the Company’s financial statements.

 

4. Inventory

 

   

March 31,

2017

   

March 31,

2016

 
Parts     193,836       155,424  
    $ 193,836     $ 155,424  

 

5. Taxes recoverable

 

   

March 31,

2017

   

March 31,

2016

 
Investment tax credit receivable   $ 6,716     $ 6,716  
Tax receivable     1,500       1,500  
    $ 8,216     $ 8,216  

 

  F- 53  

 

  

Intermeccanica International Inc.

Notes to the Financial Statements

(Expressed in Canadian dollars)

For the years ended March 31, 2017 and 2016

 

6. Plant and equipment

 

    Equipment     Computers     Tooling     Vehicles     Leasehold
Improvement
    Total  
Cost:                                                
At March 31, 2015   $ 104,571     $ 4,766     $ 67,806     $ 51,075     $ 62,701     $ 290,919  
Additions     -       -       3,515       20,765       -       24,280  
At March 31, 2016     104,571       4,766       71,321       71,840       62,701       315,199  
Additions     -       -       -       -       -       -  
At March 31, 2017     104,571       4,766       71,321       71,840       62,701       315,199  
                                                 
Amortization:                                                
At March 31, 2015     91,136       3,097       59,576       35,911       62,701       252,421  
Charge for the year     1,344       918       999       7,664       -       10,925  
At March 31, 2016     92,480       4,015       60,575       43,575       62,701       263,346  
Charge for the year     2,149       413       1,950       8,947       -       13,459  
At March 31, 2017     94,629       4,428       62,525       52,522       62,701       276,805  
                                                 
Net book value:                                                
At March 31, 2016   $ 12,091     $ 751     $ 10,747     $ 28,265     $ -     $ 51,853  
At March 31, 2017   $ 9,942     $ 338     $ 8,796     $ 19,318     $ -     $ 38,394  

 

7. Bank Indebtedness

 

The Company, the President & Director, and his wife have a joint business line of credit with Bank of Montreal (BMO) with a limit of $200,000 that is payable on demand, bears interest at BMO’s personal line of credit base rate plus 1.5% and is secured by a general security agreement, a specific charge over a vehicle, and a charge over the personal home of the President & Director and his wife. Bank indebtedness consists of:

 

   

March 31,

2017

   

March 31,

2016

 
Line of credit   $ -     $ 159,637  

 

8. Trade payables and accrued liabilities

 

   

March 31,

2017

   

March 31,

2016

 
Trade payables   $ 23,717     $ 34,154  
Wages and salaries payable     35,387       25,978  
Sales taxes payable     8,466       4,909  
Accrued liabilities     12,533       19,200  
    $ 80,103     $ 84,241  

 

  F- 54  

 

   

Intermeccanica International Inc.

Notes to the Financial Statements

(Expressed in Canadian dollars)

For the years ended March 31, 2017 and 2016

 

9. Long-term debt

 

On June 2, 2015, the Company entered into a long-term loan for a principal amount up to $20,785. The loan is repayable at $346 per month beginning July 2, 2015, is non-interest bearing, unsecured and is due on or before June 2, 2020. The Company determined that the fair value of the loan was not significantly different from its face value. During the year ended March 31, 2017, the Company repaid $4,153.

 

   

March 31,

2017

   

March 31,

2016

 
Loan   $ 13,497     $ 18,101  
Current portion of loan     (4,153 )     (4,153 )
    $ 9,344     $ 13,948  

 

10. Commitments

 

Lease obligations relate to the Company’s rent of office space and warehouse space. The term of the leases expire on November 1, 2020 and July 1, 2020 with the Company holding an option to renew for a further five years for the office space.

 

As at March 31, 2017, future payments required under non-cancellable operating leases contracted for but not capitalized in the financial statements are as follows:

 

   

March 31,

2017

   

March 31,

2016

 
Payable not later than one year   $ 294,548     $ 220,696  
Payable later than one year and not later than five years     601,293       595,194  
Payable later than five years     126,340       426,986  
    $ 1,022,181     $ 1,242,876  

 

11. Revenue

 

During the year ended March 31, 2017, the Company recognized $787,266 (2016 - $789,824) as revenue from fixed-fee contracts. Contract revenue is determined by percentage of completion. The percentage is determined based on the amount of costs incurred relative to the total costs expected for a given contract.

 

For contracts in progress at:

 

   

March 31,

2017

   

March 31,

2016

 
Aggregate amount of costs incurred   $ 160,183     $ 140,315  
Aggregate amount of profits recognized     68,650       60,135  
Amounts billed in excess of work performed     192,958       213,557  
Revenue recognized in excess of amounts billed     228,834       200,449  

 

  F- 55  

 

  

Intermeccanica International Inc.

Notes to the Financial Statements

(Expressed in Canadian dollars)

For the years ended March 31, 2017 and 2016

 

12. Income tax expense and deferred tax assets and liabilities

 

A reconciliation of the expected income tax recovery to the actual income tax recovery is as follows:

  

   

March 31,

2017

    March 31,
2016
 
Net income (loss) before taxes   $ 190,175     $ (56,660 )
Statutory tax rate     13 %     13 %
Expected income tax liability (recovery) at the statutory tax rate     24,723       (7,366 )
Non-deductible items and other     4,642       2,317  
Temporary differences not recognized     (12,114 )     3,549  
Income tax expense   $ 17,251     $ (1,500 )

 

The Company has the following deductible temporary differences for which no deferred tax asset has been recognized:

 

   

March 31,

2017

    March 31,
2016
 
Non-capital loss carry-forwards   $     -     $ 10,696  

 

13. Share capital

 

Authorized share capital

10,000 common shares without par value.

10,000 preferred shares with a par value of $0.01 each

 

Issued share capital

At March 31, 2017 and March 31, 2016 there were 910 common shares with a value of $9 and 9,100 preferred shares with a value of $91, redeemable at a price of $49.50 per share, issued and outstanding.

 

14. Related party transactions

 

Related party balances

The following amounts are due to related parties

 

   

March 31,

2017

   

March 31,

2016

 
Shareholder loans   $ 167,512     $ 83,824  

 

These amounts are unsecured, non-interest bearing and have no fixed terms of repayment.

 

Economic dependence

During the year ended March 31, 2017 the Company recognized revenue of $368,712 (2016 - $102,902 from ElectraMeccanica Vehicles Corp., a company with senior management in common (see Note 16).

 

Key management personnel compensation

Key management personnel compensation consisting of salaries and benefits for the year ended March 31, 2017 was $48,000 (2016 - $48,000).

 

  F- 56  

 

  

Intermeccanica International Inc.

Notes to the Financial Statements

(Expressed in Canadian dollars)

For the years ended March 31, 2017 and 2016

 

15. Financial instruments and financial risk management

 

The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:

 

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s primary exposure to credit risk is on its accounts receivable. It is the opinion of management that these accounts do not represent a significant credit risk.

 

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company monitors its cash balances and cash flows generated from operations to meet its requirements. As at March 31, 2017 and 2016 the most significant financial liabilities are bank indebtedness, accounts payable, shareholder loans and long-term debt. Management is of the opinion that the Company has sufficient cash resources to meet its liabilities when due.

 

Foreign exchange risk

Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company is exposed to currency risk as it has sales and purchases denominated in US dollars while its functional currency is the Canadian dollar. The Company does not hedge its exposure to fluctuations in foreign exchange rates.

 

The following is an analysis of Canadian dollar equivalent of financial assets and liabilities that are denominated in US dollars:

 

   

March 31,

2017

   

March 31,

2016

 
Cash   $ 34,578     $ 2,213  
Trade receivables     1,856       46,000  
Trade payables     (10,803 )     (14,320 )
    $ 25,631     $ 33,893  

 

Based on the above net exposures, as at March 31, 2017, a 10% change in the US dollar to Canadian dollar exchange rate would impact the Company’s net loss by $3,409 (2016 - $4,406).

 

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on the operating line of credit which bears interest at a floating rate based on BMO’s personal line of credit base rate plus 1.5%. A 1% change in market interest rates would have an impact on the Company’s net loss of $729 for the year ended March 31, 2017 (2016 - $200)

 

  F- 57  

 

  

Intermeccanica International Inc.

Notes to the Financial Statements

(Expressed in Canadian dollars)

For the years ended March 31, 2017 and 2016

 

15. Financial instruments and financial risk management (cont’d)

 

Classification of financial instruments

 

Financial assets included in the statement of financial position are as follows:

 

   

March 31,

2017

   

March 31,

2016

 
Loans and receivables:                
Cash   $ 72,846     $ 19,986  
Trade receivables     210,677       61,568  
Taxes recoverable     8,216       8,216  
    $ 291,739     $ 89,770  

 

Financial liabilities included in the statement of financial position are as follows:

 

   

March 31,

2017

   

March 31,

2016

 
Non-derivative financial liabilities:                
Bank indebtedness   $ -     $ 159,637  
Trade payable and accrued liabilities     80,103       84,241  
Customer deposits     189,853       122,584  
Long-term debt     13,497       17,651  
Shareholder loans     167,512       83,324  
    $ 450,965     $ 467,437  

 

Fair value

The fair value of the Company’s financial assets and liabilities approximates the carrying amount.

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

· Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
· Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
· Level 3 – Inputs that are not based on observable market data.

 

Capital management

The Company’s policy is to maintain an adequate capital base so as to safeguard the Company’s ability to maintain its business and sustain future development of the business. The capital structure of the Company consists of equity and debt obligations, net of cash. There were no changes in the Company’s approach to capital management during the year. The Company is not subject to any externally imposed capital requirements.

 

16. SUBSEQUENT EVENT

 

On October 18, 2017 all of the outstanding shares of the Company were acquired by ElectraMeccanica Vehicles Corp. (ElectraMeccanica), a company with common management. Total purchase consideration was $2,500,000, of which $1,000,000 was paid on or before acquisition, and Electrameccanica entered into a promissory note for $1,500,000, which was secured over the assets of the Company. The promissory note was paid in full on January 28, 2018.

 

  F- 58  

 

   

Intermeccanica International Inc.

 

Interim Financial Statements

 

September 30, 2017

 

Unaudited - Expressed in Canadian Dollars

 

  F- 59  

 

  

Intermeccanica International Inc.

Interim Statements of Financial Position

(Expressed in Canadian dollars)

 

    Note  

September 30,

2017

(unaudited)

   

March 31,

2017

 
ASSETS                    
Current assets                    
Cash       $ 152,104     $ 72,846  
Receivables         110,593       210,677  
Inventory   4     190,981       193,836  
Taxes recoverable   5     -       8,216  
Prepaid expenses and deposits         12,848       16,952  
          466,526       502,527  
                     
Non-current assets                    
Plant and equipment   6     41,046       38,394  
                     
TOTAL ASSETS       $ 507,572     $ 540,921  
                     
LIABILITIES                    
Current liabilities                    
Bank indebtedness   7   $ -     $ -  
Trade payables and accrued liabilities   8     60,149       80,103  
Customer deposits         210,520       189,853  
Income taxes payable         17,251       17,251  
Shareholder loans   13     150,280       167,512  
Current portion of long-term debt   9     4,153       4,153  
          442,353       458,872  
                     
Non-Current liabilities                    
Long-term debt   9     7,268       9,344  
TOTAL LIABILITIES         449,621       468,216  
                     
EQUITY                    
Share capital   12     100       100  
Retained earnings         57,851       72,605  
TOTAL EQUITY         57,951       72,705  
                     
TOTAL LIABILITIES AND EQUITY       $ 507,572     $ 540,921  

 

Commitments (Note 10)      
Subsequent event (Note 16)      
       
On behalf of the Board of Directors.      
       
 /s/ Henry Reisner      
Director      

 

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

 

  F- 60  

 

  

Intermeccanica International Inc.

Interim Statements of Comprehensive Income (Loss)

(Unaudited - Expressed in Canadian dollars)

 

        Three months ended     Six months ended  
    Note  

September 30,

2017

   

September 30,

2016

   

September 30,

2017

   

September 30,

2016

 
                             
Revenue   11, 13   $ 249,784     $ 265,690     $ 529,736     $ 582,279  
Cost of sales         190,883       180,578       381,071       377,025  
Gross profit         58,901       85,112       148,665       205,254  
                                     
Operating expenses                                    
Advertising and promotion         519       11,926       1,060       12,205  
Amortization of equipment         4,481       3,365       7,067       6,729  
Bank charges & interest         884       2,930       1,784       5,614  
Computer expenses         32       32       65       65  
Insurance         4,010       3,862       8,055       7,602  
Office expenses         1,787       1,054       3,118       2,014  
Professional fees         3,538       5,024       5,727       8,160  
Rent, property taxes and licenses         18,399       17,926       36,500       35,284  
Research and development         -       -       1,500       -  
Salaries and benefits         28,905       28,130       55,099       55,260  
Shop supplies         8,374       6,622       20,695       13,699  
Telephone and utilities         5,487       4,946       12,966       10,863  
Travel         6,289       5,430       9,783       8,747  
          82,705       91,247       163,419       166,244  
Net and comprehensive income (loss)       $ (23,804 )   $ (6,135 )   $ (14,754 )   $ 39,012  
                                     
Income (loss) per share       $ (26 )   $ (7 )   $ (16 )   $ 43  

 

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

 

  F- 61  

 

  

Intermeccanica International Inc.

Interim Statements of Changes in Equity

(Unaudited - Expressed in Canadian dollars)

 

                            Retained        
          Common shares     Preferred shares     Earnings        
    Note     Number     Amount     Number     Amount     (Deficit)     Total  
Balance at March 31, 2016     12       910     $ 9       9,100     $ 91     $ (100,319 )   $ (100,219 )
                                                         
Comprehensive income for the period             -       -       -       -       (14,754 )     (14,754 )
                                                         
Balance at September 30, 2016     12       910     $ 9       9,100     $ 91     $ (115,073 )   $ (114,973 )
                                                         
Balance at March 31, 2017             910     $ 9       9,100     $ 91     $ 72,605     $ 72,705  
                                                         
Comprehensive loss for the period             -       -       -       -       (14,754 )     (14,754 )
                                                         
Balance at September 30, 2017     12       910     $ 9       9,100     $ 91     $ 57,851     $ 57,951  

 

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

 

  F- 62  

 

  

Intermeccanica International Inc.

Interim Statements of Cash Flows

(Unaudited - Expressed in Canadian dollars)

 

    Three months ended     Six months ended  
   

September 30,

2017

   

September 30,

2016

   

September 30,

2017

   

September 30,

2016

 
Operating activities                                
Income (loss) for the period   $ (23,804 )   $ (6,135 )   $ (14,754 )   $ 39,012  
Adjustments for:                                
Amortization     4,481       3,365       7,067       6,729  
Changes in non-cash working capital items:                                
Receivables     (48,348 )     (8,168 )     100,084       64,161  
Inventory     244,721       10,314       2,855       (186,165 )
Taxes recoverable     -       -       8,216       6,716  
Prepaid expenses and deposits     2,400       2,820       4,104       3,815  
Trades payable and accrued liabilities     (35,353 )     15,145       (19,954 )     22,436  
Customer deposits     (225,455 )     25,256       20,667       148,426  
Net cash flows from (used in) operating activities     (81,358 )     42,597       108,285       105,130  
                                 
Investing activities                                
Expenditures on plant and equipment     (4,542 )     (500 )     (9,719 )     (24,452 )
Net cash flows used in investing activities     (4,542 )     (500 )     (9,719 )     (24,452 )
                                 
Financing activities                                
Payment of bank indebtedness     -       (22,108 )             (5,072 )
Payment of loan     (1,038 )     (1,038 )     (2,076 )     (2,077 )
Payment of shareholder loans     (8,668 )     (5,557 )     (17,232 )     (13,127 )
Net cash flows used in financing activities     (9,706 )     (28,703 )     (19,308 )     (20,276 )
                                 
Increase (decrease) in cash     (95,606 )     13,394       79,258       60,402  
                                 
Cash, beginning     247,710       66,994       72,846       19,986  
Cash, ending   $ 152,104     $ 80,388     $ 152,104     $ 80,388  

 

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

 

  F- 63  

 

   

Intermeccanica International Inc.

Notes to the Interim Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the six months ended September 30, 2017

 

1. Nature and continuance of operations

 

Intermeccanica International Inc. (the “Company”) was incorporated on October 23, 1981, under the laws of the province of British Columbia, Canada, and its principal activity is the development and manufacturing of custom built vehicles and provision of related services.

 

The head office and principal address of the Company are located at 49 Braid Street, New Westminster, British Columbia, Canada, V3L 5N7.

 

2. Significant accounting policies and basis of preparation

 

The financial statements were authorized for issue on June 14, 2018 by the directors of the Company.

 

Statement of compliance with International Financial Reporting Standards

These interim financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). Therefore, these financial statements comply with International Accounting Standards (“IAS”) 34, Interim Financial Reporting.

 

Basis of preparation

The financial statements of the Company have been prepared on an accrual basis and are based on historical costs, modified where applicable. The financial statements are presented in Canadian dollars.

 

Significant estimates and assumptions

The preparation of financial statements in accordance with IFRS requires the Company to make estimates and assumptions concerning the future. The Company’s management reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised.

 

Estimates and assumptions where there is significant risk of material adjustments to assets and liabilities in future accounting periods include the useful lives of plant and equipment, the recoverability and measurement of receivables and inventory, fair value measurements for financial instruments, and the recoverability and measurement of deferred tax assets.

 

Significant judgments

The preparation of financial statements in accordance with IFRS requires the Company to make judgments, apart from those involving estimates, in applying accounting policies.

 

The most significant judgments in applying the Company’s financial statements include:

 

- recoverability and measurement of receivables and inventory
- the classification of financial instruments; and
- the calculation of income taxes requires judgement in interpreting tax rules and regulations.

 

Inventory

Inventory consists of work in progress under fixed price contracts, parts held for resale or for use in fixed fee contracts and is valued at the lower of cost and net realizable value. Cost is determined on the first-in, first-out basis.

 

Income (loss) per share

Income (loss) per share is calculated by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding in the period. For all periods presented, the income (loss) attributable to common shareholders equals the reported loss attributable to owners of the Company.

 

  F- 64  

 

  

Intermeccanica International Inc.

Notes to the Interim Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the six months ended September 30, 2017

 

Financial instruments

The Company classifies its financial instruments in the following categories: at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale and financial liabilities. The classification depends on the purpose for which the financial instruments were acquired. Management determines the classification of its financial instruments at initial recognition. The Company has no financial instruments classified as fair value through profit or loss, held-to-maturity, or available for sale.

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortized cost. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. Cash and receivables are classified as loans and receivables.

 

Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortized cost. The Company’s non-derivative financial liabilities consist of trade payables, customer deposits, long-term debt and shareholder loans.

 

Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership.

 

At each reporting date, the Company assesses whether there is objective evidence that a financial instrument has been impaired. Any impairment is recorded in profit or loss. No impairment was required on the Company’s financial instruments.

 

The Company does not have any derivative financial assets and liabilities.

 

Impairment of assets

The carrying amount of the Company’s assets (which include plant and equipment and inventory) is reviewed at each reporting date to determine whether there is any indication of impairment. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. An impairment loss is recognized whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognized in the statement of comprehensive loss.

 

The recoverable amount of assets is the greater of an asset’s fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

 

An impairment loss is only reversed if there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount. Any reversal of impairment cannot increase the carrying value of the asset to an amount higher than the carrying amount that would have been determined had no impairment loss been recognized in previous years.

 

Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment.

 

  F- 65  

 

  

Intermeccanica International Inc.

Notes to the Interim Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the six months ended September 30, 2017

 

Income taxes

Current income tax:

Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries where the Company operates and generates taxable income.

 

Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

 

Deferred income tax:

Deferred income tax is recognized, using the asset and liability method, on temporary differences at the reporting date arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

 

The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.

 

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

 

Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

 

Plant and Equipment

Plant and equipment is stated at historical cost less accumulated amortization and accumulated impairment losses.

 

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the statement of comprehensive loss during the financial period in which they are incurred.

 

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the statement of comprehensive loss.

 

Amortization is calculated on a declining balance method to write off the cost of the assets to their residual values over their estimated useful lives. The amortization rates applicable to each category of plant and equipment are as follows:

 

Class of plant and equipment   Amortization rate  
Computers     55 %
Vehicles     30 %
Office equipment     20 %
Shop equipment     20 %

 

Warranty allowance

The Company recognizes its commitment under product warranties by charging to expense an amount based on the prior years’ experience to maintain an allowance based on the last two years’ vehicle sales.

 

  F- 66  

 

 

Intermeccanica International Inc.

Notes to the Interim Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the six months ended September 30, 2017

  

Revenue recognition

Revenue is recognized to the extent that the amount of revenue can be measured reliably and collection is probable .

 

Part sales:

Sales of parts are recognized when the Company has transferred significant risks and rewards of ownership to the customer which generally occurs upon shipment.

 

Services, repairs and support services:

Services, repairs and support services are recognized in the accounting period when the services are rendered.

 

Sales of vehicles:

The Company manufactures and sells custom built vehicles typically on fixed fee arrangements with its customers. Revenue is recognized in the accounting period in which the services are rendered, by reference to the stage of completion of the project. The stage of completion is determined as a percentage based on the amount of costs incurred compared to the estimated cost of completion. Revenue recognized in excess of amounts billed is recorded as work in progress. Amounts billed in excess of work performed is recorded as deferred revenue.

 

3. Accounting standards issued but not yet effective

 

New standard IFRS 9 “Financial Instruments”

 

This new standard is a partial replacement of IAS 39 “Financial Instruments: Recognition and Measurement”. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2018.

 

New standard IFRS 15 “Revenue from Contracts with Customers”

 

This new standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized.  IFRS 15 is effective for annual periods beginning on or after January 1, 2018 with early adoption permitted.

 

New standard IFRS 16 “Leases”

 

This new standard replaces IAS 17 “Leases” and the related interpretative guidance. IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset being leased. For those assets determined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees, introducing a single, on-balance sheet accounting model that is similar to current finance lease accounting, with limited exceptions for short-term leases or leases of low value assets. Lessor accounting is not substantially changed. The standard is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted for entities that have adopted IFRS 15.

 

The Company has not early adopted these new standards and is currently assessing the impact that these standards will have on its financial statements.

 

  F- 67  

 

  

Intermeccanica International Inc.

Notes to the Interim Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the six months ended September 30, 2017

 

Other accounting standards or amendments to existing accounting standards that have been issued but have future effective dates are either not applicable or are not expected to have a significant impact on the Company’s financial statements.

 

4. Inventory

 

   

September 30,

2017

   

March 31,

2017

 
Parts   $ 190,981     $ 193,836  

 

5. Taxes recoverable

 

   

September 30,

2017

   

March 31,

2017

 
Investment tax credit receivable   $        -     $ 6,716  
Tax receivable     -       1,500  
    $ -     $ 8,216  

 

6. Plant and equipment

 

    Equipment     Computers     Tooling     Vehicles     Leasehold
Improvement
   

 

Total

 
Cost:                                                
At March 31, 2016   $ 104,571     $ 4,766     $ 71,321     $ 71,840     $ 62,701     $ 315,199  
Additions     -       -       -       -       -       -  
At March 31, 2017     104,571       4,766       71,321       71,840       62,701       315,199  
Additions     -       760       -       -       8,959       9,719  
At Sept 30, 2017     104,571       5,526       71,321       71,840       71,660       324,918  
                                                 
Amortization:                                                
At March 31, 2016     92,480       4,015       60,575       43,575       62,701       263,346  
Charge for the year     2,149       413       1,950       8,947       -       13,459  
At March 31, 2017     94,629       4,428       62,525       52,522       62,701       276,805  
Charge for the period     969       408       862       2,961       1,867       7,067  
At Sept 30, 2017     95,598       4,836       63,387       55,483       64,568       283,872  
                                                 
Net book value:                                                
At March 31, 2017   $ 9,942     $ 338     $ 8,796     $ 19,318     $ -     $ 38,394  
At Sept 30, 2017   $ 8,973     $ 690     $ 7,934     $ 16,357     $ 7,092     $ 41,046  

 

  F- 68  

 

  

Intermeccanica International Inc.

Notes to the Interim Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the six months ended September 30, 2017

 

7. Bank Indebtedness

 

The Company, the President & Director, and his wife have a joint business line of credit with Bank of Montreal (BMO) with a limit of $200,000 that is payable on demand, bears interest at BMO’s personal line of credit base rate plus 1.5% and is secured by a general security agreement, a specific charge over a vehicle, and a charge over the personal home of the President & Director and his wife. Bank indebtedness at September 30, 2017 is $Nil (March 31, 2017 - $Nil):

 

8. Trade payables and accrued liabilities

 

   

September 30,

2017

   

March 31,

2017

 
Trade payables   $ 8,506     $ 23,717  
Wages and salaries payable     32,964       35,387  
Sales taxes payable     6,479       8,466  
Accrued liabilities     12,200       12,533  
    $ 60,149     $ 80,103  

 

9. Long-term debt

 

On June 2, 2015, the Company entered into a long-term loan for a principal amount up to $20,785. The loan is repayable at $346 per month beginning July 2, 2015, is non-interest bearing, unsecured and is due on or before June 2, 2020. The Company determined that the fair value of the loan was not significantly different from its face value. During the six months ended September 30, 2017, the Company repaid $2,076 (September 30, 2016 - $2,076).

 

   

September 30,

2017

   

March 31,

2017

 
Loan   $ 11,421     $ 13,497  
Current portion of loan     (4,153 )     (4,153 )
Long-term portion of loan   $ 7,268     $ 9,344  

 

10. Commitments

 

Lease obligations relate to the Company’s rent of office space and warehouse space. The term of the leases expire on November 1, 2020 and July 1, 2020 with the Company holding an option to renew for a further five years for the office space.

 

As at September 30, 2017, future payments required under non-cancellable operating leases contracted for but not capitalized in the financial statements are as follows:

 

   

September 30,

2017

   

March 31,

2017

 
Payable not later than one year   $ 300,646     $ 294,548  
Payable later than one year and not later than five years     577,309       601,293  
Payable later than five years     -       126,340  
    $ 877,955     $ 1,022,181  

 

  F- 69  

 

  

Intermeccanica International Inc.

Notes to the Interim Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the six months ended September 30, 2017

 

11. Revenue

 

During the six months ended September 30, 2017, the Company recognized $388,444 (2016 - $277,454) as revenue from fixed-fee contracts. Contract revenue is determined by percentage of completion. The percentage is determined based on the amount of costs incurred relative to the total costs expected for a given contract.

 

For contracts in progress at:

 

   

September 30,

2017

   

March 31,

2017

 
Aggregate amount of costs incurred   $ 180,815     $ 160,183  
Aggregate amount of profits recognized     77,493       68,650  
Amounts billed in excess of work performed     210,521       64,883  
Revenue recognized in excess of amounts billed     71,482       100,759  

 

12. Share capital

 

Authorized share capital

10,000 common shares without par value.

10,000 preferred shares with a par value of $0.01 each

 

Issued share capital

At September 30, 2017 there were 910 common shares with a value of $9 and 9,100 preferred shares with a value of $91, redeemable at a price of $49.50 per share, issued and outstanding.

 

13. Related party transactions

 

Related party balances

The following amounts are due to related parties

 

   

September 30,

2017

   

March 31,

2017

 
Shareholder loans   $ 150,280     $ 167,512  

 

These amounts are unsecured, non-interest bearing and have no fixed terms of repayment.

 

Economic dependence

During the six months ended September 30, 2017 the Company recognized revenue of $245,384 (2016 - $119,016) from ElectraMeccanica Vehicles Corp., a company with senior management in common (see Note 16).

 

Key management personnel compensation

Key management personnel compensation consisting of salaries and benefits for the six months ended September 30, 2017 was $24,000 (2016 - $24,000).

 

14. Financial instruments and financial risk management

 

The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:

 

  F- 70  

 

  

Intermeccanica International Inc.

Notes to the Interim Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the six months ended September 30, 2017

 

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s primary exposure to credit risk is on its receivables. It is the opinion of management that these accounts do not represent a significant credit risk.

 

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company monitors its cash balances and cash flows generated from operations to meet its requirements. As at September 30, 2017 the most significant financial liabilities are accounts payable, customer deposits and long-term debt. Management is of the opinion that the Company has sufficient cash resources to meet its liabilities when due.

 

Foreign exchange risk

Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company is exposed to currency risk as it has sales and purchases denominated in US dollars while its functional currency is the Canadian dollar. The Company does not hedge its exposure to fluctuations in foreign exchange rates.

 

The following is an analysis of Canadian dollar equivalent of financial assets and liabilities that are denominated in US dollars:

 

   

September 30,

2017

   

March 31,

2017

 
Cash   $ 58,567     $ 34,578  
Trade receivables     1,456       1,856  
Trade payables     (1,415 )     (10,803 )
    $ 58,608     $ 25,631  

 

Based on the above net exposures, as at September 30, 2017, a 10% change in the US dollars to Canadian dollar exchange rate would impact the Company’s net loss by $5,860 (2016 – $2,563).

 

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on the operating line of credit which bears interest at a floating rate based on BMO’s personal line of credit base rate plus 1.5%. A 1% change in market interest rates would have an impact on the Company’s net loss of $1,521 for the six months ended September 30, 2017 (2016 – $775).

 

Classification of financial instruments

 

Financial assets included in the statement of financial position are as follows:

 

   

September 30,

2017

   

March 31,

2017

 
Loans and receivables:                
Cash   $ 152,104     $ 72,846  
Trade receivables     110,593       210,677  
Taxes recoverable     -       8,216  
    $ 262,697     $ 291,739  

 

  F- 71  

 

  

Intermeccanica International Inc.

Notes to the Interim Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the six months ended September 30, 2017

 

Financial liabilities included in the statement of financial position are as follows:

 

   

September 30,

2017

   

March 31,

2017

 
Non-derivative financial liabilities:                
Bank indebtedness   $ -     $ -  
Trade payable and accrued liabilities     60,149       80,103  
Customer deposits     210,520       189,853  
Long-term debt     11,421       13,497  
Shareholder loans     150,280       167,512  
    $ 432,370     $ 450,965  

 

Fair value

The fair value of the Company’s financial assets and liabilities approximates the carrying amount.

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

· Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
· Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
· Level 3 – Inputs that are not based on observable market data.

 

Capital management

The Company’s policy is to maintain an adequate capital base so as to safeguard the Company’s ability to maintain its business and sustain future development of the business. The capital structure of the Company consists of equity and debt obligations, net of cash. There were no changes in the Company’s approach to capital management during the period. The Company is not subject to any externally imposed capital requirements.

 

16. SUBSEQUENT EVENT

 

On October 18, 2017 all of the outstanding shares of the Company were acquired by ElectraMeccanica Vehicles Corp. (“ElectraMeccanica”), a company with common management. Total purchase consideration was $2,500,000, of which $1,000,000 was paid on or before acquisition, and Electrameccanica entered into a promissory note for $1,500,000, which was secured over the assets of the Company. The promissory note was paid in full on January 28, 2018.

 

  F- 72  

 

  

UNAUDITED PRO FORMA COMBINED

 

FINANCIAL INFORMATION AS OF DECEMBER 31, 2017   

 

Electrameccanica Vehicles Corp. (“EMV”) will account for the Acquisition as an acquisition under the purchase method of accounting. Pursuant to this method, the aggregate consideration paid by Electrameccanica in connection with the acquisition will be allocated to Intermeccanica International Inc. (“IMI”) assets and liabilities based on their fair values. IMI's assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of EMV after consummation of the acquisition.

 

We have presented below the Statements of Comprehensive Loss of EMV as December 31, 2017, assuming that the acquisition of IMI had occurred as of January 1, 2017. The unaudited pro forma combined Statements of Comprehensive Loss should be read in conjunction with the unaudited financial statements and related notes and "Management Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.

 

The pro forma information is based on the historical financial statements of EMV, IMI after giving effect to the Acquisition and applying the estimates, assumptions and adjustments described in the accompanying notes to the unaudited pro forma combined Statements of Comprehensive Loss.

 

The unaudited pro forma combined Statements of Comprehensive Loss is for illustrative purposes only and should not be relied upon as indicative of the historical financial position that would have occurred had the acquisition of IMI happened as of the date indicated.

 

No pro-forma statement of financial position is presented below as the audited statement of financial position included in the audited financial statements of the Company at December 31, 2017 are included elsewhere in this registration statement and reflect the financial position of the combined entities at December 31, 2017.

 

UNAUDITED PRO FORMA COBMINED STATEMENTS OF COMPREHENSIVE LOSS

 

        Year Ended December 31, 2017  
    Note   IMI     EMV     Adjustments     Total  
                             
Revenue   1   $ 1,179,595     $ -     $ (501,461 )   $ 678,134  
Cost of revenue   2     758,948       -       (385,971 )     372,977  
Gross profit         420,647       -       (115,490 )     305,157  
                                     
Operating expenses                                    
Amortization         26,142       122,468               148,610  
General and administrative expenses   3     373,947       2,314,714       (95,941 )     2,592,720  
Research and development expenses   4     -       4,358,285       (19,521 )     4,338,764  
Sales and marketing expenses         4,432       630,999               635,431  
Stock-based compensation expense         -       889,511               889,511  
Share-based payment expense         -       1,085,716               1,085,716  
          (404,521 )     (9,401,693 )     (115,462 )     (9,690,752 )
                                     
Income/(Loss) before other items         16,126       (9,401,693 )     (28 )     (9,385,595 )
                                     
Other items                                    
Accretion interest expense         -       69,561               69,561  
Changes in fair value of warrant derivative         -       186,269               186,269  
Finder’s fee on convertible loan         -       258,542               258,542  
Impairment of goodwill   5     -       -       1,342,794       1,342,794  
Foreign exchange (gain)/loss         (11,806 )     22,068               10,262  
                                     
Net and comprehensive loss       $ 27,932     $ (9,938,133 )   $ (1,342,766 )   $ (11,253,023 )

 

  F- 73  

 

 

Pro Forma Adjustments

 

Note 1 – Revenue adjustment related to the elimination of intercompany revenue for the year ended December 2017 was $501,461

 

Note 2 – Cost of sales adjustment related to the elimination of intercompany cost of sales for the year ended December 31, 2017 was $385,971.

 

Note 3 – Expense adjustment related to the elimination of intercompany expenses for the year ended December 31, 2017 was $95,941.

 

Note 4 – Research and development expenses adjustment related to the elimination of intercompany research and development expenses for the year ended December 31, 2017 was $19,521.

 

Note 5 - The Company performed an impairment test of the goodwill. The recoverable amount of the Intermeccanica cash-generating unit was determined to be $1,157,206 based on its fair value less costs to sell. The difference of $1,342,794 has been recorded as an impairment in net loss.

 

On October 18, 2017 the Company completed the acquisition of all of the outstanding shares of IMI, a developer and manufacturer of high end custom built vehicles and the contract assembler of the Company’s electric vehicles located in Greater Vancouver, BC. The acquisition of Intermeccanica is expected to accelerate the Company’s manufacture and delivery of its vehicles to customers, and the Company will develop and manufacture electric versions of Intermeccanica’s custom built vehicles.

 

Total purchase consideration was $2,500,000. In addition to an initial payment of $100,000 in 2016, an additional $200,000 was paid prior to acquisition. On October 18, 2017 the Company paid $700,000 and entered into a Promissory Note (the “Note”) for the balance of $1,500,000. The Note bears interest at 5% per annum and was payable in installments of $500,000 plus accrued interest on the 6th, 12th and 18th month after purchase. Under the Note if the Company raises at least $10 million by way of equity or debt after October 18, 2017 the unpaid portion of the Note shall be paid within 30 days. The Promissory Note was secured over the assets of Intermeccanica. The Note was paid in full on January 28, 2018.

 

  F- 74  

 

 

ELECTRAMECCANICA VEHICLES CORP.

 

                                    Units

 

 

  

PROSPECTUS

 

 

 

                          , 2018

 

We have not authorized any dealer, salesperson or other person to give any information or represent anything not contained in or incorporated by reference into this prospectus. You must not rely on any unauthorized information. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus does not offer to sell any shares in any jurisdiction where it is unlawful. Neither the delivery of this prospectus, nor any sale made hereunder, shall create any implication that the information in this prospectus is correct after the date hereof.

 

 

 

 

PART II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

ITEM 6: INDEMNIFICATION OF DIRECTORS AND OFFICERS

 

The corporate laws of British Columbia allow us, and our Articles require us (subject to the provisions of the  Business Corporations Act  (British Columbia) note below), to indemnify our directors and former directors, and their respective heirs and personal or other legal representatives to the greatest extent permitted by Division 5 of Part 5 of the  Business Corporations Act  (British Columbia).

 

According to  Business Corporations Act  (British Columbia) for the purposes of such an indemnification:

 

eligible party ”, in relation to the Company, means an individual who:

 

(a) is or was a director or officer of the Company; and

 

(b) is or was a director or officer of another corporation:

 

(i) at a time when the corporation is or was an affiliate of the Company; or

 

(ii) at the request of the Company; or

 

(c) at the request of the Company, is or was, or holds or held a position equivalent to that of, a director or officer of a partnership, trust, joint venture or other unincorporated entity,

 

and include/es, except in the definition of “eligible proceeding” and certain other cases, the heirs and personal or other legal representatives of that individual;

 

eligible penalty ” means a judgment, penalty or fine awarded or imposed in, or an amount paid in settlement of, an eligible proceeding;

 

eligible proceeding ” means a proceeding in which an eligible party or any of the heirs and personal or other legal representatives of the eligible party, by reason of the eligible party being or having been a director or officer of, or holding or having held a position equivalent to that of a director or officer of, the Company or an associated corporation:

 

(a) is or may be joined as a party; or

 

(b) is or may be liable for or in respect of a judgment, penalty or fine in, or expenses related to, the proceeding;

 

expenses ” includes costs, charges and expenses, including legal and other fees, but does not include judgments, penalties, fines or amounts paid in settlement of a proceeding; and

 

proceedin g” includes any legal proceeding or investigative action, whether current, threatened, pending or completed.

 

II- 1

 

 

In addition, under the  Business Corporations Act  (British Columbia), the Company may pay, as they are incurred in advance of the final disposition of an eligible proceeding, the expenses actually and reasonably incurred by an eligible party in respect of that proceeding, provided that the Company first receives from the eligible party a written undertaking that, if it is ultimately determined that the payment of expenses is prohibited by the restrictions noted below, the eligible party will repay the amounts advanced.

 

Notwithstanding the provisions of our Articles noted above, the Company must not indemnify an eligible party or pay the expenses of an eligible party, if any of the following circumstances apply:

 

(a) if the indemnity or payment is made under an earlier agreement to indemnify or pay expenses and, at the time that the agreement to indemnify or pay expenses was made, the company was prohibited from giving the indemnity or paying the expenses by its memorandum or articles;

 

(b) if the indemnity or payment is made otherwise than under an earlier agreement to indemnify or pay expenses and, at the time that the indemnity or payment is made, the company is prohibited from giving the indemnity or paying the expenses by its memorandum or articles;

 

(c) if, in relation to the subject matter of the eligible proceeding, the eligible party did not act honestly and in good faith with a view to the best interests of the company or the associated corporation, as the case may be; and

 

(d) in the case of an eligible proceeding other than a civil proceeding, if the eligible party did not have reasonable grounds for believing that the eligible party’s conduct in respect of which the proceeding was brought was lawful.

 

In addition, if an eligible proceeding is brought against an eligible party by or on behalf of the Company or by or on behalf of an associated corporation, the Company must not do either of the following:

 

(a) indemnify the eligible party in respect of the proceeding; or

 

(b) pay the expenses of the eligible party in respect of the proceeding.

 

Notwithstanding any of the foregoing, and whether or not payment of expenses or indemnification has been sought, authorized or declined under the  Business Corporations Act  (British Columbia) or our Articles, on the application of the Company or an eligible party, the British Columbia Supreme Court may do one or more of the following:

 

(a) order the Company to indemnify an eligible party against any liability incurred by the eligible party in respect of an eligible proceeding;

 

(b) order the Company to pay some or all of the expenses incurred by an eligible party in respect of an eligible proceeding;

 

(c) order the enforcement of, or any payment under, an agreement of indemnification entered into by the Company;

 

(d) order the Company to pay some or all of the expenses actually and reasonably incurred by any person in obtaining an order under this section;

 

(e) make any other order the court considers appropriate.

 

ITEM 7. RECENT SALES OF UNREGISTERED SECURITIES

 

Since our inception on February 16, 2015, we have issued and sold the securities described below without registering the securities under the Securities Act. None of these transactions involved any underwriters’ underwriting discounts or commissions, or any public offering. We believe that each of the following issuances was exempt from registration under the Securities Act in reliance on Regulation S promulgated under the Securities Act regarding sales by an issuer in offshore transactions, Regulation D under the Securities Act, Rule 701 under the Securities Act or pursuant to Section 4(a)(2) of the Securities Act regarding transactions not involving a public offering.

We completed a 2-for-1 reverse stock split on May 15, 2018. All share and per share information in this Item 7 has been adjusted to reflect this reverse stock split.

 

II- 2

 

 

On February 16, 2015, we issued an aggregate of 12,425,000 shares of our common share at a price of $0.0004 per share to seven individuals/entities pursuant to private placement subscription agreements.

 

On February 16, 2015, we issued 250,000 units at a price of $0.0004 per unit to one individual pursuant to a private placement subscription agreement. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $0.80 per share until five years from the date of issuance.

 

On June 11, 2015, we issued 22,500,000 options to one individual to purchase a common share at a price of $0.30 per share until June 11, 2022.

 

On June 12, 2015, we issued 25,000 units at a price of $0.40 per unit to one entity pursuant to a private placement subscription agreement. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $0.80 per share until five years from the date of issuance.

 

On June 15, 2015, we issued 25,000 post-consolidation units at a price of $0.40 per unit to one individual pursuant to a private placement subscription agreement. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional common share at a price of $0.80 per share until five years from the date of issuance.

 

On June 26, 2015, we issued an aggregate of 187,500 units at a price of $0.40 per unit to one individual and one entity pursuant to private placement subscription agreements. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $0.80 per share until five years from the date of issuance.

 

On July 7, 2015, we issued 62,500 units at a price of $0.40 per unit to one individual pursuant to a private placement subscription agreement. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $0.80 per share until five years from the date of issuance.

 

On August 13, 2015, we issued 1,370,000 options to 14 individuals to purchase a common share at a price of $0.30 per share until August 13, 2022.

 

On August 19, 2015, we issued 31,250 units at a price of $0.80 per unit to one individual pursuant to a private placement subscription agreement. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $2.00 per share until five years from the date of issuance.

 

On December 1, 2015, we issued an aggregate of 170,250 units at a price of $0.80 per unit to four individuals pursuant to private placement subscription agreements. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $2.00 per share until five years from the date of issuance.

 

On December 9, 2015, we issued 4,237,500 options to 21 individuals to purchase a common share at a price of $0.80 per share until December 9, 2022. On December 31, 2015, we issued an aggregate of 215,313 units at a price of $0.80 per unit to eight individuals pursuant to private placement subscription agreements. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $2.00 per share until five years from the date of issuance.

 

On January 22, 2016, we issued an aggregate of 1,581,250 units at a price of $0.80 per unit to eight individuals/entities pursuant to private placement subscription agreements. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $2.00 per share until five years from the date of issuance.

 

II- 3

 

 

On February 29, 2016, we issued an aggregate of 93,750 units at a price of $0.80 per unit to three individuals pursuant to private placement subscription agreements. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $2.00 per share until five years from the date of issuance.

 

On March 7, 2016, we issued an aggregate of 375,000 units at a price of $0.80 per unit to five individuals/entities pursuant to private placement subscription agreements. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $2.00 per share until five years from the date of issuance.

 

On March 7, 2016, we issued 12,500 options to one individual to purchase a common share at a price of $0.80 per share until March 7, 2023.

 

On May 16, 2016, we issued an aggregate of 365,100 units at a price of $2.00 per unit to twelve individuals pursuant to private placement subscription agreements. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $2.00 per share until five years from the date of issuance.

 

On June 21, 2016, we issued 37,500 options to three individuals to purchase a common share at a price of $2.00 per share until June 21, 2023.

 

On June 21, 2016, we issued and aggregate of 237,500 units at a price of $2.00 per unit to five individuals pursuant to private placement subscription agreements. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $4.00 per share until five years from the date of issuance.

 

On August 15, 2016, we issued 12,500 units at a price of $2.00 per unit to one individual pursuant to a private placement subscription agreement. Each unit was comprised of one shares of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $4.00 per share until five years from the date of issuance.

 

On September 7, 2016, we issued an aggregate of 57,500 units at a price of $2.00 per unit to five individuals pursuant to a private placement subscription agreement. Each unit was comprised of one shares of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $4.00 per share until five years from the date of issuance.

 

On September 7, 2016, we issued a $300,000 unsecured convertible note (the “Note”) that was convertible into units at a price of $2.00 per unit. Each unit consisted of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $4.00 per share until September 7, 2021.

 

On October 5, 2016, we issued an aggregate of 52,500 units at a price of $2.00 per unit to two individuals pursuant to a private placement subscription agreement. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $4.00 per share until five years from the date of issuance.

 

On October 5, 2016, we issued an aggregate of 74,881 units at a price of $2.00 per unit to two individuals/entities pursuant to third party finder’s fees. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $4.00 per share until five years from the date of issuance.

 

On October 28, 2016, we issued 1,000,000 units at a price of $2.00 per unit to one individual pursuant to a private placement subscription agreement. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $4.00 per share until five years from the date of issuance.

 

On October 28, 2016 we issued 1,200,000 units at a price of $1.667 per unit to one entity pursuant to a private placement subscription agreement. Each unit was comprised of one share of our common share and 3.334 common share purchase warrants. Each whole warrant entitles the holder to acquire one additional share of our common share at a price of $4.00 per share until five years from the date of issuance.

 

II- 4

 

 

On November 21, 2016, we issued 2,250,000 units at a price of $0.7268 per unit to eight individuals/entities pursuant to a private placement subscription agreement. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $4.00 per share until five years from the date of issuance.

 

On November 21, 2016, we issued 200,000 units at a price of $2.00 per unit to one individual pursuant to third party finder’s fees. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $4.00 per share until five years from the date of issuance.

 

On February 8, 2017, we issued 160,000 units at a price of $2.00 per unit to three individuals pursuant to a private placement subscription agreement. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $4.00 per share until five years from the date of issuance.

 

On February 17, 2017, we issued 510,000 options to thirty-two individuals to purchase a common share at a price of $2.00 per share until February 17, 2024.

 

On March 29, 2017, we issued 54,000 units at a price of $2.00 per unit to four individuals pursuant to a private placement subscription agreement. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $4.00 per share until five years from the date of issuance.

 

On March 29, 2017, we issued 2,500 units at a price of $2.00 per unit to one individual pursuant to third party finder’s fees. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $4.00 per share until five years from the date of issuance.

 

On March 30, 2017, we issued 50,000 units at a price of $2.00 per unit to one individual pursuant to a private placement subscription agreement. Each unit was comprised of one share of our common share and one common share purchase warrant. Each warrant entitles the holder to acquire one additional share of our common share at a price of $4.00 per share until five years from the date of issuance.

 

On April 17, 2017, we completed a private placement of 100,000 units at a price of $2.00 per unit for gross proceeds of $200,000. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $4 per warrant share until April 17, 2022. We incurred share issue costs of $24,820 relating to this private placement.

 

On April 26, 2017, we completed a private placement of 100,000 units at a price of $2.00 per unit for gross proceeds of $200,000. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $4 per warrant share until April 26, 2022. We incurred share issue costs of $24,820 relating to this private placement.

 

On May 30, 2017, we completed a private placement of 37,500 units at a price of $2.00 per unit for gross proceeds of $75,000. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $4 per warrant share until May 30, 2022. We incurred share issue costs of $13,159 relating to this private placement.

 

On June 29, 2017, we completed a private placement of 12,500 units at a price of $2.00 per unit for gross proceeds of $25,000. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $4 per warrant share until June 29, 2022. We incurred share issue costs of $3,095 relating to this private placement.

 

On July 13, 2017, we completed a private placement of 150,000 units at a price of $2.00 per unit for gross proceeds of $300,000. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $4 per warrant share until July 13, 2022. We agreed to pay cash third party finder’s fees of $30,000 relating to this private placement.

 

II- 5

 

 

On July 27, 2017, we completed a private placement of 750 units at a price of $2.00 per unit for gross proceeds of $1,500. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $4 per warrant share until July 27, 2022.

 

On July 31, 2017 the unsecured convertible loan for $300,000 was converted by the holder into units at a price of $2.00 per unit. Each unit consisted of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $4 per warrant share for a period of five years from date of issue.

 

On July 31, 2017, we issued an unsecured convertible loan for $1,000,034. The loan, which is non-interest bearing, matures on July 31, 2018. The loan was convertible, at the holder’s option at any time before maturity into units at a price of $2.00 per unit or will automatically convert into units of the Company at a price of $1.00 per unit, if, prior to maturity the Company’s common shares trade on the over-the-counter OTCQB market (or on such other stock exchange or market on which such common shares are listed at the time and as may be selected for such purposes by the Board of Directors of the Company in its sole discretion) at either a volume weighted average trading price or with a final closing bid price of $4.00 or greater per common share for a period of 10 consecutive trading days. Each unit consisted of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $4 per warrant share for a period of five years from date of issue. We agreed to pay a third-party finder’s fee of $100,003 cash relating to this convertible loan.

 

On August 9, 2017, we completed a private placement of 100,000 units at a price of $2.00 per unit for gross proceeds of $200,000. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $4 per warrant share until Aug 9, 2022. We agreed to pay a third-party finder’s fee of $20,000 cash relating to this private placement.

 

On October 13, 2017 we issued 6,250 common shares pursuant the exercise of stock options of $0.30 per share for proceeds of $1,875.

 

On October 16, 2017, we completed a private placement of 25,000 units at a price of US$12.00 per unit for gross proceeds of US$300,000 (CAD $373,350). Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of US$24.00 per warrant share until October 16, 2019. On October 16, 2017, we issued 1,000 common shares at a price of US$12.00 per share with a fair value of US$12,000 (CAD $14,934) for third-party finder’s fees relating to this private placement. Additionally, we agreed to pay a third-party finder’s fee of US$18,000 (CAD $23,642) cash relating to this private placement.

 

On October 17, 2017, we issued an unsecured convertible loan for US$1,152,289 (CAD $1,437,277). The loan, which is non-interest bearing, matures on October 17, 2018. The loan is convertible, at the holder’s option at any time before maturity into units at a price of US$7.20 per unit or will automatically convert into units at a price of US$7.20 per unit, if prior to maturity our common shares trades on the OTCQB (or such other stock exchange on which the common shares are listed) at either a volume weighted average trading price or final closing bid price of US$16.00 or greater per common share for a period of 10 consecutive trading days. Each unit consisted of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of US$14.40 per warrant share for a period of five years from date of issue. We agreed to pay a third-party finder’s fee of US$115,229 (CAD $143,728) cash relating to the convertible loan upon conversion of the loan to common shares.

 

On October 23, 2017, we completed a private placement of 22,523 common shares at a price of US$11.10 per share for gross proceeds of US$250,000 (CAD $315,790).

 

On October 31, 2017, we completed a private placement of 125,000 units at a price of US$7.50 per unit for gross proceeds of US$937,500 (CAD $1,192,545). Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of US$15.00 per warrant share until October 31, 2024. On October 31, 2017, we issued 6,250 common shares at a price of US$7.50 per share with a fair value of US$46,875 (CAD $59,625) for third-party finder’s fees relating to this private placement. Additionally, we agreed to pay a third-party finder’s fee of US$65,625 (CAD $83,475) cash relating to this private placement.

 

II- 6

 

 

On November 6, 2017, we entered into a private placement and option subscription agreement. Pursuant to the agreement, we issued 176,471 shares at a price of $1.70 for gross proceeds of $300,000. The agreement entitles the subscriber to acquire up to an aggregate of 500,000 shares at a price of $1.70 per share until May 6, 2018. We agreed to pay a third-party finder’s fee of $30,000 cash relating to this private placement. The shares purchased on this date were issued in 2018.

 

On November 9, 2017, we completed a private placement of 125,000 units at a price of US$7.50 per unit for gross proceeds of US$937,500 (CAD $1,187,906). Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of US$15.00 per warrant share until November 9, 2019. On November 9, 2017, we issued 6,250 common shares at a price of US$7.50 per share with a fair value of US$46,875 (CAD $59,395) for third-party finder’s fees relating to this private placement. Additionally, we agreed to pay a third-party finder’s fee of US$65,625 (CAD $83,153) cash relating to this private placement.

 

On November 22, 2017, the Company completed a private placement of 290,000 units at a price of US$7.50 per unit for gross proceeds of US$2,175,000 (CAD $2,779,215). Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of US$15.00 per warrant share until November 22, 2019. On November 22, 2017, we issued 14,500 common shares at a price of US$7.50 per share with a fair value of US$108,750 (CAD $138,960) for third-party finder’s fees relating to this private placement. Additionally, we agreed to pay cash third-party finder’s fees of US$152,250 (CAD $194,536) relating to this private placement.

 

On November 22, 2017, we completed a private placement of 25,042 common shares at a price of US$11.98 per share for gross proceeds of US$300,000 (CAD $383,322).

 

On November 22, 2017, we issued 50,000 common shares at $2 per share with a fair value of $100,000 to a consultant pursuant to a consulting agreement we entered into on August 28, 2017.

 

On November 23, 2017, we completed a private placement of 210,000 units at a price of US$7.50 per unit for gross proceeds of US$1,575,000 (CAD $2,012,440). Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of US$15.00 per warrant share until November 23, 2019. On November 23, 2017, we issued 10,500 common shares at a price of US$7.50 per share with a fair value of US$78,750 (CAD $100,622) for third-party finder’s fees relating to this private placement. Additionally, we agreed to pay cash third-party finder’s fees of US$110,250 (CAD $140,871) relating to this private placement.

 

On November 27, 2017, the unsecured convertible loan for US$1,152,289 (CAD $1,437,052), which was issued on October 17, 2017, was converted by the holder into 160,040 units at a price of US$7.20 per unit. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of US$14.40 per warrant share for a period of five years from November 27, 2017. On November 27, 2017, we issued 16,004 shares at a price of US$7.20 per share with a fair value of US$115,229 (CAD $143,705) for third-party finder’s fees regarding the convertible loan.

 

On December 1, 2017, we issued 2,500 common shares pursuant the exercise of warrants at $4.00 per share for proceeds of $10,000.

 

On December 7, 2017, we completed a private placement of 96,451 common shares at a price of US$10.36 per share for gross proceeds of US$1,000,000 (CAD $1,268,450).

 

On December 29, 2017, we issued 264,706 common shares at $1.70 per share for gross proceeds of $450,000 pursuant to a private placement and option subscription agreement the Company entered into on November 6, 2017. We agreed to pay cash third-party finder’s fees of $45,000 relating to this share subscription. The shares purchased on this date were issued in January 2018.

 

II- 7

 

 

On January 5, 2018, we completed a private placement of 500,000 common shares at a price of $1.70 per share for gross proceeds of $850,000. We incurred share issue costs of $85,000 relating to this private placement.

 

On January 6, 2018, we issued 417,500 options to purchase common shares exercisable at US$9.60.

 

On January 22, 2018, we completed a private placement of 200,000 units at a price of US$8.40 per unit for gross proceeds of US$1,680,000 (CAD$2,083,200). Each unit consisted of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of US$16.80 per warrant share until January 22, 2021.

 

On January 29, 2018, we completed a private placement of 57,137 units, with each unit consisting of a common share and a warrant to purchase a common share, at a price of $10.36 per unit for gross proceeds of $591,941. On January 29, 2018, we issued 9,142 common shares at a price of $10.36 per share for third party finder’s fees relating to this private placement. Additionally, we paid third-party finder’s fees of $35,516 relating to this private placement.

 

On February 19, 2018, we issued 6,198 common shares pursuant the exercise of stock options at $2 per share for proceeds of $12,395.

 

On May 5, 2018, we issued options to purchase 75,000 of our common shares at $9.00 to each of Steven Sanders and Luisa Ingargiola in exchange for their services as directors of our Company. The options vest in equal quarters every three months with the first quarter vesting on the date the options were granted.

 

On May 14, 2018, we issued 33,435 units to four non-U.S. persons at US$8.00 per unit with each unit representing one common share and a warrant to purchase a common share at US$16.00.

 

On May 23, 2018, we issued 75,000 common shares to a consultant as part of the consulting agreement.

 

On June 6, 2018, we completed a private placement of 59,325 units at a price of US$5.90 per units for gross proceeds of US$350,122. Each unit was comprised of one common share and a warrant to purchase one additional common share at a price of $12.00.

 

On June 13, 2018, we completed a private placement of 257,390 units at a price of US$5.90 for gross proceeds of US$1,518,620. Each unit was comprised of one common share and a warrant to purchase one additional common share at a price of $12.00.

 

ITEM 8. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

The following exhibits are filed with this registration statement

 

1.1   Form of Underwriting Agreement*
     
3.1    Notice of Articles (1)
 
3.2    Articles (1)
 
4.1    Share Certificate – Common Shares (1)
 
4.2    Form of Warrant Certificate (1)
 
4.3    Promissory Note issued on October 18, 2017, included as Exhibit B to Exhibit 99.1 to our report of foreign private issuer on Form 6-K as filed with the SEC on October 20, 2017 and incorporated herein by reference
     
4.4   Form of Warrant Agreement*
     
4.5   Form of Underwriters’ Warrant*
 
5.1    Opinion of McMillan LLP*

 

II- 8

 

 

10.1    Share Purchase Agreement (3)
 
10.2    Executive Services Agreement between the Company and Jerry Kroll, dated July 1, 2016 (1)
 
10.3    Executive Services Agreement between the Company and Ed Theobald, dated July 1, 2016 (1)
 
10.4    Executive Services Agreement between the Company and Iain Ball, dated July 1, 2016 (1)
 
10.5    Executive Services Agreement between the Company and Hurricane Corporate Services Ltd., dated July 1, 2016 (1)
 
10.6    Executive Services Agreement between the Company and Henry Reisner, dated July 1, 2016 (1)
 
10.7    Executive Services Agreement between the Company and Mark West, dated November 1, 2016 (2)
 
10.8    Manufacturing Agreement between Chongqing Zongshen Automobile Co., Ltd. and the Company, dated September 29, 2017 (4) +
 
10.9    Share Pledge Agreement between the Company and Jerry Kroll, dated October 16, 2017 (5)
 
14.1    Code of Conduct and Ethics (4)
 
21.1   List of Subsidiaries*
 
23.1    Consent of Dale Matheson Carr-Hilton Labonte LLP, Chartered Professional Accountants*
 
23.2   Consent of Dale Matheson Carr-Hilton Labonte LLP, Chartered Professional Accountants*
 
23.3    Consent of McMillan LLP (contained in exhibit 5.1)*
 
99.1    2015 Stock Option Plan (1)
 
99.2    Audit Committee Charter (4)
 
99.3    Nominating Committee Charter (4)
 
99.4    Compensation Committee Charter (4)
     
99.5   Corporate Governance and Human Resources Committee Charter (4)
     
99.6   Enterprise Risk Oversight Committee Charter (4)
     
99.7   Social Media Committee Charter (4)

 

Notes:

 

* Filed herewith.
+ Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Confidential information has been omitted from the exhibit in places marked “****”and has been filed separately with the SEC.
(1) Filed as an exhibit to our registration statement on Form F-1 as filed with the SEC on October 12, 2016 and incorporated herein by reference.
(2) Filed as an exhibit to our registration statement on Form F-1 as filed with the SEC on December 20, 2016 and incorporated herein by reference.
(3) Filed as an exhibit to our report of foreign private issuer on Form 6-K as filed with the SEC on October 20, 2017 and incorporated herein by reference.
(4) Filed as an exhibit to our annual report on Form 20-F as filed with the SEC on April 19, 2018 and incorporated herein by reference.
(5) Filed as an exhibit to our registration statement on Form F-1 as filed with the SEC on February 1, 2018 and incorporated herein by reference.

 

II- 9

 

 

ITEM 9. UNDERTAKINGS

 

The undersigned Registrant hereby undertakes:

 

  (1) To file, during any period in which offers or sales of securities are being made, a post-effective amendment to this registration statement to: 

 

  (i) Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; 
     
  (ii) Reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and 
     
  (iii) Include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. 

 

  (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post- effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 
     
  (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. 
     
  (4) To file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A. of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided that the Registrant includes in the prospectus, by means of a post- effective amendment, financial statements required pursuant to this paragraph (4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or Rule 3-19 of Regulation S- X if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3. 
     
  (5) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described herein, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 

 

II- 10

 

 

  (6) Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. 

 

II- 11

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe it meets all of the requirements for filing on Form F-1 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Vancouver, Province of British Columbia, Canada on this 3rd day of July 2018.

 

ELECTRAMECCANICA VEHICLES CORP.
(Registrant)
   
By: /s/ Jerry Kroll  
  Jerry Kroll, Chief Executive Officer  
  and Chairman (Principal Executive Officer)  

 

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ Jerry Kroll   Chief Executive Officer (Principal Executive Officer) and Chairman   July 3, 2018
Jerry Kroll        
         
/s/ Kulwant Sandher   Chief Financial Officer and Secretary (Principal Financial Officer and Principal Accounting Officer)   July 3, 2018
Kulwant Sandher        
         
/s/ Shaun Greffard   Director   July 3, 2018
Shaun Greffard        
         
/s/ Robert Tarzwell   Director   July 3, 2018
Robert Tarzwell        
         
/s/ Henry Reisner   Director   July 3, 2018
Henry Reisner        
         
/s/ Luisa Ingargiola   Director   July 3, 2018
Luisa Ingargiola        
         
/s/ Steven Sanders   Director   July 3, 2018
Steven Sanders        

 

II- 12

 

 

SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES

 

Pursuant to the Securities Act of 1933, the undersigned, the duly authorized representative in the United States of Electrameccanica Vehicles Corp., has signed this registration statement or amendment thereto in New York, New York, on July 3, 2018.

 

Ortoli Rosenstadt LLP
 
By: /s/ William S. Rosenstadt  
Name:  William S. Rosenstadt
Title:  Managing Partner

 

II- 13

 

 

Exhibit 1.1

 

UNDERWRITING AGREEMENT

 

 

, 2018

The Benchmark Company, LLC

150 East 58 th St., 17 th Floor

New York, NY 10155

 

As Representative of the several Underwriters named on Schedule 1 attached hereto

 

Ladies and Gentlemen:

 

The undersigned, Electrameccanica Vehicles Corp., a corporation formed under the laws of British Columbia (the “ Company ”), hereby confirms its agreement (this “ Agreement ”) with The Benchmark Company, LLC (hereinafter the “ Representative ”) and with the other underwriters named on Schedule 1 hereto for which the Representative is acting as representative (the Representative and such other underwriters being collectively called the “ Underwriters ” or, individually, an “ Underwriter ”) as follows: 

 

1.             Purchase and Sale of Securities .

 

(a)           Firm Securities .

 

(i)           Nature and Purchase of Firm Securities .

 

(A)         On the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the several Underwriters an aggregate of                        units (each, a “Firm Unit”), each unit consisting of one common share, no par value per share (the “ Common Shares ”) and one warrant to purchase one Common Share at an exercise price of $                     per share (125% of the public offering price per unit in the Offering) (each, a “ Warrant ” and collectively, the “ Warrants ”). The                 Common Shares referred to in this Section 1(a)(i)(A) are hereinafter referred to as the “ Firm Shares ” and the Warrants referred to in this Section 1(a)(i)(A) are hereinafter referred to as the “ Firm Warrants ,” and together with the Firm Shares, the “ Firm Securities .” No Firm Units will be issued or certificated, and the Firm Shares and the Firm Warrants will be separated immediately upon issuance.

 

(B)          The Underwriters, severally and not jointly, agree to purchase from the Company (i) the number of Firm Units set forth opposite their respective names on Schedule 1 attached hereto and made a part hereof at a purchase price equal to 93% of the per Firm Unit offering price set forth on the cover page of the Prospectus (as defined in Section 2(a)(i)(B) hereof) (the “Public Offering Price per Firm Unit”), which shall be allocated as $           per Firm Share and $           per Firm Warrant, and (ii) the number of Firm Units set forth opposite their respective names on Schedule 1 attached hereto and made a part hereof at a purchase price equal to 94.5% of the Public Offering Price per Firm Unit from the sale of the Firm Units to investors introduced by the Company to the Underwriters (the “ Company Investors ”), which shall be allocated as $           per Firm Share and $           per Firm Warrant.

 

(ii)          Firm Securities Payment and Delivery .

 

(A)         Delivery and payment for the Firm Securities shall be made no later than 2:00 p.m., Eastern time, on the second (2 nd ) Business Day following the effective date (the “ Effective Date ”) of the Registration Statement (as defined in Section 2(a)(i)(A) below) (or the third (3 rd ) Business Day following the Effective Date if the Registration Statement is declared effective after 4:01 p.m., Eastern time) or at such earlier time as shall be agreed upon by the Representative and the Company, at the offices of Ellenoff Grossman & Schole LLP, 1345 Avenue of the Americas, 11th Floor, New York, NY 10105 (“ Representative Counsel ”), or at such other place (or by electronic transmission) as shall be agreed upon by the Representative and the Company. The hour and date of delivery and payment for the Firm Securities is called the “ Closing Date .”

 

(B)         Payment for the Firm Securities shall be made on the Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company upon delivery of the certificates (in form and substance satisfactory to the Representative) representing the Firm Securities (or through the facilities of the Depository Trust Company (“ DTC ”) or via a DWAC transfer), for the account of the Underwriters. The Firm Securities shall be registered in such name or names and in such authorized denominations as the Representative may request in writing prior to the Closing Date. The Company shall not be obligated to sell or deliver the Firm Securities except upon tender of payment by the Representative for all of the Firm Securities or via delivery versus payment for the Firm Securities. The term “ Business Day ” means any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions are authorized or obligated by law to close in New York, New York.

 

 

 

 

(iii)         Over-allotment Option .

 

(A)         Option Securities . For the purposes of covering any over-allotments in connection with the distribution and sale of the Firm Shares and Firm Warrants, the Company hereby grants to the Underwriters an option (the " Over-allotment Option ") to purchase, in the aggregate, up to                  additional Common Shares, representing fifteen percent (15%) of the Firm Shares sold in the offering (the “Option Shares”) and/or                  Warrants to purchase as additional                  Common Shares, representing 15% of the Firm Warrants sold in the Offering (the “Option Warrants”). The Over-allotment Option is, at the Underwriters’ sole discretion, for Option Shares and Option Warrants together, solely Option Shares, solely Option Warrants, or any combination thereof (each, an “ Option Security ” and collectively, the “ Option Securities ”). The Firm Securities and the Option Securities are collectively referred to as the “ Securities .” The Securities and the Underlying Common Shares (as defined below), are collectively referred to as the " Public Securities ." The Public Securities shall be issued directly by the Company and shall have the rights and privileges described in the Registration Statement, the Pricing Disclosure Package and the Prospectus. The Firm Warrants and the Option Warrants, if any, shall be issued pursuant to, and shall have the rights and privileges set forth in, a warrant agreement, dated on or before the Closing Date, between the Company and Computershare Investor Services Inc., as warrant agent (the “ Warrant Agreement ”). The offering and sale of the Public Securities is herein referred to as the " Offering ."

 

(B)          Exercise of Option . The Over-allotment Option granted pursuant to Section 1(a)(iii)(A) hereof may be exercised by the Representative as to all (at any time) or any part (from time to time) for any number of the Option Securities within 45 days after the Effective Date. The purchase price to be paid per Option Share shall be equal to the applicable price paid per Firm Share, and the purchase price to be paid per Option Warrant shall be equal to the applicable price paid per Firm Warrant. The Underwriters shall not be under any obligation to purchase any of the Option Securities prior to the exercise of the Over-allotment Option. The Over-allotment Option granted hereby may be exercised by the giving of oral notice to the Company from the Representative, which must be confirmed in writing by overnight mail or email or facsimile or other electronic transmission setting forth the number of Option Securities to be purchased and the date and time for delivery of and payment for the Option Securities (the " Option Closing Date "), which shall not be later than five (5) full Business Days after the date of the notice or such other time as shall be agreed upon by the Company and the Representative, at the offices of Representative Counsel or at such other place (including remotely by facsimile or other electronic transmission) as shall be agreed upon by the Company and the Representative. If such delivery and payment for the Option Securities does not occur on the Closing Date, an Option Closing Date will be as set forth in the notice. Upon exercise of the Over-allotment Option with respect to all or any portion of the Option Securities subject to the terms and conditions set forth herein, (i) the Company shall become obligated to sell to the Underwriters the number of Option Securities specified in such notice and (ii) each of the Underwriters, acting severally and not jointly, shall purchase that portion of the total number of Option Securities then being purchased as set forth in Schedule 1 opposite the name of such Underwriter, subject to such adjustments as the Representative, in its sole discretion, shall determine.

 

(C)         Payment and Delivery . Payment for the Option Securities shall be made on an Option Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company upon delivery to the Underwriters of certificates (in form and substance satisfactory to the Representative) representing the applicable number of Option Securities (or through the facilities of DTC or DWAC transfer) for the account of the Underwriters. The applicable number of Option Securities shall be registered in such name or names and in such authorized denominations as the Representative may request in writing prior to the applicable Option Closing Date. The Company shall not be obligated to sell or deliver Option Securities except upon tender of payment by the Representative for the applicable Option Securities. An Option Closing Date may be simultaneous with, but not earlier than, the Closing Date; and in the event that such time and date are simultaneous with the Closing Date, the term “ Closing Date ” shall refer to the time and date of delivery of the Firm Securities and the applicable Option Securities.

 

2

 

 

(iv)         Representative’s Warrant .

 

(A)          Warrant Amount; Term . The Company hereby agrees to issue to the Representative (and/or its designees) on the Closing Date or Option Closing Date, as applicable, a five-year warrant (the “ Representative’s Warrant ”) for the purchase of a number of the Common Shares equal to 4.0% of the number of the Firm Shares, Common Shares underlying the Firm Warrants, Option Shares and Common Shares underlying the Option Warrants issued on such Closing Date or Option Closing Date (or 1.5% of the number of the Firm Shares, Common Shares underlying the Firm Warrants, Option Shares and Common Shares underlying the Option Warrants issued on such Closing Date or Option Closing Date to the Company’s Investors), pursuant to a warrant agreement in the form attached hereto as Exhibit A (the “ Representative’s Warrant Agreement ”), at an initial exercise price of $             per share, which is equal to 125% of the Public Offering Price per Firm Unit. The Representative’s Warrant and the Underlying Common Shares are hereinafter referred to together as the “ Representative’s Securities .” The Representative understands and agrees that there are significant restrictions pursuant to FINRA Rule 5110 against transferring the Representative’s Warrant and the underlying securities during the one hundred eighty (180) day period after the Effective Date and by its acceptance thereof shall agree that it will not sell, transfer, assign, pledge or hypothecate the Representative’s Warrant, or any portion thereof, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities for a period of one hundred eighty (180) days following the Effective Date to anyone other than (i) an Underwriter or a selected dealer in connection with the Offering, or (ii) a bona fide officer or partner of the Representative or of any such Underwriter or selected dealer; or as otherwise expressly permitted by Rule 5110(g), and only if any such transferee agrees to the foregoing lock-up restrictions.

 

(B)          Delivery . Delivery of the Representative’s Warrant Agreement shall be made on the Closing Date or Option Closing Date, as applicable, and shall be issued in the name or names and in such authorized denominations as the Representative may request.

 

2.             Representations and Warranties of the Company . The Company represents and warrants to the Underwriters as of the Applicable Time (as defined below) and as of the Closing Date and as of each Option Closing Date, if any, as follows (unless otherwise indicated, all references to the Company in this Section 2 shall refer to the Company and its subsidiaries:

 

(a)           Filing of Registration Statement .

 

(i)           Pursuant to the Securities Act .

 

(A)         The Company has filed with the U.S. Securities and Exchange Commission (the “ Commission ”) a registration statement, and an amendment or amendments thereto, on Form F-1 (File No. 333-222814), including any related prospectus or prospectuses, for the registration of the Public Securities and the Representative’s Securities under the Securities Act of 1933, as amended (the “ Securities Act ”), which registration statement and amendment or amendments have been prepared by the Company in conformity in all material respects with the requirements of the Securities Act and the rules and regulations of the Commission under the Securities Act (the “ Securities Act Regulations ”) and will contain all material statements that are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations. Except as the context may otherwise require, such registration statement, as amended, on file with the Commission at the time the registration statement became effective (including the Preliminary Prospectus (as defined below) included in the registration statement, financial statements, schedules, exhibits and all other documents filed as a part thereof or incorporated therein by reference and all information deemed to be a part thereof as of the Effective Date pursuant to paragraph (b) of Rule 430A of the Securities Act Regulations (the “ Rule 430A Information ”)), is referred to herein as the “ Registration Statement .” If the Company files any registration statement pursuant to Rule 462(b) of the Securities Act Regulations, then after such filing, the term “ Registration Statement ” shall include such registration statement filed pursuant to Rule 462(b). The Registration Statement has been declared effective by the Commission on the date hereof.

 

(B)          Each prospectus used prior to the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a “ Preliminary Prospectus .” The Preliminary Prospectus that was included in the Registration Statement immediately prior to the Applicable Time is hereinafter called the “ Pricing Prospectus .” The final prospectus in the form first furnished to the Underwriters for use in the Offering is hereinafter called the “ Prospectus .” Any reference to the “most recent Preliminary Prospectus” shall be deemed to refer to the latest Preliminary Prospectus included in the Registration Statement.

 

3

 

 

(C)         “ Applicable Time ” means 4:30 p.m., Eastern time, on the date of this Agreement.

 

(D)         “ Issuer Free Writing Prospectus ” means any “issuer free writing prospectus,” as defined in Rule 433 of the Securities Act Regulations (“ Rule 433 ”), including without limitation any “free writing prospectus” (as defined in Rule 405 of the Securities Act Regulations) relating to the Public Securities that is (i) required to be filed with the Commission by the Company, (ii) a “road show that is a written communication” within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Public Securities or of the Offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).

 

(E)         “ Issuer General Use Free Writing Prospectus ” means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors (other than a “ bona fide electronic road show,” as defined in Rule 433 (the “ Bona Fide Electronic Road Show ”), as evidenced by its being specified in Schedule 2 hereto.

 

(F)         “ Issuer Limited Use Free Writing Prospectus ” means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.

 

(G)         “ Pricing Disclosure Package ” means any Issuer General Use Free Writing Prospectus issued at or prior to the Applicable Time, and the Pricing Prospectus, all considered together.         

 

(ii)          Pursuant to the Exchange Act . The Company has filed with the Commission a Form 8-A providing for the registration pursuant to Section 12(b) under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), of the Common Shares and the Warrants, which registration statement complies in all material respects with the Exchange Act. The registration of the Common Shares and the Warrants under the Exchange Act has been declared effective by the Commission on or prior to the date hereof. The Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Shares and the Warrants under the Exchange Act, nor has the Company received any notification that the Commission is contemplating terminating such registration.

 

(b)           Stock Exchange Listing . The Common Shares and Warrants have been approved for listing on The NASDAQ Capital Market (the “ Exchange ”), subject to official notice of issuance, and the Company has taken no action designed to, or likely to have the effect of, delisting either the Common Shares or Warrants from the Exchange, nor has the Company received any notification that the Exchange is contemplating terminating either such listing.

 

(c)           No Stop Orders, etc . Neither the Commission nor, to the Company’s knowledge, any state regulatory authority has issued any order preventing or suspending the use of the Registration Statement, any Preliminary Prospectus or the Prospectus or has instituted or, to the Company’s knowledge, threatened to institute, any proceedings with respect to such an order. The Company has complied with each request (if any) from the Commission for additional information.

 

(d)           Disclosures in Registration Statement .

 

(i)           Compliance with Securities Act and 10b-5 Representation .

 

(A)         Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material respects with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus, including the prospectus filed as part of the Registration Statement as originally filed or as part of any amendment or supplement thereto, and the Prospectus, at the time each was filed with the Commission, complied in all material respects with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus delivered to the Underwriters for use in connection with this Offering and the Prospectus was or will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

 

4

 

 

(B)         Neither the Registration Statement nor any amendment thereto, at its effective time, as of the Applicable Time, at the Closing Date or at any Option Closing Date, contained, contains or will contain an untrue statement of a material fact or omitted, omits or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. To the Company’s knowledge, no post-effective amendment to the Registration Statement reflecting any facts or events arising after the date thereof which represent, individually or in the aggregate, a fundamental change in the information set forth therein is required to be filed with the Commission. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading.

 

(C)         The Pricing Disclosure Package, as of the Applicable Time, at the Closing Date or at any Option Closing Date, did not, does not and will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and each Issuer Limited Use Free Writing Prospectus does not conflict with the information contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, and each such Issuer Limited Use Free Writing Prospectus, as supplemented by and taken together with the Pricing Prospectus as of the Applicable Time, did not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to statements made or statements omitted in reliance upon and in conformity with written information furnished to the Company with respect to the Underwriters by the Representative expressly for use in the Registration Statement, the Pricing Prospectus or the Prospectus or any amendment thereof or supplement thereto. The parties acknowledge and agree that such information provided by or on behalf of any Underwriter consists solely of the disclosure contained in the subsections “Commissions and Discounts,” “Over-allotment Option,” “Underwriters’ Warrant,” and “Stabilizing Transactions and Penalty Bids” included in the “Underwriting” section of the Prospectus (the “ Underwriters’ Information ”); and

 

(D)         None of the Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto (including any prospectus wrapper), as of their respective issue dates, at the time of any filing with the Commission pursuant to Rule 424(b), at the Closing Date or at any Option Closing Date, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to the Underwriters’ Information.

 

(ii)          Disclosure of Agreements . The agreements and documents described in the Registration Statement, the Pricing Disclosure Package and the Prospectus conform in all material respects to the descriptions thereof contained therein and there are no agreements or other documents required by the Securities Act and the Securities Act Regulations to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus or to be filed with the Commission as exhibits to the Registration Statement, that have not been so described or filed. Each agreement or other instrument (however characterized or described) to which the Company is a party or by which it is or may be bound or affected and (i) that is referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus, and (ii) is material to the Company’s business, has been duly authorized and validly executed by the Company, is in full force and effect in all material respects and is enforceable against the Company and, to the Company’s knowledge, the other parties thereto, in accordance with its terms, except (x) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, (y) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws, and (z) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. None of such agreements or instruments has been assigned by the Company, and neither the Company nor, to the Company’s knowledge, any other party is in default thereunder and, to the Company’s knowledge, no event has occurred that, with the lapse of time or the giving of notice, or both, would constitute a default thereunder, except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus. To the best of the Company’s knowledge, performance by the Company of the material provisions of such agreements or instruments will not result in a violation of any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company or any of its assets or business (each, a “ Governmental Entity ”), including, without limitation, those relating to environmental laws and regulations, that would reasonably be expected to constitute a Material Adverse Change.

 

5

 

 

(iii)         Prior Securities Transactions . Since inception, no securities of the Company have been sold by the Company or by or on behalf of, or for the benefit of, any person or persons controlling, controlled by or under common control with the Company, except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Preliminary Prospectus.

 

(iv)         Regulations . The disclosures in the Registration Statement, the Pricing Disclosure Package and the Prospectus concerning the effects of federal, state, local and all foreign laws, rules and regulations relating to the Company’s business as currently contemplated are correct in all material respects and no other such regulations are required to be disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus which are not so disclosed.

 

(v)          No Other Distribution of Offering Materials . The Company has not, directly or indirectly, distributed and will not distribute any offering material in connection with the Offering other than any Preliminary Prospectus, the Prospectus and other materials, if any, permitted under the Securities Act and consistent with Section 3(b) below.

 

(e)           Changes After Dates in Registration Statement .

 

(i)           No Material Adverse Change . Since the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package and the Prospectus, except as otherwise specifically stated therein: (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect (as defined below) and no material adverse change in the financial position or results of operations of the Company, nor to the Company’s knowledge, any change or development that, singularly or in the aggregate, would involve a material adverse change or a prospective material adverse change, in or affecting the condition (financial or otherwise), results of operations, business, assets or prospects of the Company (a “ Material Adverse Change ”); (ii) there have been no material transactions entered into by the Company, other than as contemplated pursuant to this Agreement; and (iii) no officer or director of the Company has resigned from any position with the Company. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Public Securities contemplated by this Agreement, no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its businesses, prospects, properties, operations, assets or financial condition that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least 1 Trading Day (as defined below) prior to the date that this representation is made.

 

Material Adverse Effect ” means (i) a material adverse effect on the legality, validity or enforceability of this Agreement, the Warrant Agreement or the Representative’s Warrant Agreement, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under this Agreement, the Warrant Agreement or the Representative’s Warrant Agreement. “Trading Day” means a day on which the Exchange is open for trading.

 

(ii)          Recent Securities Transactions, etc . Subsequent to the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package and the Prospectus, and except as may otherwise be indicated or contemplated herein or disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not: (i) issued any securities (other than (x) grants under any share compensation plan and (y) shares issued upon exercise or conversion of options, warrants or convertible securities described in the Registration Statement, the Pricing Disclosure Package and the Prospectus) or incurred any liability or obligation, direct or contingent, for borrowed money; or (ii) declared or paid any dividend or made any other distribution on or in respect to its capital stock.

 

6

 

 

(f)           Independent Accountants . To the knowledge of the Company, Dale Matheson Carr-Hilton Labonte LLP (the “ Auditor ”), whose report is filed with the Commission as part of the Registration Statement, the Pricing Disclosure Package and the Prospectus, is an independent registered public accounting firm as required by the Securities Act and the Securities Act Regulations and the Public Company Accounting Oversight Board. Except as may otherwise be disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Auditor has not, during the periods covered by the financial statements included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, provided to the Company any non-audit services, as such term is used in Section 10A(g) of the Exchange Act.

 

(g)           Financial Statements, etc . The financial statements, including the notes thereto and supporting schedules included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, fairly present the financial position and the results of operations of the Company at the dates and for the periods to which they apply; comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing; and such financial statements have been prepared in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”), consistently applied throughout the periods involved (provided that unaudited interim financial statements are subject to year-end audit adjustments that are not expected to be material in the aggregate and do not contain all footnotes required by IFRS); and the supporting schedules included in the Registration Statement present fairly the information required to be stated therein. Except as included therein, no historical or pro forma financial statements are required to be included in the Registration Statement, the Pricing Disclosure Package or the Prospectus under the Securities Act or the Securities Act Regulations. The pro forma and pro forma as adjusted financial information and the related notes, if any, included in the Registration Statement, the Pricing Disclosure Package and the Prospectus have been properly compiled and prepared in accordance with the applicable requirements of the Securities Act and the Securities Act Regulations and present fairly the information shown therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. All disclosures contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission), if any, comply with Regulation G of the Exchange Act and Item 10 of Regulation S-K of the Securities Act, to the extent applicable. Each of the Registration Statement, the Pricing Disclosure Package and the Prospectus discloses all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons that may have a material current or future effect on the Company’s financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (a) the Company has not incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions other than in the ordinary course of business, (b) the Company has not declared or paid any dividends or made any distribution of any kind with respect to its capital stock, (c) there has not been any change in the capital stock of the Company (other than (i) grants under any share compensation plan and (ii) common shares issued upon exercise or conversion of option, warrants or convertible securities described in the Registration Statement, the Pricing Disclosure Package and the Prospectus), (d) there has not been any Material Adverse Change in the Company’s long-term or short-term debt, and (e) the Company has not altered its method of accounting.

 

(h)            Authorized Capital; Options, etc . The Company had, at the date or dates indicated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the duly authorized, issued and outstanding capitalization as set forth therein. Based on the assumptions stated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company will have on the Closing Date the adjusted share capitalization set forth therein. Except as set forth in, or contemplated by, the Registration Statement, the Pricing Disclosure Package and the Prospectus, on the Effective Date, as of the Applicable Time, on the Closing Date and any Option Closing Date, there will be no stock options, warrants, or other rights to purchase or otherwise acquire any authorized, but unissued Common Shares of the Company or any security convertible or exercisable into Common Shares of the Company, or any contracts or commitments to issue or sell Common Shares or any such options, warrants, rights or convertible securities (“ Common Share Equivalent ”). No individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind (a “ Person ”) has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by this Agreement, the Warrant Agreement or the Representative’s Warrant Agreement. The issuance and sale of the Public Securities will not obligate the Company to issue Common Shares or other securities to any Person (other than the Underwriters) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. There are no shareholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s shareholders.

 

7

 

 

(i)            Valid Issuance of Securities, etc.

 

(i)           Outstanding Securities . All issued and outstanding securities of the Company issued prior to the transactions contemplated by this Agreement have been duly authorized and validly issued and are fully paid and non-assessable and have been issued in compliance with all federal and state securities laws; the holders thereof have no rights of rescission with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company. The authorized number of Common Shares, Company preferred shares and other securities of the Company to be outstanding upon consummation of the offering of the Firm Securities and Option Securities conform in all material respects to all statements relating thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus. The offers and sales of the outstanding Common Shares were at all relevant times either registered under the Securities Act and the applicable state securities or “blue sky” laws or, based in part on the representations and warranties of the purchasers of such shares, exempt from such registration requirements. The description of the Company’s stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted thereunder, as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, accurately and fairly present, in all material respects, the information required to be shown with respect to such plans, arrangements, options and rights.

 

(ii)          Securities Sold Pursuant to this Agreement . The Firm Securities, the Option Securities and the Representative’s Warrants have been duly authorized for issuance and sale and, when issued and paid for, will be validly issued, fully paid and non-assessable, free and clear of all liens imposed by the Company; the holders thereof are not and will not be subject to personal liability by reason of being such holders; the Public Securities and Representative’s Securities are not and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company; and all corporate action required to be taken for the authorization, issuance and sale of the Public Securities and Representative’s Securities has been duly and validly taken; the Common Shares issuable upon exercise of the Warrants and Representative’s Warrants (the “ Underlying Common Shares ”) have been duly authorized and reserved for issuance by all necessary corporate action on the part of the Company and when paid for and issued in accordance with such Warrants, the Warrant Agreement and Representative’s Warrants or exercised on a cashless basis as set forth in such Representative’s Warrants, as the case may be, such Underlying Common Shares will be validly issued, fully paid and non-assessable; and the Public Securities and Representative’s Securities conform in all material respects to all statements with respect thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus.

 

(j)            Registration Rights of Third Parties . Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, no holders of any securities of the Company or any rights exercisable for or convertible or exchangeable into securities of the Company have the right to require the Company to register any such securities of the Company under the Securities Act or to include any such securities in a registration statement to be filed by the Company (except for any such rights that have been waived).

 

(k)           Validity and Binding Effect of Agreements . This Agreement, the Warrant Agreement and the Representative’s Warrant Agreement have been duly and validly authorized by the Company, and, when executed and delivered, will constitute, the valid and binding agreements of the Company, enforceable against the Company in accordance with their respective terms, except: (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally; (ii) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws; and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.

 

(l)            No Conflicts, etc . The execution, delivery and performance by the Company of this Agreement, the Warrant Agreement and the Representative’s Warrant Agreement and all ancillary documents, the consummation by the Company of the transactions herein and therein contemplated and the compliance by the Company with the terms hereof and thereof do not and will not, with or without the giving of notice or the lapse of time or both: (i) result in a breach of, or conflict with any of the terms and provisions of, or constitute a default under, or result in the creation, modification, termination or imposition of any lien, charge or encumbrance upon any property or assets of the Company or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company debt or otherwise) or other understanding pursuant to the terms of any agreement or instrument to which the Company is a party; (ii) result in any violation of the provisions of the Company’s Articles (as the same may be amended or restated from time to time, the “ Charter ”) or the by-laws of the Company (as the same may be amended or restated from time to time, the “ Bylaws ”) or other similar governing document; or (iii) violate any existing applicable law, rule, regulation, judgment, order or decree of any Governmental Entity as of the date hereof, except in the cases of clauses (i) and (iii) for such breaches, conflicts or violations which would not reasonably be expected to have a Material Adverse Change.

 

8

 

 

(m)          Regulatory . Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus or as would not reasonably be expected to result, individually or in the aggregate, in a Material Adverse Change: (i) the Company has not received notice from any Governmental Entity alleging or asserting noncompliance with any Applicable Regulations (as defined in clause (ii) below) or Authorizations (as defined in clause (iii) below); (ii) the Company is and has been in material compliance with federal, state or foreign statutes, laws, ordinances, rules and regulations applicable to the Company (collectively, “ Applicable Regulations ”); (iii) the Company possesses all licenses, certificates, approvals, clearances, consents, authorizations, qualifications, registrations, permits, and supplements or amendments thereto required by any such Applicable Regulations and/or to carry on its businesses as now conducted (“ Authorizations ”) and such Authorizations are valid and in full force and effect and the Company is not in violation of any term of any such Authorizations; (iv) the Company has not received notice of any claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any Governmental Entity or third party alleging that any product, operation or activity is in violation of any Applicable Regulations or Authorizations or has any knowledge that any such Governmental Entity or third party is considering any such claim, litigation, arbitration, action, suit, investigation or proceeding, nor, to the Company’s knowledge, has there been any material noncompliance with or violation of any Applicable Regulations by the Company that could reasonably be expected to require the issuance of any such communication or result in an investigation, corrective action, or enforcement action by any Governmental Entity; and (v) the Company has not received notice that any Governmental Entity has taken, is taking or intends to take action to limit, suspend, modify or revoke any Authorizations or has any knowledge that any such Governmental Entity has threatened or is considering such action. Neither the Company nor, to the Company's knowledge, any of its directors, officers, employees or agents has been convicted of any crime under any Applicable Regulations.

 

(n)           No Defaults; Violations . No material default exists in the due performance and observance of any term, covenant or condition of any material license, contract, indenture, mortgage, deed of trust, note, loan or credit agreement, or any other agreement or instrument evidencing an obligation for borrowed money, or any other material agreement or instrument to which the Company is a party or by which the Company may be bound or to which any of the properties or assets of the Company is subject. The Company is not (i) in violation of any term or provision of its Charter or Bylaws, or (ii) in violation of any franchise, license, permit, applicable law, rule, regulation, judgment or decree of any Governmental Entity applicable to the Company.

 

(o)           Corporate Power; Licenses; Consents .

 

(i)           Conduct of Business . Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has all requisite corporate power and authority, and has all necessary authorizations, approvals, orders, licenses, certificates and permits of and from all governmental regulatory officials and bodies that it needs as of the date hereof to conduct its business purpose as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.

 

(ii)          Transactions Contemplated Herein . The Company has all corporate power and authority to enter into this Agreement and to carry out the provisions and conditions hereof, and all consents, authorizations, approvals and orders required in connection therewith have been obtained and no further action is required by the Company, the Company’s Board of Directors (the “ Board ”) or its shareholders in connection herewith or therewith. No consent, authorization or order of, and no filing with, any court, government agency or other body is required for the valid issuance, sale and delivery of the Public Securities and the consummation of the transactions and agreements contemplated by this Agreement, the Warrant Agreement and the Representative’s Warrant and as contemplated by the Registration Statement, the Pricing Disclosure Package and the Prospectus, except with respect to applicable securities laws and the rules and regulations of the Financial Industry Regulatory Authority, Inc. (“ FINRA ”).

 

9

 

 

(p)           D&O Questionnaires . To the Company’s knowledge, all information contained in the questionnaires (the “ Questionnaires ”) completed by each of the Company’s directors, officers and 5% shareholders immediately prior to the Offering (the “ Insiders ”) as supplemented by all information concerning the Company’s directors, officers and principal shareholders as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, provided to the Underwriters, is true and correct in all material respects and the Company has not become aware of any information which would cause the information disclosed in the Questionnaires to become materially inaccurate and incorrect.

 

(q)           Litigation; Governmental Proceedings . There is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental proceeding pending or, to the Company’s knowledge, threatened against, or involving the Company or, to the Company’s knowledge, any executive officer or director which has not been disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus which is required to be disclosed, in each case which individually or in the aggregate, is reasonably expected to result in a Material Adverse Change, or which adversely affects or challenges the legality, validity or enforceability of this Agreement, the Warrant Agreement the Representative’s Warrant Agreement or the Public Securities.

 

(r)           Good Standing . The Company has been duly organized and is validly existing as a corporation and is in good standing under the laws of British Columbia as of the date hereof, and is duly qualified to do business and is in good standing in each other jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to qualify, singularly or in the aggregate, would not have or reasonably be expected to result in a Material Adverse Change.

 

(s)           Insurance . The Company carries or is entitled to the benefits of insurance, with reputable insurers, and in such amounts and covering such risks which the Company believes are reasonably adequate, and all such insurance is in full force and effect. The Company has no reason to believe that it will not be able (i) to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not reasonably be expected to result in a Material Adverse Change.

 

(t)            Transactions Affecting Disclosure to FINRA .

 

(i)          Finder’s Fees . Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no claims, payments, arrangements, agreements or understandings relating to the payment of a finder’s, consulting or origination fee or commission by the Company or any Insider with respect to the sale of the Public Securities hereunder or any other arrangements, agreements or understandings of the Company or, to the Company’s knowledge, any of its shareholders that may affect the Underwriters’ compensation, as determined by FINRA.

 

(ii)         Payments Within 180 Days . Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not made any direct or indirect payments (in cash, securities or otherwise) to: (A) any person, as a finder’s fee, consulting fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who raised or provided capital to the Company; (B) any FINRA member; or (C) any person or entity that has any direct or indirect affiliation or association with any FINRA member, within the 180-day period immediately preceding the original filing of the Registration Statement, other than the payment to the Underwriters as provided hereunder in connection with the Offering.

 

(iii)        Use of Proceeds . None of the net proceeds of the Offering will be paid by the Company to any participating FINRA member or its affiliates, except as specifically authorized herein.

 

(iv)        FINRA Affiliation . There is no (A) officer or director of the Company, (B) beneficial owner of 5% or more of any class of the Company's securities or (C) beneficial owner of the Company's unregistered equity securities which were acquired during the 180-day period immediately preceding the original filing of the Registration Statement that, in each case and to the best of the Company’s knowledge, is an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA). 

 

10

 

 

(v)         Information . All information provided by the Company in its FINRA Questionnaire to Representative Counsel specifically for use by Representative Counsel in connection with its Public Offering System filings (and related disclosure) with FINRA is true, correct and complete in all material respects.

 

(u)           Foreign Corrupt Practices Act . None of the Company and its subsidiaries or, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company and its subsidiaries or any other person acting on behalf of the Company and its subsidiaries, has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who was, is, or may be in a position to help or hinder the business of the Company (or assist it in connection with any actual or proposed transaction) that (i) might subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, might have had a Material Adverse Change or (iii) if not continued in the future, might adversely affect the assets, business, operations or prospects of the Company. The Company has taken reasonable steps to ensure that its accounting controls and procedures are sufficient to cause the Company to comply in all material respects with the Foreign Corrupt Practices Act of 1977, as amended.

 

(v)          Compliance with OFAC . None of the Company and its subsidiaries or, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company and its subsidiaries or any other person acting on behalf of the Company and its subsidiaries, is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“ OFAC ”), and the Company will not, directly or indirectly, use the proceeds of the Offering hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.

 

(w)          Money Laundering Laws . The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Entity (collectively, the “ Money Laundering Laws ”); and no action, suit or proceeding by or before any Governmental Entity involving the Company with respect to the Money Laundering Laws is pending or, to the best knowledge of the Company, threatened.

 

(x)           Officers’ Certificate . Any certificate signed by any duly authorized officer of the Company and delivered to the Representative or to Representative Counsel shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby.

 

(y)           Lock-Up Agreements. Schedule 3 hereto contains a complete and accurate list of the Company’s officers, directors and 5% or more shareholders (collectively, the “ Lock-Up Parties ”). The Company has caused each of the Lock-Up Parties to deliver to the Representative an executed Lock-Up Agreement, in the form attached hereto as Exhibit B ( the “ Lock-Up Agreement ”), prior to the execution of this Agreement.

 

(z)           Subsidiaries . Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has no direct or indirect subsidiaries or variable interest entities and does not hold any equity interests in any other entity. The Company owns, directly or indirectly, all of the capital stock or other equity interests of each subsidiary free and clear of any Lien, and all of the issued and outstanding shares of capital stock of each subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. All direct and indirect subsidiaries of the Company are duly organized and in good standing under the laws of the place of organization or incorporation, and each subsidiary is in good standing in each jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to qualify would not have a Material Adverse Effect and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 

11

 

 

(aa)         Related Party Transactions . There are no business relationships or related party transactions involving the Company or any of its subsidiaries or any other person required to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus that have not been described as required.

 

(bb)         Board of Directors . The Board is comprised of the persons set forth under the heading of the Pricing Prospectus and the Prospectus captioned “Directors and Executive Officers.” The qualifications of the persons serving as Board members and the overall composition of the Board comply with the Exchange Act, the Exchange Act Regulations, the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder (the “ Sarbanes-Oxley Act ”) applicable to the Company and the listing rules of the Exchange. At least one member of the Audit Committee of the Board of Directors of the Company qualifies as an “audit committee financial expert,” as such term is defined under Regulation S-K and the listing rules of the Exchange. In addition, at least a majority of the persons serving on the Board qualify as “independent,” as defined under the listing rules of the Exchange.

 

(cc)         Sarbanes-Oxley Compliance .

 

(i)           Disclosure Controls . The Company has developed and currently maintains disclosure controls and procedures that will comply with Rule 13a-15 or 15d-15 under the Exchange Act Regulations applicable to it, and such controls and procedures are effective to ensure that all material information concerning the Company will be made known on a timely basis to the individuals responsible for the preparation of the Company’s Exchange Act filings and other public disclosure documents.

 

(ii)          Compliance . The Company is, or at the Applicable Time and on the Closing Date will be, in material compliance with the provisions of the Sarbanes-Oxley Act applicable to it, and has implemented or will implement such programs and taken reasonable steps to ensure the Company’s future compliance (not later than the relevant statutory and regulatory deadlines therefor) with all of the material provisions of the Sarbanes-Oxley Act.

 

(dd)        Accounting Controls . The Company maintains systems of “internal control over financial reporting” (as defined under Rules 13a-15 and 15d-15 under the Exchange Act Regulations) that comply in all material respects with the requirements of the Exchange Act and have been designed by, or under the supervision of, its principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with IFRS and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company is not aware of any material weaknesses in its internal controls. The Company’s auditors and the Audit Committee of the Board of Directors of the Company have been advised of: (i) all significant deficiencies and material weaknesses, if any, in the design or operation of internal controls over financial reporting which are known to the Company’s management and that have adversely affected or are reasonably likely to adversely affect the Company’ ability to record, process, summarize and report financial information; and (ii) any fraud, if any, known to the Company’s management, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting. The Company’s certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Company as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “ Evaluation Date ”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the internal control over financial reporting (as such term is defined in the Exchange Act) of the Company that have materially affected, or is reasonably likely to materially affect, the internal control over financial reporting of the Company.

 

(ee)         No Investment Company Status . The Company is not and, after giving effect to the Offering and the application of the proceeds thereof as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be, required to register as an “investment company,” as defined in the Investment Company Act of 1940, as amended.

 

12

 

 

(ff)          No Labor Disputes . No labor dispute with the employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is imminent. To the knowledge of the Company, no executive officer of the Company is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company to any liability with respect to any of the foregoing matters. The Company is in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(gg)        Intellectual Property Rights . To the Company’s knowledge, the Company has, or can acquire on reasonable terms, ownership of and/or license to, or otherwise has the right to use, all inventions, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), patents and patent rights trademarks, service marks and trade names, copyrights, (collectively “ Intellectual Property ”) material to carrying on its businesses as described in the Pricing Prospectus. The Company has not received any correspondence relating to any Intellectual Property, including notice of: (A) infringement or misappropriation of, or conflict with, any Intellectual Property of a third party; (B) asserted rights of others with respect to any Intellectual Property of the Company; or (C) assertions that any Intellectual Property of the Company is invalid or otherwise inadequate to protect the interest of the Company, that in each case (if the subject of any unfavorable decision, ruling or finding), individually or in the aggregate, would have or would reasonably be expected to have a Material Adverse Change. There are no third parties who have been able to establish any material rights to any Intellectual Property, except for the retained rights of the owners or licensors of any Intellectual Property that is licensed to the Company. There is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others: (A) challenging the validity, enforceability or scope of any Intellectual Property of the Company or (B) challenging the Company’s rights in or to any Intellectual Property or (C) that the Company materially infringes, misappropriates or otherwise violates or conflicts with any Intellectual Property or other proprietary rights of others. The Company has complied in all material respects with the terms of each agreement described in the Registration Statement, Pricing Disclosure Package or Prospectus pursuant to which any Intellectual Property is licensed to the Company, and all such agreements related to products currently made or sold by the Company, or to product candidates currently under development, are in full force and effect.

 

(hh)        Taxes . Each of the Company and its subsidiaries has filed all returns (as hereinafter defined) required to be filed with taxing authorities prior to the date hereof or has duly obtained extensions of time for the filing thereof. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, each of the Company and its subsidiaries has paid all taxes (as hereinafter defined) shown as due on such returns that were filed and has paid all taxes imposed on or assessed against the Company or such subsidiary. The provisions for taxes payable, if any, shown on the financial statements filed with or as part of the Registration Statement are sufficient for all accrued and unpaid taxes, whether or not disputed, and for all periods to and including the dates of such consolidated financial statements. Except as disclosed in writing to the Underwriters, (i) no issues have been raised (and are currently pending) by any taxing authority in connection with any of the returns or taxes asserted as due from the Company or its subsidiaries, and (ii) no waivers of statutes of limitation with respect to the returns or collection of taxes have been given by or requested from the Company or its subsidiaries. The term “ taxes ” mean all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto. The term “ returns ” means all returns, declarations, reports, statements and other documents required to be filed in respect to taxes.

 

(ii)           ERISA Compliance . The Company and any “employee benefit plan” (as defined under the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (collectively, “ ERISA ”)) established or maintained by the Company or its “ERISA Affiliates” (as defined below) are in compliance in all material respects with ERISA. “ ERISA Affiliate ” means, with respect to the Company, any member of any group of organizations described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder (the “ Code ”) of which the Company is a member. No “reportable event” (as defined under ERISA) has occurred or is reasonably expected to occur with respect to any “employee benefit plan” that is subject to ERISA and that is established or maintained by the Company or any of its ERISA Affiliates. No “employee benefit plan” that is subject to ERISA and that is established or maintained by the Company or any of its ERISA Affiliates, if such “employee benefit plan” were terminated, would have any “amount of unfunded benefit liabilities” (as defined under ERISA). Neither the Company nor any of its ERISA Affiliates has incurred or reasonably expects to incur any material liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any “employee benefit plan” or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates that is intended to be qualified under Section 401(a) of the Code is so qualified and, to the knowledge of the Company, nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification.

 

13

 

 

(jj)           Compliance with Laws . The Company: (A) is and at all times has been in compliance with all statutes, rules, or regulations applicable to the ownership, testing, development, manufacture, packaging, processing, use, distribution, marketing, labeling, promotion, sale, offer for sale, storage, import, export or disposal of any product manufactured or distributed by the Company (“ Applicable Laws ”), except as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Change; (B) has not received any warning letter, untitled letter or other correspondence or notice from any other governmental authority alleging or asserting noncompliance with any Applicable Laws or any licenses, certificates, approvals, clearances, authorizations, permits and supplements or amendments thereto required by any such Applicable Laws (“ Authorizations ”); (C) possesses all material Authorizations and such Authorizations are valid and in full force and effect and are not in material violation of any term of any such Authorizations; (D) has not received notice of any claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any governmental authority or third party alleging that any product operation or activity is in violation of any Applicable Laws or Authorizations and has no knowledge that any such governmental authority or third party is considering any such claim, litigation, arbitration, action, suit, investigation or proceeding; (E) has not received notice that any governmental authority has taken, is taking or intends to take action to limit, suspend, modify or revoke any Authorizations and has no knowledge that any such governmental authority is considering such action; (F) has filed, obtained, maintained or submitted all material reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments as required by any Applicable Laws or Authorizations and that all such reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments were complete and correct on the date filed (or were corrected or supplemented by a subsequent submission); and (G) has not, either voluntarily or involuntarily, initiated, conducted, or issued or caused to be initiated, conducted or issued, any recall, market withdrawal or replacement, safety alert, post-sale warning, “dear doctor” letter, or other notice or action relating to the alleged lack of safety or efficacy of any product or any alleged product defect or violation and, to the Company’s knowledge, no third party has initiated, conducted or intends to initiate any such notice or action. The disclosures in the Registration Statement, the Pricing Disclosure Package and the Prospectus concerning the effects of Federal, State, local and all foreign regulation on the Company’s business as currently contemplated are correct in all material respects.

 

(kk)         Application of Takeover Protections . The Company and the Board have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Charter (or similar charter documents) (excluding, for purposes of this representation, the “blank check” preferred shares that are authorized by the Company’s Charter) or the laws of its jurisdiction of incorporation that is or could become applicable as a result of the Underwriters and the Company fulfilling their obligations or exercising their rights under this Agreement, the Warrant Agreement or the Representative’s Warrant Agreement.

 

(ll)           Solvency . Based on the consolidated financial condition of the Company as of the Closing Date, and as of each Option Closing Date, if any, after giving effect to the receipt by the Company of the proceeds from the sale of the Public Securities hereunder, (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. The Registration Statement, Pricing Disclosure Package and the Prospectus sets forth as of the date hereof all outstanding secured and unsecured Indebtedness (as defined below) of the Company or for which the Company has commitments.

 

14

 

 

Indebtedness ” means (i) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (ii) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (iii) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with IFRS.

 

(mm)       Real Property . Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company and each of its subsidiaries have good and marketable title in fee simple to, or have valid rights to lease or otherwise use, all items of real or personal property which are material to the business of the Company and its subsidiaries taken as a whole, in each case free and clear of all liens, encumbrances, security interests, claims and defects that do not, singly or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or any of its subsidiaries; and all of the leases and subleases material to the business of the Company and its subsidiaries, considered as one enterprise, and under which the Company or any of its subsidiaries holds properties described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, are in full force and effect, and neither the Company nor any subsidiary has received any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease.

 

(nn)        Contracts Affecting Capital . There are no transactions, arrangements or other relationships between and/or among the Company, any of its affiliates (as such term is defined in Rule 405 of the Securities Act Regulations) and any unconsolidated entity, including, but not limited to, any structured finance, special purpose or limited purpose entity that could reasonably be expected to materially affect the Company’s or any of its subsidiaries’ liquidity or the availability of or requirements for their capital resources required to be described or incorporated by reference in the Registration Statement, the Pricing Disclosure Package and the Prospectus which have not been described or incorporated by reference as required.

 

(oo)        Loans to Directors or Officers . There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees or indebtedness by the Company or any of its subsidiaries to or for the benefit of any of the officers or directors of the Company, any of its subsidiaries or any of their respective family members.

 

(pp)        Employee Benefit Laws . The Company is not in violation of or has not received notice of any violation with respect to any federal or state law relating to discrimination in the hiring, promotion or pay of employees, nor any applicable federal or state wages and hours law, nor any state law precluding the denial of credit due to the neighborhood in which a property is situated, the violation of any of which could reasonably be expected to have a Material Adverse Change.

 

(qq)         Ineligible Issuer .  At the time of filing the Registration Statement and any post-effective amendment thereto, at the time of effectiveness of the Registration Statement and any amendment thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the Securities Act Regulations) of the Public Securities and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405, without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an ineligible issuer.

 

(rr)          Industry Data .  The statistical and market-related data included in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus are based on or derived from sources that the Company reasonably and in good faith believes are reliable and accurate or represent the Company’s good faith estimates that are made on the basis of data derived from such sources.

 

15

 

 

(ss)         Electronic Road Show . The Company has made available a Bona Fide Electronic Road Show in compliance with Rule 433(d)(8)(ii) of the Securities Act Regulations such that no filing of any “road show” (as defined in Rule 433(h) of the Securities Act Regulations) is required in connection with the Offering.

 

(tt)          Margin Securities . The Company owns no “margin securities” as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System (the “ Federal Reserve Board ”), and none of the proceeds of Offering will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Common Shares or Warrants to be considered a “purpose credit” within the meanings of Regulation T, U or X of the Federal Reserve Board.

 

(uu)        Environmental Laws . The Company and its subsidiaries are in compliance with all foreign, federal, state and local rules, laws and regulations relating to the use, treatment, storage and disposal of hazardous or toxic substances or waste and protection of health and safety or the environment which are applicable to their businesses (“ Environmental Laws ”), except where the failure to comply would not, singularly or in the aggregate, result in a Material Adverse Change. There has been no storage, generation, transportation, handling, treatment, disposal, discharge, emission, or other release of any kind of toxic or other wastes or other hazardous substances by, due to, or caused by the Company or any of its subsidiaries (or, to the Company’s knowledge, any other entity for whose acts or omissions the Company or any of its subsidiaries is or may otherwise be liable) upon any of the property now or previously owned or leased by the Company or any of its subsidiaries, or upon any other property, in violation of any law, statute, ordinance, rule, regulation, order, judgment, decree or permit or which would, under any law, statute, ordinance, rule (including rule of common law), regulation, order, judgment, decree or permit, give rise to any liability, except for any violation or liability which would not have, singularly or in the aggregate with all such violations and liabilities, a Material Adverse Change; and there has been no disposal, discharge, emission or other release of any kind onto such property or into the environment surrounding such property of any toxic or other wastes or other hazardous substances with respect to which the Company has knowledge, except for any such disposal, discharge, emission, or other release of any kind which would not have, singularly or in the aggregate with all such discharges and other releases, a Material Adverse Change. In the ordinary course of business, the Company and its subsidiaries conduct periodic reviews of the effect of Environmental Laws on their business and assets, in the course of which they identify and evaluate associated costs and liabilities (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or governmental permits issued thereunder, any related constraints on operating activities and any potential liabilities to third parties). On the basis of such reviews, the Company and its subsidiaries have reasonably concluded that such associated costs and liabilities would not have, singularly or in the aggregate, a Material Adverse Change.

 

(vv)        Forward-Looking Statements . No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.

 

(ww)       Export and Import Laws . The Company and, to the Company's knowledge, each of its affiliates, and any director, officer, agent or employee of, or other person associated with or acting on behalf of the Company, has acted at all times in compliance with applicable Export and Import Laws (as defined below) and there are no claims, complaints, charges, investigations or proceedings pending or expected or, to the knowledge of the Company, threatened between the Company or any of its subsidiaries and any governmental authority under any Export or Import Laws. The term “ Export and Import Laws ” means the Arms Export Control Act, the International Traffic in Arms Regulations, the Export Administration Act of 1979, as amended, the Export Administration Regulations, and all other laws and regulations of the United States government regulating the provision of services to non-U.S. parties or the export and import of articles or information from and to the United States of America, and all similar laws and regulations of any foreign government regulating the provision of services to parties not of the foreign country or the export and import of articles and information from and to the foreign country to parties not of the foreign country.

 

(xx)         Integration . Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause the Offering to be integrated with prior offerings by the Company for purposes of the Securities Act that would require the registration of any such securities under the Securities Act.

 

16

 

 

(yy)        Confidentiality and Non-Competition . To the Company’s knowledge, no director, officer, key employee or consultant of the Company is subject to any confidentiality, non-disclosure, non-competition agreement or non-solicitation agreement with any employer or prior employer that could reasonably be expected to materially affect his ability to be and act in his respective capacity of the Company or be expected to result in a Material Adverse Change.

 

(zz)          Minute Books . The minute books of the Company have been made available to the Underwriters and counsel for the Underwriters, and such books (i) contain a complete summary of all meetings and actions of the Board (including each Board committee) and shareholders of the Company (or analogous governing bodies and interest holders, as applicable), and each of its subsidiaries since the time of its respective incorporation or organization through the date of the latest meeting and action, and (ii) accurately in all material respects reflect all transactions referred to in such minutes. There are no material transactions, agreements, dispositions or other actions of the Company that are not properly approved and/or accurately and fairly recorded in the minute books of the Company, as applicable.

 

(aaa)       Stabilization . Neither the Company nor, to its knowledge, any of its employees, directors or shareholders (without the consent of the Representative) has taken, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in, under Regulation M of the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Public Securities.

 

(bbb)      Smaller Reporting Company . As of the time of filing of the Registration Statement, the Company was a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act Regulations.

 

3.             Covenants of the Company . The Company covenants and agrees as follows:

 

(a)           Amendments to Registration Statement . The Company shall deliver to the Representative, prior to filing, any amendment or supplement to the Registration Statement or Prospectus proposed to be filed after the Effective Date and not file any such amendment or supplement to which the Representative shall reasonably object in writing.

 

(b)           Federal Securities Laws .

 

(i)          Compliance . The Company shall comply with the requirements of Rule 430A of the Securities Act Regulations, and will notify the Representative promptly, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective or any amendment or supplement to the Prospectus shall have been filed; (ii) of the receipt of any comments from the Commission; (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information; (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus, or of the suspension of the qualification of the Public Securities and Representative’s Securities for offering or sale in any jurisdiction, or of the initiation or, to the Company’s knowledge, threatening, of any proceedings for any of such purposes or of any examination pursuant to Section 8(d) or 8(e) of the Securities Act concerning the Registration Statement and (v) if the Company becomes the subject of a proceeding under Section 8A of the Securities Act in connection with the Offering of the Public Securities and Representative’s Securities. The Company shall effect all filings required under Rule 424(b) of the Securities Act Regulations, in the manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)), and shall take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company shall use its best efforts to prevent the issuance of any stop order, prevention or suspension and, if any such order is issued, to obtain the lifting thereof at the earliest possible moment.

 

17

 

 

(ii)         Continued Compliance . The Company shall comply with the Securities Act, the Securities Act Regulations, the Exchange Act and the Exchange Act Regulations so as to permit the completion of the distribution of the Public Securities as contemplated in this Agreement, the Warrant Agreement and in the Registration Statement, the Pricing Disclosure Package and the Prospectus. If at any time when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172 of the Securities Act Regulations (“ Rule 172 ”), would be) required by the Securities Act to be delivered in connection with sales of the Public Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to (i) amend the Registration Statement in order that the Registration Statement will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) amend or supplement the Pricing Disclosure Package or the Prospectus in order that the Pricing Disclosure Package or the Prospectus, as the case may be, will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser or (iii) amend the Registration Statement or amend or supplement the Pricing Disclosure Package or the Prospectus, as the case may be, in order to comply with the requirements of the Securities Act or the Securities Act Regulations, the Company will promptly (A) give the Representative notice of such event; (B) prepare any amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement, the Pricing Disclosure Package or the Prospectus comply with such requirements and, a reasonable amount of time prior to any proposed filing or use, furnish the Representative with copies of any such amendment or supplement and (C) file with the Commission any such amendment or supplement; provided that the Company shall not file or use any such amendment or supplement to which the Representative or Representative Counsel shall reasonably object. The Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. The Company has given the Representative notice of any filings made pursuant to the Exchange Act or the Exchange Act Regulations within 48 hours prior to the Applicable Time. The Company shall give the Representative notice of its intention to make any such filing from the Applicable Time until the later of the Closing Date and the exercise in full or expiration of the Over-allotment Option specified in Section 1.2 hereof and will furnish the Representative with copies of the related document(s) a reasonable amount of time prior to such proposed filing, as the case may be, and will not file or use any such document to which the Representative or Representative Counsel shall reasonably object.

 

(iii)         Exchange Act Registration . For a period of three (3) years after the date of this Agreement, the Company shall use its best efforts to maintain the registration of the Common Shares and Warrants under the Exchange Act. During this time period, the Company shall not deregister the Common Shares or Warrants under the Exchange Act without the prior written consent of the Representative.

 

(iv)        Free Writing Prospectuses . The Company agrees that, unless it obtains the prior written consent of the Representative, it shall not make any offer relating to the Public Securities that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a “free writing prospectus,” or a portion thereof, required to be filed by the Company with the Commission or retained by the Company under Rule 433; provided that the Representative shall be deemed to have consented to each Issuer General Use Free Writing Prospectus and any “road show that is a written communication” within the meaning of Rule 433(d)(8)(i) that has been reviewed and approved in writing by the Representative. The Company represents that it has treated or agrees that it will treat each such free writing prospectus consented to, or deemed consented to, by the Underwriters as an “issuer free writing prospectus,” as defined in Rule 433, and that it has complied and will comply with the applicable requirements of Rule 433 with respect thereto, including timely filing with the Commission where required, legending and record keeping. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained in the Registration Statement or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Underwriters and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.

 

(c)          Delivery to the Underwriters of Registration Statements . The Company has delivered or made available or shall deliver or make available to the Representative and Representative Counsel, without charge, signed copies of the Registration Statement as originally filed and each amendment thereto (including exhibits filed therewith) and signed copies of all consents and certificates of experts, and will also deliver to the Underwriters, without charge, a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

 

18

 

 

(d)           Delivery to the Underwriters of Prospectuses . The Company has delivered or made available or will deliver or make available to each Underwriter, without charge, as many copies of each Preliminary Prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the Securities Act. The Company will furnish to each Underwriter, without charge, during the period when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the Securities Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. Neither the Company nor any of its directors and officers has distributed and none of them will distribute, prior to the Closing Date, any offering material in connection with the offering and sale of the Public Securities other than the Prospectus, the Registration Statement, and copies of the documents incorporated by reference therein.

 

(e)           Effectiveness and Events Requiring Notice to the Representative . The Company shall use its best efforts to cause the Registration Statement to remain effective with a current prospectus through and including the expiration date of the Warrants (or the date all Warrants have been exercised or duly called, if earlier), and shall notify the Representative immediately and confirm the notice in writing: (i) of the effectiveness of the Registration Statement and any amendment thereto; (ii) of the issuance by the Commission of any stop order or of the initiation, or to the Company’s knowledge, the threatening, of any proceeding for that purpose; (iii) of the issuance by any state securities commission of any proceedings for the suspension of the qualification of the Public Securities for offering or sale in any jurisdiction or of the initiation, or to the Company’s knowledge, the threatening, of any proceeding for that purpose; (iv) of the mailing and delivery to the Commission for filing of any amendment or supplement to the Registration Statement or Prospectus; (v) of the receipt of any comments or request for any additional information from the Commission; and (vi) of the happening of any event during the period described in this Section 3(e) that, in the judgment of the Company, makes any statement of a material fact made in the Registration Statement, the Pricing Disclosure Package or the Prospectus untrue or that requires the making of any changes in (a) the Registration Statement in order to make the statements therein not misleading, or (b) in the Pricing Disclosure Package or the Prospectus in order to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Commission or any state securities commission shall enter a stop order or suspend such qualification at any time, the Company shall make every reasonable effort to obtain promptly the lifting of such order.

 

(f)            Listing . The Company shall use its best efforts to maintain the listing of the Common Shares and Warrants on the Exchange for three (3) years after the date of this Agreement.

 

(g)           Review of Financial Statements . For a period of one (1) year after the date of this Agreement, the Company, at its expense, shall cause its regularly engaged independent registered public accounting firm to review (but not audit) the Company’s interim financial statements for each of the three fiscal quarters that are not its fiscal year end immediately preceding the announcement of any quarterly financial information.

 

(h)           Financial Public Relations Firm . Within thirty (30) days following the Closing Date, the Company shall retain a financial public relations firm that is reasonably acceptable to the Representative and the Company (which shall include the firm of KCSA Strategic Communications), which firm shall be experienced in assisting issuers in initial public offerings of securities and in their relations with their security holders, and shall retain such firm or another firm reasonably acceptable to the Representative for a period of not less than two (2) years after the Closing Date.

 

19

 

 

(i)            Research Independence . In addition, the Company acknowledges that each Underwriter’s research analysts and research departments, if any, are required to be independent from their respective investment banking divisions and are subject to certain regulations and internal policies, and that such Underwriter’s research analysts may hold and make statements or investment recommendations and/or publish research reports with respect to the Company and/or the offering that differ from the views of its investment bankers. The Company hereby waives and releases, to the fullest extent permitted by law, any claims that the Company may have against such Underwriter with respect to any conflict of interest that may arise from the fact that the views expressed by their independent research analysts and research departments may be different from or inconsistent with the views or advice communicated to the Company by such Underwriter’s investment banking divisions. The Company acknowledges that the Representative is a full service securities firm and as such from time to time, subject to applicable securities laws, may effect transactions for its own account or the account of its customers and hold long or short position in debt or equity securities of the Company.

 

(j)            Reports to the Representative; Transfer Agent and Warrant Agent .

 

(i)           Periodic Reports, etc . For a period of three (3) years after the date of this Agreement, the Company shall furnish or make available to the Representative copies of such financial statements and other periodic and special reports as the Company from time to time furnishes generally to holders of any class of its securities and also promptly furnish or make available to the Representative: (i) a copy of every press release and every news item and article with respect to the Company or its affairs which was released by the Company and (ii) such additional documents and information with respect to the Company and the affairs of any future subsidiaries of the Company as the Representative may from time to time reasonably request; provided the Representative shall sign, if requested by the Company, a Regulation FD compliant confidentiality agreement which is reasonably acceptable to the Representative and Representative Counsel in connection with the Representative’s receipt of such information. Documents filed with the Commission pursuant to its EDGAR system or otherwise filed with the Commission or made publicly available shall be deemed to have been delivered to the Representative pursuant to this Section 3(j)(i).

 

(ii)          Transfer Agent . The Company shall maintain a transfer agent, warrant agent and registrar for the Common Shares and Warrants that is acceptable to the Representative (it being understood that Computershare Investor Services Inc. is acceptable to the Representative).

 

(k)           Payment of Expenses .

 

(i)           General Expenses Related to the Offering . The Company hereby agrees to pay on each of the Closing Date and each Option Closing Date, if any, to the extent not previously paid, all expenses incident to the performance of the obligations of the Company under this Agreement, including, but not limited to: (a) all filing fees and communication expenses relating to the registration of the Public Securities to be sold in the Offering with the Commission; (b) all Public Offering Filing System filing fees associated with the review of the Offering by FINRA; (c) all fees and expenses relating to the listing of the Common Shares on the Exchange; (d) all fees, expenses and disbursements, if any, relating to the registration or qualification of the Public Securities under the “blue sky” securities laws of such states and other jurisdictions as the Representative may reasonably designate (including, without limitation, all filing and registration fees, and the reasonable fees and disbursements of “blue sky” counsel); (e) all fees, expenses and disbursements relating to the registration, qualification or exemption of the Public Securities under the securities laws of such foreign jurisdictions as the Representative may reasonably designate; (f) the costs of all mailing and printing of the Registration Statements, Prospectuses and all amendments, supplements and exhibits thereto and as many preliminary and final Prospectuses as the Representative may reasonably deem necessary; (g) the costs of preparing, printing and delivering certificates representing the Public Securities; (h) fees and expenses of the transfer and warrant agent for the Common Shares and Warrants; (i) share transfer and/or stamp taxes, if any, payable upon the transfer of securities from the Company to the Underwriters; (j) the fees and expenses of the Company’s accountants; (k) the fees and expenses of the Company’s legal counsel and other agents and representatives; and (l) the due diligence fees and expenses of the Underwriter (including, without limitation, domestic and foreign legal counsel, background checks, travel expenses and other diligence expenses). The Representative’s maximum aggregate expense reimbursement allowance will be $150,000. The Representative may deduct from the net proceeds of the Offering payable to the Company on the Closing Date, or an Option Closing Date, if any, the expenses set forth herein (as limited by this Section 3(k)(i)) to be paid by the Company to the Underwriters, provided, however, that in the event that the Offering is terminated, the Company agrees to reimburse the Underwriters pursuant to Section 8(c) hereof.

 

(ii)          Non-accountable Expenses . The Company further agrees that, in addition to the expenses payable pursuant to Section 3(k)(i) clauses (d) and (l), (i) on the Closing Date it shall pay to the Representative, by deduction from the net proceeds of the Offering contemplated herein, a non-accountable expense allowance equal to one percent (1.0%) of the gross proceeds received by the Company from the sale of the Firm Units.

 

20

 

 

(l)            Application of Net Proceeds . The Company shall apply the net proceeds from the offering of the Firm Units and the Option Securities received by it in a manner consistent with the application thereof described under the caption “Use of Proceeds” in the Registration Statement, the Pricing Disclosure Package and the Prospectus.

 

(m)          Rule 158 . The Company will timely file such reports pursuant to the Exchange Act as are necessary in order to make generally available to its security holders as soon as practicable an earnings statement for the purposes of, and to provide to the Underwriters the benefits contemplated by, Rule 158(a) under Section 11(a) of the Securities Act.

 

(n)          Stabilization . Neither the Company nor, to its knowledge, any of its employees, directors or shareholders (without the consent of the Representative) has taken or shall take, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in, under Regulation M of the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Public Securities.

 

(o)           Internal Controls . The Company shall maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary in order to permit preparation of financial statements in accordance with IFRS and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

 

(p)           Accountants . The Company shall retain an independent registered public accounting firm reasonably acceptable to the Representative (it being understood that the Auditor is an independent registered public accounting firm that is reasonably acceptable to the Representative), and the Company shall continue to retain a nationally recognized independent registered public accounting firm for a period of at least three (3) years after the date of this Agreement.

 

(q)           FINRA . The Company shall advise the Representative (who shall make an appropriate filing with FINRA) if it is or becomes aware that (i) any officer or director of the Company, (ii) any beneficial owner of 5% or more of any class of the Company's securities or (iii) any beneficial owner of the Company's unregistered equity securities which were acquired during the 180 days immediately preceding the original filing of the Registration Statement is or becomes an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA).

 

(r)           Board Composition and Board Designations . The Company shall ensure that: (i) the qualifications of the persons serving as Board members and the overall composition of the Board comply with the Sarbanes-Oxley Act and the rules promulgated thereunder and with the listing requirements of the Exchange and (ii) if applicable, at least one member of the Board qualifies as a “financial expert” as such term is defined under the Sarbanes-Oxley Act and the rules promulgated thereunder.

 

(s)           Securities Laws Disclosure; Pre-Closing Publicity . At the request of the Representative, by 9:00 a.m. (New York City time) on the date following the date hereof, the Company shall issue a press release disclosing the material terms of the Offering. Except as set forth in the immediately preceding sentence, prior to the Closing Date and any Option Closing Date, the Company shall not issue any press release or other communication directly or indirectly or hold any press conference with respect to the Company, its condition, financial or otherwise, or earnings, business affairs or business prospects (except for routine oral marketing communications in the ordinary course of business and consistent with the past practices of the Company and of which the Representative is notified), without the prior written consent of the Representative, which consent shall not be unreasonably withheld, unless in the judgment of the Company and its counsel, and after notification to the Representative, such press release or communication is required by law.

 

21

 

 

(t)           No Fiduciary Duties . The Company acknowledges and agrees that the Underwriters’ responsibility to the Company is solely contractual in nature and that none of the Underwriters or their affiliates or any selling agent shall be deemed to be acting in a fiduciary capacity, or otherwise owes any fiduciary duty to the Company or any of its affiliates in connection with the Offering and the other transactions contemplated by this Agreement. Notwithstanding anything in this Agreement to the contrary, the Company acknowledges that the Underwriters may have financial interests in the success of the Offering that are not limited to the difference between the price to the public and the purchase price paid to the Company by the Underwriters for the Shares and the Underwriters have no obligation to disclose, or account to the Company for, any of such additional financial interests. The Company hereby waives and releases, to the fullest extent permitted by law, any claims that the Company may have against the Underwriters with respect to any breach or alleged breach of fiduciary duty.

 

(u)           Company Lock-Up Agreements . The Company, on behalf of itself and any successor entity, agrees that, without the prior written consent of the Representative, it will not, for a period of one hundred eighty (180) days after the date of this Agreement (the “ Lock-Up Period ”), (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (ii) file or cause to be filed any registration statement with the Commission relating to the offering of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company (other than pursuant to a registration statement on Form S-8 for employee benefit plans); or (iii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company, whether any such transaction described in clause (i), (ii) or (iii) above is to be settled by delivery of shares of capital stock of the Company or such other securities, in cash or otherwise. The restrictions contained in this section shall not apply to (i) the Public Securities and the Representative’s Warrants to be sold hereunder; (ii) the issuance by the Company of Common Shares upon the exercise of an outstanding stock option or warrant or the conversion of a security outstanding on the date hereof and disclosed in the Registration Statement and the Pricing Disclosure Package, (iii) the grant by the Company of stock options or other stock-based awards, or the issuance of shares of capital stock of the Company under any equity compensation plan of the Company disclosed in the Pricing Prospectus, (iv) the issuance of securities in connection with mergers, acquisitions, joint ventures, licensing arrangements or any other similar non-capital raising transactions or (v) financings with Industry Related Persons (which shall mean automotive and vehicle manufacturers, manufacturers and designers of automotive and vehicle components (including batteries)), as long as such financing is done above the five day average closing price of the Company’s common stock immediately prior to the financing.

 

(v)          Blue Sky Qualifications . The Company shall use its best efforts, in cooperation with the Underwriters, if necessary, to qualify the Public Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Representative may designate and to maintain such qualifications in effect so long as required to complete the distribution of the Public Securities; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.

 

(w)          Reporting Requirements . The Company, during the period when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the Securities Act, will file all documents required to be filed with the Commission pursuant to the Exchange Act within the time periods required by the Exchange Act and Exchange Act Regulations. Additionally, the Company shall report the use of proceeds from the issuance of the Public Securities as may be required under Rule 463 under the Securities Act Regulations.

 

(x)           Sarbanes-Oxley . The Company shall at all times comply with all applicable provisions of the Sarbanes-Oxley Act in effect from time to time.

 

(y)           IRS Forms . The Company shall deliver to each Underwriter (or its agent), prior to or at the Closing Date, a properly completed and executed Internal Revenue Service (“ IRS ”) Form W-9 or an IRS Form W-8, as appropriate, together with all required attachments to such form.

 

22

 

 

4.             Conditions of Underwriters’ Obligations . The obligations of the Underwriters to purchase and pay for the Firm Units and the Option Securities, as provided herein, shall be subject to (i) the continuing accuracy of the representations and warranties of the Company as of the date hereof and as of each of the Closing Date and each Option Closing Date, if any; (ii) the accuracy of the statements of officers of the Company made pursuant to the provisions hereof; (iii) the performance by the Company of its obligations hereunder; and (iv) the following conditions:

 

(a)           Regulatory Matters .

 

(i)           Effectiveness of Registration Statement; Rule 430A Information . The Registration Statement has become effective not later than 5:00 p.m., Eastern time, on the date of this Agreement or such later date and time as shall be consented to in writing by the Representative, and, at each of the Closing Date and any Option Closing Date, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto shall have been issued under the Securities Act, no order preventing or suspending the use of any Preliminary Prospectus or the Prospectus shall have been issued and no proceedings for any of those purposes have been instituted or are pending or, to the Company’s knowledge, contemplated by the Commission. The Company has complied with each request (if any) from the Commission for additional information. The Prospectus containing the Rule 430A Information shall have been filed with the Commission in the manner and within the time frame required by Rule 424(b) (without reliance on Rule 424(b)(8)) or a post-effective amendment providing such information shall have been filed with, and declared effective by, the Commission in accordance with the requirements of Rule 430A.

 

(ii)         FINRA Clearance . On or before the date of this Agreement, the Representative shall have received correspondence from FINRA that it will raise no objection as to the amount of compensation allowable or payable to the Underwriters as described in the Registration Statement.

 

(iii)        Stock Market Clearance . On the Closing Date, the Firm Securities shall have been approved for listing on the Exchange, subject only to official notice of issuance. On each Option Closing Date (if any), the Option Securities shall have been approved for listing on the Exchange, subject only to official notice of issuance, if needed.

 

(b)           Company Counsel Matters .

 

(i)           Closing Date Opinion of U.S. Counsel . On the Closing Date and on each Option Closing Date (if any), the Representative shall have received the favorable opinion of Ortoli Rosenstadt LLP, counsel to the Company, dated the Closing Date or Option Closing Date, as applicable, and addressed to the Representative, substantially in form and substance reasonably satisfactory to the Representative and Representative Counsel.

 

(ii)          Closing Date Opinion of Canadian Counsel for the Company . On the Closing Date and on each Option Closing Date (if any), the Representative shall have received the opinion of McMillan LLP, Canadian counsel for the Company, dated the Closing Date or Option Closing Date, as applicable, addressed to the Representative, substantially in form and substance reasonably satisfactory to the Representative.

 

(iii)         Closing Date Opinion of IP Counsel for the Company . On the Closing Date and on each Option Closing Date (if any), the Representative shall have received the opinion of Clark Wilson LLP, intellectual property counsel for the Company, dated the Closing Date or Option Closing Date, as applicable, addressed to the Representative, substantially in form and substance reasonably satisfactory to the Representative.

 

(c)           Comfort Letters .

 

(i)           Comfort Letter . At the time this Agreement is executed the Representative shall have received a cold comfort letter from the Auditor containing statements and information of the type customarily included in accountants’ comfort letters with respect to the financial statements and certain financial information contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus, addressed to the Representative and in form and substance satisfactory in all respects to the Representative and to the Auditor, dated as of the date of this Agreement.

 

23

 

 

(ii)          Bring-down Comfort Letter . At the Closing Date and on each Option Closing Date (if any), the Representative shall have received from the auditor a letter, dated as of the Closing Date or Option Closing Date, as applicable, to the effect that such Auditor reaffirms the statements made in the letter furnished pursuant to Section 4(c)(i), except that with respect to the initial comfort letter the specified date referred to shall be a date not more than three (3) business days prior to the Closing Date.

 

(d)           Officers’ Certificates .

 

(i)           Officers’ Certificate . The Company shall have furnished to the Representative a certificate, dated the Closing Date or Option Closing Date, as applicable, of its President and Chief Executive Officer, and its Chief Financial Officer stating that (A) such officers have carefully examined the Registration Statement, the Pricing Disclosure Package, any Issuer Free Writing Prospectus and the Prospectus and, in their opinion, the Registration Statement and each amendment thereto, as of the Applicable Time and as of the Closing Date or Option Closing Date, as applicable, did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Pricing Disclosure Package, as of the Applicable Time and as of the Closing Date, any Issuer Free Writing Prospectus as of its date and as of the Closing Date or Option Closing Date, as applicable, the Prospectus and each amendment or supplement thereto, as of the respective date thereof and as of the Closing Date or Option Closing Date, as applicable, did not include any untrue statement of a material fact and did not omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances in which they were made, not misleading, (B) since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement or amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus, (C) as of the Closing Date or Option Closing Date, as applicable, the representations and warranties of the Company in this Agreement are true and correct in all material respects (except for those representations and warranties qualified as to materiality, which shall be true and correct in all respects and except for those representations and warranties which refer to facts existing at a specific date, which shall be true and correct as of such date) and the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date and any Option Closing Date (if such date is other than the Closing Date), and (D) there has not been, subsequent to the date of the most recent audited financial statements included in the Pricing Disclosure Package, any Material Adverse Change in the financial position or results of operations of the Company, or any change or development that, singularly or in the aggregate, would involve a Material Adverse Change, in or affecting the condition (financial or otherwise), results of operations, business, assets or prospects of the Company, except as set forth in the Prospectus.

 

(ii)         Secretary’s Certificate . At each of the Closing Date and any Option Closing Date, the Representative shall have received a certificate of the Company signed by the Secretary of the Company, dated the Closing Date and Option Closing Date (if such date is other than the Closing Date), certifying: (A) that each of the Charter, Bylaws and similar governing documents is true and complete, has not been modified and is in full force and effect; (B) that the resolutions of the Board relating to the Offering are in full force and effect and have not been modified; (C) the good standing and foreign qualification of the Company; and (D) as to the incumbency of the officers of the Company. The documents referred to in such certificate shall be attached to such certificate.

 

(e)           No Material Changes . Prior to and on each of the Closing Date and each Option Closing Date: (i) there shall have been no Material Adverse Change or development involving a prospective Material Adverse Change in the condition or the business activities, financial or otherwise, of the Company or any subsidiary of the Company from the latest dates as of which such condition is set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (ii) no action, suit or proceeding, at law or in equity, shall have been pending or threatened against the Company or any Insider before or by any court or federal or state commission, board or other administrative agency wherein an unfavorable decision, ruling or finding would reasonably be expected to result in a Material Adverse Change, except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (iii) no stop order shall have been issued under the Securities Act and no proceedings therefor shall have been initiated or threatened by the Commission; and (iv) the Registration Statement, the Pricing Disclosure Package and the Prospectus and any amendments or supplements thereto shall contain all material statements which are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations and shall conform in all material respects to the requirements of the Securities Act and the Securities Act Regulations, and neither the Registration Statement, the Pricing Disclosure Package nor the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

 

24

 

 

(f)           No Material Misstatement or Omission . The Underwriters shall not have discovered and disclosed to the Company on or prior to the Closing Date and any Option Closing Date that the Registration Statement or any amendment or supplement thereto contains an untrue statement of a fact which, in the opinion of Representative Counsel, is material or omits to state any fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to make the statements therein not misleading, or that the Registration Statement, the Pricing Disclosure Package, any Issuer Free Writing Prospectus or the Prospectus or any amendment or supplement thereto contains an untrue statement of fact which, in the opinion of such counsel, is material or omits to state any fact which, in the opinion of such counsel, is material and is necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading.

 

(g)           Corporate Proceedings . All corporate proceedings and other legal matters incident to the authorization, form and validity of each of this Agreement, the Warrant Agreement, the Representative’s Warrant Agreement, the Public Securities, the Registration Statement, the Pricing Disclosure Package, each Issuer Free Writing Prospectus, if any, and the Prospectus and all other legal matters relating to this Agreement, the Warrant Agreement, the Representative’s Warrant Agreement and the transactions contemplated hereby and thereby shall be reasonably satisfactory in all material respects to Representative Counsel, and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters.

 

(h)           Delivery of Agreements .

 

(i)           Lock-Up Agreements . On or before the date of this Agreement, the Company shall have delivered to the Representative executed copies of the Lock-Up Agreements from each of the persons listed in Schedule 3 hereto.

 

(ii)          Warrant Agreements. On or before the date of this Agreement, the Company shall have delivered to the Representative an executed copy of the Warrant Agreement.

 

(iii)         Representative’s Warrant Agreement . On the Closing Date, the Company shall have delivered to the Representative an executed copy of the Representative’s Warrant Agreement.

 

(i)            Additional Documents . At the Closing Date and on each Option Closing Date (if any), Representative Counsel shall have been furnished with such documents and opinions as they may require for the purpose of enabling Representative Counsel to deliver an opinion to the Underwriters, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Firm Securities, the Options Shares (as applicable) and the Representative’s Warrant as herein contemplated shall be satisfactory in form and substance to the Representative and Representative Counsel.

 

5.             Indemnification.

 

(a)           Indemnification of the Underwriters . The Company agrees to indemnify and hold harmless each Underwriter, its affiliates and each person controlling such Underwriter (within the meaning of Section 15 of the Securities Act), and the directors, officers, employees, members, partners, shareholders, agents, representatives and counsel of each Underwriter, its affiliates and each such controlling person (each Underwriter, and each such entity or person hereafter is referred to as an “ Indemnified Person ”) from and against any losses, claims, damages, judgments, assessments, costs and other liabilities (collectively, the “ Liabilities ”), and shall reimburse each Indemnified Person for all fees and expenses (including the reasonable fees and expenses of counsel for the Indemnified Persons, except as otherwise expressly provided in this Agreement) (collectively, the “ Expenses ”) and agrees to advance payment of such Expenses as they are incurred by an Indemnified Person in investigating, preparing, pursuing or defending any actions, whether or not any Indemnified Person is a party thereto, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in (i) the Registration Statement, the Pricing Disclosure Package, the Preliminary Prospectus, the Prospectus or in any Issuer Free Writing Prospectus (as from time to time each may be amended and supplemented); (ii) any materials or information provided to investors by, or with the approval of, the Company in connection with the marketing of the Offering, including any “road show” or investor presentations made to investors by the Company (whether in person or electronically); or (iii) any application or other document or written communication (in this Section 5, collectively called “application”) executed by the Company or based upon written information furnished by the Company in any jurisdiction in order to qualify the Public Securities and Representative’s Securities under the securities laws thereof or filed with the Commission, any state securities commission or agency, the Exchange or any other national securities exchange; or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, unless such statement or omission was made in reliance upon, and in conformity with, the Underwriters’ Information. The Company also agrees to reimburse each Indemnified Person for all Expenses as they are incurred in connection with such Indemnified Person's enforcement of his or its rights under this Agreement. 

 

25

 

 

(b)           Procedure . Upon receipt by an Indemnified Person of actual notice of an action against such Indemnified Person with respect to which indemnity may reasonably be expected to be sought under this Agreement, such Indemnified Person shall promptly notify the Company in writing; provided that failure by any Indemnified Person so to notify the Company shall not relieve the Company from any obligation or liability which the Company may have on account of this Section 5 or otherwise to such Indemnified Person, except to the extent the Company is materially prejudiced as a proximate result of such failure. The Company shall have the right to assume the defense of any such action (including the employment of counsel designated by the Company and reasonably satisfactory to the Representative). Any Indemnified Person shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless: (i) the Company has failed promptly to assume the defense and employ counsel reasonably satisfactory to the Representative for the benefit of the Underwriters and the other Indemnified Persons or (ii) such Indemnified Person shall have been advised that in the opinion of counsel that there is an actual or potential conflict of interest that prevents (or makes it imprudent for) the counsel engaged by the Company for the purpose of representing the Indemnified Person, to represent both such Indemnified Person and any other person represented or proposed to be represented by such counsel. The Company shall not be liable for the fees and expenses of more than one separate counsel (together with local counsel), representing all Indemnified Persons who are parties to such action), which counsel (together with any local counsel) for the Indemnified Persons shall be selected by the Representative. The Company shall not be liable for any settlement of any action effected without its written consent (which shall not be unreasonably withheld). In addition, the Company shall not, without the prior written consent of the Underwriters, settle, compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened action in respect of which advancement, reimbursement, indemnification or contribution may be sought hereunder (whether or not such Indemnified Person is a party thereto) unless such settlement, compromise, consent or termination (i) includes an unconditional release of each Indemnified Person, from all Liabilities arising out of such action for which indemnification or contribution may be sought hereunder and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any Indemnified Person. The advancement, reimbursement, indemnification and contribution obligations of the Company required hereby shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as every Liability and Expense is incurred and is due and payable, and in such amounts as fully satisfy each and every Liability and Expense as it is incurred (and in no event later than 30 days following the date of any invoice therefore).

 

(c)           Indemnification of the Company . Each Underwriter, severally and not jointly, agrees to indemnify and hold harmless the Company, its directors, its officers who signed the Registration Statement and persons who control the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all Liabilities, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or in any application, in reliance upon, and in strict conformity with, the Underwriters’ Information. In case any action shall be brought against the Company or any other person so indemnified based on any Preliminary Prospectus, the Registration Statement, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or in any application, and in respect of which indemnity may be sought against any Underwriter, such Underwriter shall have the rights and duties given to the Company, and the Company and each other person so indemnified shall have the rights and duties given to the several Underwriters by the provisions of Section 5(b). The Company agrees promptly to notify the Representative of the commencement of any litigation or proceedings against the Company or any of its officers, directors or any person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, in connection with the issuance and sale of the Public Securities or in connection with the Registration Statement, the Pricing Disclosure Package, the Prospectus or any Issuer Free Writing Prospectus.

 

26

 

 

(d)           Contribution . If the indemnification provided for in this Section 5 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 5(a) or 5(c) in respect of any Liabilities and Expenses referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such Liabilities and Expenses, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company, on the one hand, and each of the Underwriters, on the other hand, from the Offering, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and the Underwriters, on the other hand, in connection with the matters as to which such Liabilities or Expenses relate, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Underwriters, on the other, with respect to such Offering shall be deemed to be in the same proportion as the total proceeds from the Offering purchased under this Agreement (before deducting expenses) received by the Company bear to the total underwriting discount and commissions actually received by the Underwriters in connection with the Offering, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company, on the one hand, and the Underwriters, on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or the Underwriters, on the other, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement, omission, act or failure to act; provided that the parties hereto agree that the written information furnished to the Company through the Representative by or on behalf of any Underwriter for use in any Preliminary Prospectus, any Registration Statement or the Prospectus, or in any amendment or supplement thereto, consists solely of the Underwriters’ Information. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection (d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to above in this subsection (d). Notwithstanding the above, no person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act shall be entitled to contribution from a party who was not guilty of fraudulent misrepresentation.

 

(e)           Limitation . The Company also agrees that no Indemnified Person shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Company for or in connection with advice or services rendered or to be rendered by any Indemnified Person pursuant to this Agreement, the transactions contemplated thereby or any Indemnified Person's actions or inactions in connection with any such advice, services or transactions, except to the extent that a court of competent jurisdiction has made a finding that Liabilities (and related Expenses) of the Company have resulted primarily from such Indemnified Person's gross negligence or willful misconduct in connection with any such advice, actions, inactions or services.

 

(f)           Survival . The advancement, reimbursement, indemnity and contribution obligations set forth in this Section 5 shall remain in full force and effect regardless of any termination of, or the completion of any Indemnified Person's services under or in connection with, this Agreement.

 

6.             Default by an Underwriter.

 

(a)           Default Not Exceeding 10% of Firm Units . If any Underwriter or Underwriters shall default in its or their obligations to purchase the Firm Units , and if the number of the Firm Units with respect to which such default relates does not exceed in the aggregate 10% of the number of Firm Units that all Underwriters have agreed to purchase hereunder, then such Firm Units to which the default relates shall be purchased by the non-defaulting Underwriters in proportion to their respective commitments hereunder.

 

27

 

 

(b)           Default Exceeding 10% of Firm Units . In the event that the default addressed in Section 6(a) relates to more than 10% of the Firm Units , the Representative may in its discretion arrange for itself or for another party or parties to purchase such Firm Units to which such default relates on the terms contained herein. If, within one (1) Business Day after such default relating to more than 10% of the Firm Units , the Representative does not arrange for the purchase of such Firm Units , then the Company shall be entitled to a further period of one (1) Business Day within which to procure another party or parties satisfactory to the Representative to purchase said Firm Units on such terms. In the event that neither the Representative nor the Company arrange for the purchase of the Firm Units to which a default relates as provided in this Section 6, this Agreement will automatically be terminated by the Representative or the Company without liability on the part of the Company (except as provided in Sections 3(k) and 5 hereof) or the several Underwriters (except as provided in Section 5 hereof); and provided, further, that nothing herein shall relieve a defaulting Underwriter of its liability, if any, to the other Underwriters and to the Company for damages occasioned by its default hereunder.

 

(c)           Postponement of Closing Date . In the event that the Firm Units to which the default relates are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, the Representative or the Company shall have the right to postpone the Closing Date for a reasonable period, but not in any event exceeding five (5) Business Days, in order to effect whatever changes may thereby be made necessary in the Registration Statement, the Pricing Disclosure Package or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus that in the opinion of Representative Counsel may thereby be made necessary. The term “ Underwriter ” as used in this Agreement shall include any party substituted under this Section 6 with like effect as if it had originally been a party to this Agreement with respect to such Public Securities.

 

7.             Additional Covenants.

 

(a)           Prohibition on Press Releases and Public Announcements . Except as set forth in the first sentence of Section 3(t) above, the Company shall not issue press releases or engage in any other publicity, without the Representative’s prior written consent (such consent not to be unreasonably withheld), for a period ending at 5:00 p.m., Eastern time, on the first (1 st ) Business Day following the forty-fifth (45 th ) day after the Closing Date, other than normal and customary releases issued in the ordinary course of the Company’s business.

 

(b)           Right of First Refusal . Provided that the Firm Securities are sold in accordance with the terms of this Agreement, the Representative shall have a right of first refusal (the “ Right of First Refusal ”), for a period of eighteen (18) months from the commencement of sales of the offering, to act as sole and exclusive investment banker, sole and exclusive book-runner, sole and exclusive financial advisor, sole and exclusive underwriter and/or sole and exclusive placement agent, at the Representative’s sole and exclusive discretion, for each and every future public and private equity and debt offering, including all equity linked financings (each, a “ Subject Transaction ”), during such eighteen (18) month period, of the Company, or any successor to or subsidiary of the Company, on terms and conditions customary to the Representative for such Subject Transactions. For the avoidance of any doubt, the Company shall not retain, engage or solicit any additional investment banker, book-runner, financial advisor, underwriter and/or placement agent in a Subject Transaction for which the Representative has exercised its Right of First Refusal without the express written consent of the Representative. The Representative shall have the sole right to determine whether or not any other broker dealer shall have the right to participate in a Subject Transaction and the economic terms of any such participation. For the avoidance of any doubt, such Right of First Refusal does not extend to mergers, acquisitions, joint ventures, licensing arrangements or any other similar non-capital raising transactions that may or may not involve a broker or similar finder.

 

The Company shall notify the Representative of its intention to pursue a Subject Transaction, including the material terms thereof, by providing written notice thereof by registered mail or overnight courier service addressed to the Representative. If the Representative fails to exercise its Right of First Refusal with respect to any Subject Transaction within ten (10) Business Days after the mailing of such written notice, then the Representative shall have no further claim or right with respect to the Subject Transaction. The Representative may elect, in its sole and absolute discretion, not to exercise its Right of First Refusal with respect to any Subject Transaction; provided that any such election by the Representative shall not adversely affect the Representative’s Right of First Refusal with respect to any other Subject Transaction during the eighteen (18) month period agreed to above.

 

8.             Effective Date of this Agreement and Termination Thereof.

 

(a)           Effective Date . This Agreement shall become effective when both the Company and the Representative have executed the same and delivered counterparts of such signatures to the other party.

 

28

 

 

(b)           Termination . The Representative shall have the right to terminate this Agreement at any time prior to any Closing Date, (i) if any domestic or international event or act or occurrence has materially disrupted, or in Representative’s opinion will in the immediate future materially disrupt, general securities markets in the United States; or (ii) if trading on the New York Stock Exchange or the NASDAQ Stock Market LLC shall have been suspended or materially limited, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required by FINRA or by order of the Commission or any other government authority having jurisdiction; or (iii) if the United States shall have become involved in a new war or an increase in major hostilities; or (iv) if a banking moratorium has been declared by a New York State or federal authority; or (v) if a moratorium on foreign exchange trading has been declared which materially adversely impacts the United States securities markets; or (vi) if the Company shall have sustained a material loss by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been insured, will, in Representative’s opinion, make it inadvisable to proceed with the delivery of the Firm Securities; or (vii) if the Company is in material breach of any of its representations, warranties or covenants hereunder; or (viii) if the Representative shall have become aware after the date hereof of such a Material Adverse Change in the conditions of the Company, or such adverse material change in general market conditions as in the Representative’s judgment would make it impracticable to proceed with the offering, sale and/or delivery of the Public Securities or to enforce contracts made by the Underwriters for the sale of the Public Securities. Either party shall have the right to terminate this Agreement if the Closing Date does not occur within twenty (20) Business Days of the date of this Agreement. Section 5 of this Agreement shall survive any termination of this Agreement.

 

(c)           Expenses . Notwithstanding anything to the contrary in this Agreement, except in the case of a default by the Underwriters pursuant to Section 6(b) above, in the event that this Agreement shall not be carried out for any reason whatsoever, within the time specified herein or any extensions thereof pursuant to the terms herein, the Company shall be obligated to pay to the Underwriters their actual and accountable out-of-pocket expenses related to the transactions contemplated herein then due and payable (including the fees and disbursements of Representative Counsel) and upon demand the Company shall pay the full amount thereof to the Representative on behalf of the Underwriters (less any amounts previously advanced to the Representative); provided, however, that this in no way limits or impairs the indemnification and contribution provisions of this Agreement. Notwithstanding the foregoing, any advance received by the Representative will be reimbursed to the Company to the extent not actually incurred in compliance with FINRA Rule 5110(f)(2)(C).

 

(d)           Indemnification . Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement, and whether or not this Agreement is otherwise carried out, the provisions of Section 5 shall remain in full force and effect and shall not be in any way affected by, such election or termination or failure to carry out the terms of this Agreement or any part hereof.

 

(e)           Representations, Warranties, Agreements to Survive . All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its Affiliates or selling agents, any person controlling any Underwriter, its officers or directors or any person controlling the Company or (ii) delivery of and payment for the Public Securities.

 

9.             Miscellaneous.

 

(a)           Notices . All communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be mailed (registered or certified mail, return receipt requested), or personally delivered and shall be deemed given when so delivered or if mailed, two (2) days after such mailing.

 

If to the Representative:

 

The Benchmark Company, LLC

150 East 58 th St., 17 th Floor

New York, NY 10155

Attention: Michael Jacobs

 

29

 

 

with copies to:

 

Ellenoff Grossman & Schole LLP

1345 Avenue of the Americas, Floor 11

New York, NY 10105

Attention: Richard Anslow

 

If to the Company:

 

Electrameccanica Vehicles Corp.

102 East 1st Avenue

Vancouver, British Columbia, Canada, V5T 1A4

Attention: Jerry Kroll

 

with copies to:

 

Ortoli Rosenstadt LLP

501 Madison Avenue, 14 th Floor

New York, NY 10022

Attention: William Rosenstadt

 

(b)           Headings . The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement.

 

(c)           Amendment . This Agreement may only be amended by a written instrument executed by each of the parties hereto.

 

(d)           Entire Agreement . This Agreement (together with the other agreements and documents being delivered pursuant to or in connection with this Agreement) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and thereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof. Notwithstanding anything to the contrary set forth herein, it is understood and agreed by the parties hereto that all other terms and conditions of that certain engagement letter between the Company and the Representative, dated November 27, 2017, shall remain in full force and effect.

 

(e)           Binding Effect . This Agreement shall inure solely to the benefit of and shall be binding upon the Representative, the Underwriters, each Indemnified Person referred to in Section 5, the Company and the controlling persons, directors and officers referred to in Section 5 hereof, and their respective successors, legal representatives, heirs and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained. The term “successors and assigns” shall not include a purchaser, in its capacity as such, of securities from any of the Underwriters.

 

(f)           Governing Law; Consent to Jurisdiction; Trial by Jury . This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Agreement shall be brought and enforced in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. Each party hereto hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any such process or summons to be served upon a party hereto may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 9(a) hereof. Such mailing shall be deemed personal service and shall be legal and binding upon such party in any action, proceeding or claim. Each party hereto agrees that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. Each of the Company (on its behalf and, to the extent permitted by applicable law, on behalf of its shareholders and affiliates) and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

 

30

 

 

(g)           Execution in Counterparts . This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Delivery of a signed counterpart of this Agreement by email/pdf transmission shall constitute valid and sufficient delivery thereof.

 

(h)           Waiver, etc . The failure of any of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed or construed to be a waiver of any such provision, nor to in any way effect the validity of this Agreement or any provision hereof or the right of any of the parties hereto to thereafter enforce each and every provision of this Agreement. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Agreement shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.

 

[ Signature Page Follows ]

 

31

 

 

If the foregoing correctly sets forth the understanding between the Underwriters and the Company, please so indicate in the space provided below.

 

  Very truly yours,
   
  Electrameccanica Vehicles Corp.
     
  By:  
    Name:
    Title:

 

Confirmed as of the date first written above mentioned, on behalf of itself and as Representative of the several Underwriters named on Schedule 1 hereto:  
   
THE BENCHMARK COMPANY, LLC  
     
By:    
  Name:  
  Title:  

 

[Signature Page]

Electrameccanica Vehicles Corp. – Underwriting Agreement

 

32

 

 

SCHEDULE 1

 

Underwriter   Total Number of Firm
Units to be Purchased
at 93% of the Public
Offering Price per
Firm Unit
    Total Number of Firm
Units to be Purchased
at 94.5% of the Public
Offering Price per
Firm Unit
    Number of Option
Units to be Purchased
at 93% of the Public
Offering Price per
Firm Unit if the Over-
Allotment Option is
Fully Exercised
    Number of Option
Units to be Purchased
at 94.5% of the Public
Offering Price per
Firm Unit if the Over-
Allotment Option is
Fully Exercised
 
The Benchmark Company, LLC                                
ThinkEquity, a division of Fordham Financial Management, Inc.                                
Cuttone & Co., LLC                                
Total                                

 

33

 

 

SCHEDULE 2

 

Issuer General Use Free Writing Prospectuses

 

 

[None]

 

34

 

 

SCHEDULE 3

 

List of Lock-Up Parties

 

[TO COME]

35

 

 

EXHIBIT A

 

Form of Representative’s Warrant Agreement

 

[TO COME]

 

36

 

 

EXHIBIT B

 

Form of Lock-Up Agreement

 

[TO COME]

 

37

 

 

Exhibit 4.4

 

WARRANT AGENT AGREEMENT

 

WARRANT AGENT AGREEMENT (this “ Warrant Agreement ”) dated as of               , 2018 (the “ Issuance Date ”) between Electrameccanica Vehicles Corp., a British Columbia corporation (the “ Company ”), and               (the “ Warrant Agent ”).

 

WHEREAS, pursuant to the terms of that certain Underwriting Agreement (“ Underwriting Agreement ”), dated               , 2018, by and among the Company and The Benchmark Company, LLC, as representative of the underwriters set forth therein, the Company is engaged in a public offering (the “ Offering ”) of up to               units, (the “ Units ”), each unit consisting of one common share, no par value per share (each a “ Common Share ”), of the Company and one warrant to purchase one Common Share at an exercise price of $               per share (each, a “ Warrant ” and collectively, the “ Warrants ”, and the Common Shares issued upon the exercise of such Warrants the “ Warrant Shares ”), including Common Shares and Warrants issuable pursuant to the underwriters’ over-allotment option;

 

WHEREAS, the Company has filed with the Securities and Exchange Commission (the “ Commission ”) a Registration Statement, No. 333-222814, on Form F-1 (as the same may be amended from time to time, the “ Registration Statement ”), for the registration under the Securities Act of 1933, as amended (the “ Securities Act ”), of the Units, Common Shares, Warrants and Warrant Shares, and such Registration Statement was declared effective on               , 2018;

 

WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing to so act, in accordance with the terms set forth in this Warrant Agreement in connection with the issuance, registration, transfer, exchange and exercise of the Warrants;

 

WHEREAS, the Company desires to provide for the provisions of the Warrants, the terms upon which they shall be issued and exercised, and the respective rights, limitation of rights, and immunities of the Company, the Warrant Agent, and the holders of the Warrants; and

 

WHEREAS, all acts and things have been done and performed which are necessary to make the Warrants the valid, binding and legal obligations of the Company and to authorize the execution and delivery of this Warrant Agreement.

 

NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows:

 

1. Appointment of Warrant Agent . The Company hereby appoints the Warrant Agent to act as agent for the Company with respect to the Warrants, and the Warrant Agent hereby accepts such appointment and agrees to perform the same in accordance with the express terms and conditions set forth in this Warrant Agreement (and no implied terms or conditions).

 

2. Warrants .

 

2.1 Form of Warrants . The Warrants shall be registered securities and shall be initially evidenced by a global Warrant certificate (“ Global Certificate ”) in the form of Annex A to this Warrant Agreement, which shall be deposited on behalf of the Company with a custodian for The Depository Trust Company (“ DTC ”) and registered in the name of Cede & Co., a nominee of DTC. If DTC subsequently ceases to make its settlement system available for the Warrants, the Company may instruct the Warrant Agent regarding making arrangements for book-entry settlement. In the event that the Warrants are not eligible for, or it is no longer necessary to have the Warrants available in, registration in the name of Cede & Co., a nominee of DTC, the Company may instruct the Warrant Agent to provide written instructions to DTC to deliver to the Warrant Agent for cancellation the Global Certificate, and the Company shall instruct the Warrant Agent to deliver to each Holder (as defined below) separate certificates evidencing Warrants (“ Definitive Certificates ” and, together with the Global Certificate, “ Warrant Certificates ”), in the form of Annex C to this Warrant Agreement. The Warrants represented by the Global Certificate are referred to as “Global Warrants”.

 

  1  

 

 

2.2. Issuance and Registration of Warrants .

 

2.2.1. Warrant Register . The Warrant Agent shall maintain books (“ Warrant Register ”) for the registration of original issuance and the registration of transfer of the Warrants. Any Person in whose name ownership of a beneficial interest in the Warrants evidenced by a Global Certificate is recorded in the records maintained by DTC or its nominee shall be deemed the “beneficial owner” thereof, provided that all such beneficial interests shall be held through a Participant (as defined below), which shall be the registered holder of such Warrants.

 

2.2.2. Issuance of Warrants . Upon the initial issuance of the Warrants, the Warrant Agent shall issue the Global Certificate and deliver the Warrants in the DTC settlement system in accordance with written instructions delivered to the Warrant Agent by the Company. Ownership of beneficial interests in the Warrants shall be shown on, and the transfer of such ownership shall be effected through, records maintained (i) by DTC and (ii) by institutions that have accounts with DTC (each, a “ Participant ”), subject to a Holder’s right to elect to receive a Warrant in certificated form in the form of Annex C to this Warrant Agreement. Any Holder desiring to elect to receive a Warrant in certificated form shall make such request in writing delivered to the Warrant Agent pursuant to Section 2.2.8, and shall surrender to the Warrant Agent the interest of the Holder on the books of the Participant evidencing the Warrants which are to be represented by a Definitive Certificate through the DTC settlement system. Thereupon, the Warrant Agent shall countersign and deliver to the person entitled thereto a Warrant Certificate or Warrant Certificates, as the case may be, as so requested.

 

2.2.3. Beneficial Owner; Holder . Prior to due presentment for registration of transfer of any Warrant, the Company and the Warrant Agent may deem and treat the person in whose name that Warrant shall be registered on the Warrant Register (the “ Holder ”) as the absolute owner of such Warrant for purposes of any exercise thereof, and for all other purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Warrant Agent or any agent of the Company or the Warrant Agent from giving effect to any written certification, proxy or other authorization furnished by DTC governing the exercise of the rights of a holder of a beneficial interest in any Warrant. The rights of beneficial owners in a Warrant evidenced by the Global Certificate shall be exercised by the Holder or a Participant through the DTC system, except to the extent set forth herein or in the Global Certificate.

 

2.2.4. Execution . The Warrant Certificates shall be executed on behalf of the Company by any authorized officer of the Company (an “ Authorized Officer ”), which need not be the same authorized signatory for all of the Warrant Certificates, either manually or by facsimile signature. The Warrant Certificates shall be countersigned by an authorized signatory of the Warrant Agent, which need not be the same signatory for all of the Warrant Certificates, and no Warrant Certificate shall be valid for any purpose unless so countersigned. In case any Authorized Officer of the Company that signed any of the Warrant Certificates ceases to be an Authorized Officer of the Company before countersignature by the Warrant Agent and issuance and delivery by the Company, such Warrant Certificates, nevertheless, may be countersigned by the Warrant Agent, issued and delivered with the same force and effect as though the person who signed such Warrant Certificates had not ceased to be such officer of the Company; and any Warrant Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Warrant Certificate, shall be an Authorized Officer of the Company authorized to sign such Warrant Certificate, although at the date of the execution of this Warrant Agreement any such person was not such an Authorized Officer.

 

2.2.5. Registration of Transfer . At any time at or prior to the Expiration Date (as defined below), a transfer of any Warrants may be registered and any Warrant Certificate or Warrant Certificates may be split up, combined or exchanged for another Warrant Certificate or Warrant Certificates evidencing the same number of Warrants as the Warrant Certificate or Warrant Certificates surrendered. Any Holder desiring to register the transfer of Warrants or to split up, combine or exchange any Warrant Certificate shall make such request in writing delivered to the Warrant Agent, and shall surrender to the Warrant Agent the Warrant Certificate or Warrant Certificates evidencing the Warrants the transfer of which is to be registered or that is or are to be split up, combined or exchanged. Thereupon, the Warrant Agent shall countersign and deliver to the person entitled thereto a Warrant Certificate or Warrant Certificates, as the case may be, as so requested. The Warrant Agent may require reasonable and customary payment, by the Holder requesting a registration of transfer of Warrants or a split-up, combination or exchange of a Warrant Certificate (but, for purposes of clarity, not upon the exercise of the Warrants and issuance of Warrant Shares to the Holder), of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with such registration of transfer, split-up, combination or exchange, together with reimbursement to the Warrant Agent of all reasonable expenses incidental thereto.

 

  2  

 

 

2.2.6. Loss, Theft and Mutilation of Warrant Certificates . Upon receipt by the Company and the Warrant Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security in customary form and amount (which shall in no event include the posting of any bond by any institutional investor that holds a Definitive Certificate), and reimbursement to the Company and the Warrant Agent of all reasonable expenses incidental thereto, and upon surrender to the Warrant Agent and cancellation of the Warrant Certificate if mutilated, the Warrant Agent shall, on behalf of the Company, countersign and deliver a new Warrant Certificate of like tenor to the Holder in lieu of the Warrant Certificate so lost, stolen, destroyed or mutilated. The Warrant Agent may charge the Holder an administrative fee for processing the replacement of lost Warrant Certificates, which shall be charged only once in instances where a single surety bond obtained covers multiple certificates. The Warrant Agent may receive compensation from the surety companies or surety bond agents for administrative services provided to them.

 

2.2.7. Proxies . The Holder of a Warrant may grant proxies or otherwise authorize any person, including the Participants and beneficial holders that may own interests through the Participants, to take any action that a Holder is entitled to take under this Agreement or the Warrants; provided , however , that at all times that Warrants are evidenced by a Global Certificate, exercise of those Warrants shall be effected on their behalf by Participants through DTC in accordance the procedures administered by DTC.

 

2.2.8 . Warrant Certificate Request . A Holder has the right to elect at any time or from time to time a Warrant Exchange (as defined below) pursuant to a Warrant Certificate Request Notice (as defined below). Upon written notice by a Holder to the Warrant Agent for the exchange of some or all of such Holder’s Global Warrants for a Definitive Certificate evidencing the same number of Warrants, which request shall be in the form attached hereto as Annex E (a “ Warrant Certificate Request Notice ” and the date of delivery of such Warrant Certificate Request Notice by the Holder, the “ Warrant Certificate Request Notice Date ” and the deemed surrender upon delivery by the Holder of a number of Global Warrants for the same number of Warrants evidenced by a Definitive Certificate, a “ Warrant Exchange ”), the Warrant Agent shall promptly effect the Warrant Exchange and shall promptly issue and deliver to the Holder a Definitive Certificate for such number of Warrants in the name set forth in the Warrant Certificate Request Notice. Such Definitive Certificate shall be dated the original issue date of the Warrants, shall be manually executed by an authorized signatory of the Company, shall be in the form attached hereto as Annex C, and shall be reasonably acceptable in all respects to such Holder. In connection with a Warrant Exchange, the Company agrees to deliver, or to direct the Warrant Agent to deliver, the Definitive Certificate to the Holder within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period of the Warrant Certificate Request Notice pursuant to the delivery instructions in the Warrant Certificate Request Notice (“ Warrant Certificate Delivery Date ”). If the Company fails for any reason to deliver to the Holder the Definitive Certificate subject to the Warrant Certificate Request Notice by the Warrant Certificate Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares evidenced by such Definitive Certificate (based on the VWAP (as defined in the Warrants) of the Common Share on the Warrant Certificate Request Notice Date), $10 per Business Day for each Business Day after such Warrant Certificate Delivery Date until such Definitive Certificate is delivered or, prior to delivery of such Warrant Certificate, the Holder rescinds such Warrant Exchange. The Company covenants and agrees that, upon the date of delivery of the Warrant Certificate Request Notice, the Holder shall be deemed to be the holder of the Definitive Certificate and, notwithstanding anything to the contrary set forth herein, the Definitive Certificate shall be deemed for all purposes to contain all of the terms and conditions of the Warrants evidenced by such Warrant Certificate and the terms of this Agreement, other than Sections 3(c) and 9 herein, shall not apply to the Warrants evidenced by the Definitive Certificate.

 

2.2.9. For purposes of clarity, if there is a conflict between the express terms of this Warrant Agreement and the Warrant certificate in the form of Annex C hereto with respect to terms of the Warrants, the terms of the Warrant certificate shall govern and control.

 

  3  

 

 

3. Terms and Exercise of Warrants .

 

3.1. Exercise Price . Each Warrant shall entitle the Holder, subject to the provisions of the applicable Warrant Certificate and of this Warrant Agreement, to purchase from the Company the number of Common Shares stated therein, at the price of $               per share, subject to the subsequent adjustments provided in Section 4 hereof. The term “ Exercise Price ” as used in this Warrant Agreement refers to the price per share at which Common Shares may be purchased at the time a Warrant is exercised.

 

3.2. Duration of Warrants . Warrants may be exercised only during the period (“ Exercise Period ”) commencing on the Issuance Date and terminating at 5:00 P.M., New York City time (the “ close of business ”) on               , 2023 (“ Expiration Date ”). Each Warrant not exercised on or before the Expiration Date shall become void, and all rights thereunder and all rights in respect thereof under this Warrant Agreement shall cease at the close of business on the Expiration Date.

 

3.3. Exercise of Warrants .

 

3.3.1. Exercise and Payment .

 

(a) Exercise of the purchase rights represented by a Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before close of business on the Expiration Date by delivery to the Company of the Notice of Exercise in the form annexed as Annex B hereto (the “ Notice of Exercise ”). Within earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 3.3.7 below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender a Warrant Certificate to the Company until the Holder has purchased all of the Warrant Shares available thereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender such Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of a Warrant resulting in purchases of a portion of the total number of Warrant Shares available thereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of a Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face thereof.

 

Notwithstanding the foregoing in this Section 3.3.1, a holder whose interest in a Warrant is a beneficial interest in certificate(s) representing such Warrant held in registered form through DTC (or another established clearing corporation performing similar functions), shall effect exercises made pursuant to this Section 3.3.1 by delivering to DTC (or such other clearing corporation, as applicable) the appropriate instruction form for exercise, complying with the procedures to effect exercise that are required by DTC (or such other clearing corporation, as applicable), subject to a Holder’s right to elect to receive a Warrant in certificated form pursuant to the terms of the Warrant Agent Agreement, in which case this sentence shall not apply.

 

3.3.2. Issuance of Warrant Shares . (a) The Warrant Agent shall, on the Trading Day following the date of exercise of any Warrant, advise the Company, the transfer agent and registrar for the Company’s Common Shares, in respect of (i) the number of Warrant Shares indicated on the Notice of Exercise as issuable upon such exercise with respect to such exercised Warrants, (ii) the instructions of the Holder or Participant, as the case may be, provided to the Warrant Agent with respect to the delivery of the Warrant Shares and the number of Warrants that remain outstanding after such exercise and (iii) such other information as the Company or such transfer agent and registrar shall reasonably request.

 

  4  

 

 

(b) The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“ DWAC ”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “ Warrant Share Delivery Date ”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Shares on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “ Standard Settlement Period ” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Shares as in effect on the date of delivery of the Notice of Exercise.

 

3.3.3. Valid Issuance . All Warrant Shares issued by the Company upon the proper exercise of a Warrant in conformity with this Warrant Agreement shall be validly issued, fully paid and non-assessable.

 

3.3.4. No Fractional Exercise . No fractional Warrant Shares will be issued upon the exercise of the Warrant. If, by reason of any adjustment made pursuant to Section 4, a Holder would be entitled, upon the exercise of such Warrant, to receive a fractional interest in a share, the Company shall, upon such exercise, round up or down, as applicable, to the nearest whole number the number of Warrant Shares to be issued to such Holder.

 

3.3.5 No Transfer Taxes . Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided , however , that in the event Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

 

3.3.6 [RESERVED]

 

3.3.7 Restrictive Legend Events; Cashless Exercise Under Certain Circumstances .

 

(i) The Company shall use it reasonable best efforts to maintain the effectiveness of the Registration Statement and the current status of the prospectus included therein or to file and maintain the effectiveness of another registration statement and another current prospectus covering the Warrants and the Warrant Shares at any time that the Warrants are exercisable. The Company shall provide to the Warrant Agent and each Holder prompt written notice of any time that the Company is unable to deliver the Warrant Shares via DTC transfer or otherwise without restrictive legend because (A) the Commission has issued a stop order with respect to the Registration Statement, (B) the Commission otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, (C) the Company has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, (D) the prospectus contained in the Registration Statement is not available for the issuance of the Warrant Shares to the Holder or (E) otherwise (each a “ Restrictive Legend Event ”). To the extent that the Warrants cannot be exercised as a result of a Restrictive Legend Event or a Restrictive Legend Event occurs after a Holder has exercised Warrants in accordance with the terms of the Warrants but prior to the delivery of the Warrant Shares, the Company shall, at the election of the Holder, which shall be given within five (5) days of receipt of such notice of the Restrictive Legend Event, either (A) rescind the previously submitted Election to Purchase and the Company shall return all consideration paid by registered holder for such shares upon such rescission or (B) treat the attempted exercise as a cashless exercise as described in paragraph (ii) below and refund the cash portion of the exercise price to the Holder.

 

  5  

 

 

(ii) If a Restrictive Legend Event has occurred, the Warrant may also be exercisable on a cashless basis. Notwithstanding anything herein to the contrary, the Company shall not be required to make any cash payments or net cash settlement to the Holder in lieu of delivery of the Warrant Shares. Upon a “cashless exercise”, the Holder shall be entitled to receive the number of Warrant Shares equal to the quotient obtained by dividing (A-B) (X) by (A), where:

 

(A) = the last VWAP immediately preceding the date of exercise giving rise to the applicable “cashless exercise”, as set forth in the applicable Election to Purchase (to clarify, the “last VWAP” will be the last VWAP as calculated over an entire Trading Day such that, in the event that this Warrant is exercised at a time that the Trading Market is open, the prior Trading Day’s VWAP shall be used in this calculation);

 

(B) = the Exercise Price of the Warrant, as adjusted as set forth herein; and

 

(X) = the number of Warrant Shares that would be issuable upon exercise of the Warrant in accordance with the terms of the Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

If the Warrant Shares are issued in such a cashless exercise, the Company acknowledges and agrees that, in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised and the Company agrees not to take any position contrary thereto. Upon receipt of an Election to Purchase for a cashless exercise, the Warrant Agent will promptly deliver a copy of the Election to Purchase to the Company to confirm the number of Warrant Shares issuable in connection with the cashless exercise. The Company shall calculate and transmit to the Warrant Agent in a written notice, and the Warrant Agent shall have no duty, responsibility or obligation under this section to calculate, the number of Warrant Shares issuable in connection with any cashless exercise. The Warrant Agent shall be entitled to rely conclusively on any such written notice provided by the Company, and the Warrant Agent shall not be liable for any action taken, suffered or omitted to be taken by it in accordance with such written instructions or pursuant to this Warrant Agreement. Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 3.3.7.

 

3.3.8 Disputes . In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the number of Warrant Shares issuable in connection with any exercise, the Company shall promptly deliver to the Holder the number of Warrant Shares that are not disputed.

 

3.3.9 Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, Common Shares to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the Common Shares so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of Common Shares that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Shares having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of Common Shares with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver Common Shares upon exercise of the Warrant as required pursuant to the terms hereof.

 

  6  

 

 

3.3.10 Beneficial Ownership Limitation . The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of a Warrant, pursuant to Section 3 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of Common Shares beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of Common Shares issuable upon exercise of such Warrant with respect to which such determination is being made, but shall exclude the number of Common Shares which would be issuable upon (i) exercise of the remaining, non-exercised portion of such Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or non-converted portion of any other securities of the Company (including, without limitation, any other securities of the Company which would entitle the holder thereof to acquire at any time Common Shares, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Shares “Common Share Equivalents”) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 3.3.10, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 3.3.10 applies, the determination of whether a Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of a Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether a Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of a Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 3.3.10, in determining the number of outstanding Common Shares, a Holder may rely on the number of outstanding Common Shares as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of Common Shares outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of Common Shares then outstanding. In any case, the number of outstanding Common Shares shall be determined after giving effect to the conversion or exercise of securities of the Company, including such Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding Common Shares was reported. The “ Beneficial Ownership Limitation ” shall be 4.99% (or, upon election by a Holder prior to the issuance of any Warrants, 9.99%) of the number of shares of the Common Share outstanding immediately after giving effect to the issuance of Common Shares issuable upon exercise of a Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 3.3.10, provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Share outstanding immediately after giving effect to the issuance of Common Shares upon exercise of this Warrant held by the Holder and the provisions of this Section 3.3.10 shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 3.3.10 to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

  7  

 

 

4. Adjustments .

 

4.1 Adjustment upon Subdivisions or Combinations . If the Company, at any time while the Warrants are outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Share or any other equity or equity equivalent securities payable in Common Shares (which, for avoidance of doubt, shall not include any Common Shares issued by the Company upon exercise of the Warrants), (ii) subdivides outstanding Common Shares into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding Common Shares into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Share any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of Common Shares (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of Common Shares outstanding immediately after such event, and the number of shares issuable upon exercise of each Warrant shall be proportionately adjusted such that the aggregate Exercise Price of such Warrant shall remain unchanged. Any adjustment made pursuant to this Section 4.1 shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

4.2 Adjustment for Other Distributions. (a) Subsequent Rights Offerings . In addition to any adjustments pursuant to Section 4.1 above, if at any time the Company grants, issues or sells any Common Share Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Shares (the “ Purchase Rights ”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of Common Shares acquirable upon complete exercise of a Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Shares are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such Common Shares as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

(b) Pro Rata Distributions . During such time as the Warrants are outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Shares, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a " Distribution "), at any time after the issuance of the Warrants, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of Common Shares acquirable upon complete exercise of such Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of Common Shares are to be determined for the participation in such Distribution ( provided , however , to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any Common Shares as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

  8  

 

 

4.3. Reclassification, Consolidation, Purchase, Combination, Sale or Conveyance . If, at any time while the Warrants are outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Share are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Share, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Share or any compulsory share exchange pursuant to which the Common Share is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding Common Shares (not including any Common Shares held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “ Fundamental Transaction ”), then, upon any subsequent exercise of a Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 3.3.10 on the exercise of a Warrant), the number of Common Shares of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “ Alternate Consideration ”) receivable as a result of such Fundamental Transaction by a holder of the number of Common Shares for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 3.3.10 on the exercise of a Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Share in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Shares are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “ Successor Entity ”) to assume in writing all of the obligations of the Company under the Warrants in accordance with the provisions of this Section 4.3 pursuant to written agreements prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the Common Shares acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the Common Shares pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction). Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of the Warrants referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under the Warrants with the same effect as if such Successor Entity had been named as the Company therein.

 

The Company shall instruct the Warrant Agent in writing to mail by first class mail, postage prepaid, to each Holder, written notice of the execution of any such amendment, supplement or agreement with the Successor Entity. Any supplemented or amended agreement entered into by the successor corporation or transferee shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4.3. The Warrant Agent shall have no duty, responsibility or obligation to determine the correctness of any provisions contained in such agreement or such notice, including but not limited to any provisions relating either to the kind or amount of securities or other property receivable upon exercise of warrants or with respect to the method employed and provided therein for any adjustments, and shall be entitled to rely conclusively for all purposes upon the provisions contained in any such agreement. The provisions of this Section 4.3 shall similarly apply to successive reclassifications, changes, consolidations, mergers, sales and conveyances of the kind described above.

 

  9  

 

 

4.4. Notices to Holder . (a) Adjustment to Exercise Price . Whenever the Exercise Price is adjusted pursuant to any provision of this Section 4, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

(b) Notice to Allow Exercise by Holder . If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Share, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Share, (C) the Company shall authorize the granting to all holders of the Common Shares rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Share, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Share is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Share of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Share of record shall be entitled to exchange their shares of the Common Share for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

4.5 Other Events . If any event occurs of the type contemplated by the provisions of Section 4.1 or 4.2 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, Adjustment Rights, phantom stock rights or other rights with equity features to all holders of Common Share for no consideration), then the Company's Board of Directors will, at its discretion and in good faith, make an adjustment in the Exercise Price and the number of Warrant Shares or designate such additional consideration to be deemed issuable upon exercise of a Warrant, so as to protect the rights of the registered Holder. No adjustment to the Exercise Price will be made pursuant to more than one sub-section of this Section 4 in connection with a single issuance.

 

4.6. Notices of Changes in Warrant . Upon every adjustment of the Exercise Price or the number of Warrant Shares issuable upon exercise of a Warrant, the Company shall give written notice thereof to the Warrant Agent, which notice shall state the Exercise Price resulting from such adjustment and the increase or decrease, if any, in the number of Warrant Shares purchasable at such price upon the exercise of a Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Upon the occurrence of any event specified in Sections 4.1 or 4.2, then, in any such event, the Company shall give written notice to each Holder, at the last address set forth for such holder in the Warrant Register, as of the record date or the effective date of the event. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such event. The Warrant Agent shall be entitled to rely conclusively on, and shall be fully protected in relying on, any certificate, notice or instructions provided by the Company with respect to any adjustment of the Exercise Price or the number of shares issuable upon exercise of a Warrant, or any related matter, and the Warrant Agent shall not be liable for any action taken, suffered or omitted to be taken by it in accordance with any such certificate, notice or instructions or pursuant to this Warrant Agreement. The Warrant Agent shall not be deemed to have knowledge of any such adjustment unless and until it shall have received written notice thereof from the Company.

 

  10  

 

 

5. Restrictive Legends; Fractional Warrants .

 

In the event that a Warrant Certificate surrendered for transfer bears a restrictive legend, the Warrant Agent shall not register that transfer until the Warrant Agent has received an opinion of counsel for the Company stating that such transfer may be made and indicating whether the Warrants must also bear a restrictive legend upon that transfer. The Warrant Agent shall not be required to effect any registration of transfer or exchange which will result in the transfer of or delivery of a Warrant Certificate for a fraction of a Warrant.

 

6. [ RESERVED ].

 

7. Other Provisions Relating to Rights of Holders of Warrants .

 

7.1. No Rights as Stockholder . Except as otherwise specifically provided herein, a Holder, solely in its capacity as a holder of Warrants, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant Agreement be construed to confer upon a Holder, solely in its capacity as the registered holder of Warrants, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of share capital, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights or rights to participate in new issues of shares, or otherwise, prior to the issuance to the Holder of the Warrant Shares which it is then entitled to receive upon the due exercise of Warrants.

 

7.2. Reservation of Common Share . The Company shall at all times reserve and keep available a number of its authorized but unissued Common Shares that will be sufficient to permit the exercise in full of all outstanding Warrants issued pursuant to this Warrant Agreement.

 

8. Concerning the Warrant Agent and Other Matters .

 

8.1. Any instructions given to the Warrant Agent orally, as permitted by any provision of this Warrant Agreement, shall be confirmed in writing by the Company as soon as practicable. The Warrant Agent shall not be liable or responsible and shall be fully authorized and protected for acting, or failing to act, in accordance with any oral instructions which do not conform with the written confirmation received in accordance with this Section 8.1.

 

8.2. (a) Whether or not any Warrants are exercised, for the Warrant Agent’s services as agent for the Company hereunder, the Company shall pay to the Warrant Agent such fees as may be separately agreed between the Company and Warrant Agent and the Warrant Agent’s out of pocket expenses in connection with this Warrant Agreement, including, without limitation, the fees and expenses of the Warrant Agent’s counsel. While the Warrant Agent endeavors to maintain out-of-pocket charges (both internal and external) at competitive rates, these charges may not reflect actual out-of-pocket costs, and may include handling charges to cover internal processing and use of the Warrant Agent’s billing systems.

 

(b) All amounts owed by the Company to the Warrant Agent under this Warrant Agreement are due within 30 days of the invoice date. Delinquent payments are subject to a late payment charge of one percent (1.0%) per month commencing 45 days from the invoice date. The Company agrees to reimburse the Warrant Agent for any attorney’s fees and any other costs associated with collecting delinquent payments.

 

(c) No provision of this Warrant Agreement shall require Warrant Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties under this Warrant Agreement or in the exercise of its rights.

 

  11  

 

 

8.3 As agent for the Company hereunder the Warrant Agent :

 

(a) shall have no duties or obligations other than those specifically set forth herein or as may subsequently be agreed to in writing by the Warrant Agent and the Company;

 

(b) shall be regarded as making no representations and having no responsibilities as to the validity, sufficiency, value, or genuineness of the Warrants or any Warrant Shares;

 

(c) shall not be obligated to take any legal action hereunder; if, however, the Warrant Agent determines to take any legal action hereunder, and where the taking of such action might, in its judgment, subject or expose it to any expense or liability it shall not be required to act unless it has been furnished with an indemnity reasonably satisfactory to it;

 

(d) may rely on and shall be fully authorized and protected in acting or failing to act upon any certificate, instrument, opinion, notice, letter, telegram, telex, facsimile transmission or other document or security delivered to the Warrant Agent and believed by it to be genuine and to have been signed by the proper party or parties;

 

(e) shall not be liable or responsible for any recital or statement contained in the Registration Statement or any other documents relating thereto;

 

(f) shall not be liable or responsible for any failure on the part of the Company to comply with any of its covenants and obligations relating to the Warrants, including without limitation obligations under applicable securities laws;

 

(g) may rely on and shall be fully authorized and protected in acting or failing to act upon the written, telephonic or oral instructions with respect to any matter relating to its duties as Warrant Agent covered by this Warrant Agreement (or supplementing or qualifying any such actions) of officers of the Company, and is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Company or counsel to the Company, and may apply to the Company, for advice or instructions in connection with the Warrant Agent’s duties hereunder, and the Warrant Agent shall not be liable for any delay in acting while waiting for those instructions; any applications by the Warrant Agent for written instructions from the Company may, at the option of the Agent, set forth in writing any action proposed to be taken or omitted by the Warrant Agent under this Warrant Agreement and the date on or after which such action shall be taken or such omission shall be effective; the Warrant Agent shall not be liable for any action taken by, or omission of, the Warrant Agent in accordance with a proposal included in such application on or after the date specified in such application (which date shall not be less than five business days after the date such application is sent to the Company, unless the Company shall have consented in writing to any earlier date) unless prior to taking any such action, the Warrant Agent shall have received written instructions in response to such application specifying the action to be taken or omitted;

 

(h) may consult with counsel satisfactory to the Warrant Agent, including its in-house counsel, and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered, or omitted by it hereunder in good faith and in accordance with the advice of such counsel;

 

(i) may perform any of its duties hereunder either directly or by or through nominees, correspondents, designees, or subagents, and it shall not be liable or responsible for any misconduct or negligence on the part of any nominee, correspondent, designee, or subagent appointed with reasonable care by it in connection with this Warrant Agreement;

 

and

 

(j) is not authorized, and shall have no obligation, to pay any brokers, dealers, or soliciting fees to any person

 

(k) shall not be required hereunder to comply with the laws or regulations of any country other than the United States of America or any political subdivision thereof.

 

  12  

 

 

8.4. (a) In the absence of gross negligence or willful or illegal misconduct on its part, the Warrant Agent shall not be liable for any action taken, suffered, or omitted by it or for any error of judgment made by it in the performance of its duties under this Warrant Agreement. Anything in this Warrant Agreement to the contrary notwithstanding, in no event shall Warrant Agent be liable for special, indirect, incidental, consequential or punitive losses or damages of any kind whatsoever (including but not limited to lost profits), even if the Warrant Agent has been advised of the possibility of such losses or damages and regardless of the form of action. Any liability of the Warrant Agent will be limited in the aggregate to the amount of fees paid by the Company hereunder. The Warrant Agent shall not be liable for any failures, delays or losses, arising directly or indirectly out of conditions beyond its reasonable control including, but not limited to, acts of government, exchange or market ruling, suspension of trading, work stoppages or labor disputes, fires, civil disobedience, riots, rebellions, storms, electrical or mechanical failure, computer hardware or software failure, communications facilities failures including telephone failure, war, terrorism, insurrection, earthquakes, floods, acts of God or similar occurrences.

 

(b) In the event any question or dispute arises with respect to the proper interpretation of the Warrants or the Warrant Agent’s duties under this Warrant Agreement or the rights of the Company or of any Holder, the Warrant Agent shall not be required to act and shall not be held liable or responsible for its refusal to act until the question or dispute has been judicially settled (and, if appropriate, it may file a suit in interpleader or for a declaratory judgment for such purpose) by final judgment rendered by a court of competent jurisdiction, binding on all persons interested in the matter which is no longer subject to review or appeal, or settled by a written document in form and substance satisfactory to Warrant Agent and executed by the Company and each such Holder. In addition, the Warrant Agent may require for such purpose, but shall not be obligated to require, the execution of such written settlement by all

the Holders and all other persons that may have an interest in the settlement.

 

8.5. The Company covenants to indemnify the Warrant Agent and hold it harmless from and against any loss, liability, claim or expense (“ Loss ”) arising out of or in connection with the Warrant Agent’s duties under this Warrant Agreement, including the costs and expenses of defending itself against any Loss, unless such Loss shall have been determined by a court of competent jurisdiction to be a result of the Warrant Agent’s gross negligence or willful misconduct.

 

8.6. Unless terminated earlier by the parties hereto, this Agreement shall terminate 90 days after the earlier of the Expiration Date and the date on which no Warrants remain outstanding (the “ Termination Date ”). On the business day following the Termination Date, the Agent shall deliver to the Company any entitlements, if any, held by the Warrant Agent under this Warrant Agreement. The Agent’s right to be reimbursed for fees, charges and out-of- pocket expenses as provided in this Section 8 shall survive the termination of this Warrant Agreement.

 

8.7. If any provision of this Warrant Agreement shall be held illegal, invalid, or unenforceable by any court, this Warrant Agreement shall be construed and enforced as if such provision had not been contained herein and shall be deemed an Agreement among the parties to it to the full extent permitted by applicable law.

 

8.8. The Company represents and warrants that (a) it is duly incorporated and validly existing under the laws of its jurisdiction of incorporation, (b) the offer and sale of the Warrants and the execution, delivery and performance of all transactions contemplated thereby (including this Warrant Agreement) have been duly authorized by all necessary corporate action and will not result in a breach of or constitute a default under the articles of association, bylaws or any similar document of the Company or any indenture, agreement or instrument to which it is a party or is bound, (c) this Warrant Agreement has been duly executed and delivered by the Company and constitutes the legal, valid, binding and enforceable obligation of the Company, (d) the Warrants will comply in all material respects with all applicable requirements of law and (e) to the best of its knowledge, there is no litigation pending or threatened as of the date hereof in connection with the offering of the Warrants.

 

8.9. In the event of inconsistency between this Warrant Agreement and the descriptions in the Registration Statement, as they may from time to time be amended, the terms of this Warrant Agreement shall control.

 

8.10. Set forth in Annex D hereto is a list of the names and specimen signatures of the persons authorized to act for the Company under this Warrant Agreement (the “ Authorized Representatives ”). The Company shall, from time to time, certify to you the names and signatures of any other persons authorized to act for the Company under this Warrant Agreement.

 

  13  

 

 

8.11. Except as expressly set forth elsewhere in this Warrant Agreement, all notices, instructions and communications under this Agreement shall be in writing, shall be effective upon receipt and shall be addressed, if to the Company, to its address set forth beneath its signature to this Agreement, or, if to the Warrant Agent, to               at               , or to such other address of which a party hereto has notified the other party.

 

8.12. (a) This Warrant Agreement shall be governed by and construed in accordance with the laws of the State of New York. All actions and proceedings relating to or arising from, directly or indirectly, this Warrant Agreement may be litigated in courts located within the Borough of Manhattan in the City and State of New York. The Company hereby submits to the personal jurisdiction of such courts and consents that any service of process may be made by certified or registered mail, return receipt requested, directed to the Company at its address last specified for notices hereunder. Each of the parties hereto hereby waives the right to a trial by jury in any action or proceeding arising out of or relating to this Warrant Agreement.

 

(b) This Warrant Agreement shall inure to the benefit of and be binding upon the successors and assigns of the parties hereto. This Warrant Agreement may not be assigned, or otherwise transferred, in whole or in part, by either party without the prior written consent of the other party, which the other party will not unreasonably withhold, condition or delay; except that (i) consent is not required for an assignment or delegation of duties by Warrant Agent to any affiliate of Warrant Agent and (ii) any reorganization, merger, consolidation, sale of assets or other form of business combination by Warrant Agent or the Company shall not be deemed to constitute an assignment of this Warrant Agreement.

 

(c) No provision of this Warrant Agreement may be amended, modified or waived, except in a written document signed by both parties. The Company and the Warrant Agent may amend or supplement this Warrant Agreement without the consent of any Holder for the purpose of curing any ambiguity, or curing, correcting or supplementing any defective provision contained herein or adding or changing any other provisions with respect to matters or questions arising under this Agreement as the parties may deem necessary or desirable and that the parties determine, in good faith, shall not adversely affect the interest of the Holders.

 

8.13 Payment of Taxes . The Company will from time to time promptly pay all taxes and charges that may be imposed upon the Company or the Warrant Agent in respect of the issuance or delivery of Warrant Shares upon the exercise of Warrants, but the Company may require the Holders to pay any transfer taxes in respect of the Warrants or such shares. The Warrant Agent may refrain from registering any transfer of Warrants or any delivery of any Warrant Shares unless or until the persons requesting the registration or issuance shall have paid to the Warrant Agent for the account of the Company the amount of such tax or charge, if any, or shall have established to the reasonable satisfaction of the Company and the Warrant Agent that such tax or charge, if any, has been paid.

 

8.14 Resignation of Warrant Agent .

 

8.14.1. Appointment of Successor Warrant Agent . The Warrant Agent, or any successor to it hereafter appointed, may resign its duties and be discharged from all further duties and liabilities hereunder after giving thirty (30) days’ notice in writing to the Company, or such shorter period of time agreed to by the Company. The Company may terminate the services of the Warrant Agent, or any successor Warrant Agent, after giving thirty (30) days’ notice in writing to the Warrant Agent or successor Warrant Agent, or such shorter period of time as agreed. If the office of the Warrant Agent becomes vacant by resignation, termination or incapacity to act or otherwise, the Company shall appoint in writing a successor Warrant Agent in place of the Warrant Agent. If the Company shall fail to make such appointment within a period of 30 days after it has been notified in writing of such resignation or incapacity by the Warrant Agent, then the Warrant Agent or any Holder may apply to any court of competent jurisdiction for the appointment of a successor Warrant Agent at the Company’s cost. Pending appointment of a successor to such Warrant Agent, either by the Company or by such a court, the duties of the Warrant Agent shall be carried out by the Company. Any successor Warrant Agent (but not including the initial Warrant Agent), whether appointed by the Company or by such court, shall be a person organized and existing under the laws of any state of the United States of America, in good standing, and authorized under such laws to exercise corporate trust powers and subject to supervision or examination by federal or state authority. After appointment, any successor Warrant Agent shall be vested with all the authority, powers, rights, immunities, duties, and obligations of its predecessor Warrant Agent with like effect as if originally named as Warrant Agent hereunder, without any further act or deed, and except for executing and delivering documents as provided in the sentence that follows, the predecessor Warrant Agent shall have no further duties, obligations, responsibilities or liabilities hereunder, but shall be entitled to all rights that survive the termination of this Warrant Agreement and the resignation or removal of the Warrant Agent, including but not limited to its right to indemnity hereunder. If for any reason it becomes necessary or appropriate or at the request of the Company, the predecessor Warrant Agent shall execute and deliver, at the expense of the Company, an instrument transferring to such successor Warrant Agent all the authority, powers, and rights of such predecessor Warrant Agent hereunder; and upon request of any successor Warrant Agent the Company shall make, execute, acknowledge, and deliver any and all instruments in writing for more fully and effectually vesting in and confirming to such successor Warrant Agent all such authority, powers, rights, immunities, duties, and obligations.

 

  14  

 

 

8.14.2. Notice of Successor Warrant Agent . In the event a successor Warrant Agent shall be appointed, the Company shall give notice thereof to the predecessor Warrant Agent and the transfer agent for the Common Share not later than the effective date of any such appointment.

 

8.14.3. Merger or Consolidation of Warrant Agent . Any person into which the Warrant Agent may be merged or converted or with which it may be consolidated or any person resulting from any merger, conversion or consolidation to which the Warrant Agent shall be a party or any person succeeding to the shareowner services business of the Warrant Agent or any successor Warrant Agent shall be the successor Warrant Agent under this Warrant Agreement, without any further act or deed. For purposes of this Warrant Agreement, “person” shall mean any individual, firm, corporation, partnership, limited liability company, joint venture, association, trust or other entity, and shall include any successor (by merger or otherwise) thereof or thereto.

 

9. Miscellaneous Provisions .

 

9.1. Persons Having Rights under this Warrant Agreement . Nothing in this Warrant Agreement expressed and nothing that may be implied from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any person or corporation other than the parties hereto and the Holders any right, remedy, or claim under or by reason of this Warrant Agreement or of any covenant, condition, stipulation, promise, or agreement hereof.

 

9.2. Examination of the Warrant Agreement . A copy of this Warrant Agreement shall be available at all reasonable times at the office of the Warrant Agent designated for such purpose for inspection by any Holder. Prior to such inspection, the Warrant Agent may require any such holder to provide reasonable evidence of its interest in the Warrants.

 

9.3. Counterparts . This Warrant Agreement may be executed in any number of original, facsimile or electronic counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

 

9.4. Effect of Headings . The Section headings herein are for convenience only and are not part of this Warrant Agreement and shall not affect the interpretation thereof.

 

10. Certain Definitions .

 

As used herein, the following terms shall have the following meanings:

 

(i) “ Adjustment Right ” means any right granted with respect to any securities issued in connection with, or with respect to, any issuance, sale or delivery (or deemed issuance, sale or delivery in accordance with Section 4) of Common Share (other than rights of the type described in Section 4.2 and 4.3 hereof) that could result in a decrease in the net consideration received by the Company in connection with, or with respect to, such securities (including, without limitation, any cash settlement rights, cash adjustment or other similar rights) but excluding anti-dilution and other similar rights (including pursuant to Section 4.4 of this Agreement).

 

  15  

 

 

(ii) “ Trading Day ” means any day on which the Common Share is traded on the Trading Market, or, if the Trading Market is not the principal trading market for the Common Share, then on the principal securities exchange or securities market in the United States on which the Common Share is then traded, provided that “Trading Day” shall not include any day on which the Common Share is are scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Share is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00 P.M., New York City time).

 

(iii) “ Trading Market ” means NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange.

 

(iv) “ VWAP ” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Share is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Share for such date (or the nearest preceding date) on the Trading Market on which the Common Share is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Share for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Share is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Share are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Share so reported, or (d) in all other cases, the fair market value of a share of Common Share as determined by an independent appraiser selected in good faith by the holders of a majority in interest of the Warrants then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

[SIGNATURE PAGE FOLLOWS]

 

  16  

 

 

IN WITNESS WHEREOF, this Warrant Agent Agreement has been duly executed by the parties hereto as of the day and year first above written.

 

  Electrameccanica Vehicles Corp.

 

  By:  
  Name:  
  Title:  

 

  [Transfer Agent]

  

  By:  
  Name:  
  Title:  

 

Annex A - Form of Global Certificate

Annex B - Election to Purchase

Annex C - Form of Certificated Warrant

Annex D - Authorized Representatives

Annex E - Form of Warrant Certificate Request Notice

 

 

 

 

ANNEX A

 

[FORM OF GLOBAL
CERTIFICATE]

 

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

 

ELECTRAMECCANICA VEHICLES CORP.

WARRANT CERTIFICATE

NOT EXERCISABLE AFTER               , 2023

 

This certifies that the person whose name and address appears below, or registered assigns, is the registered owner of the number of Warrants set forth below. Each Warrant entitles its registered holder to purchase from ELECTRAMECCANICA VEHICLES CORP., a British Columbia corporation (the “ Company ”), at any time prior to 5:00 P.M. (New York City time) on               , 2023, one common share , no par value, of the Company (each, a “ Warrant Share ” and collectively, the “ Warrant Shares ”), at an exercise price of $               per share, subject to possible adjustments as provided in the Warrant Agreement (as defined below).

 

This Warrant Certificate, with or without other Warrant Certificates, upon surrender at the designated office of the Warrant Agent, may be exchanged for another Warrant Certificate or Warrant Certificates evidencing the same number of Warrants as the Warrant Certificate or Warrant Certificates surrendered. A transfer of the Warrants evidenced hereby may be registered upon surrender of this Warrant Certificate at the designated office of the Warrant Agent by the registered holder in person or by a duly authorized attorney, properly endorsed or accompanied by proper instruments of transfer, a signature guarantee, and such other and further documentation as the Warrant Agent may reasonably request and duly stamped as may be required by the laws of the State of New York and of the United States of America.

 

The terms and conditions of the Warrants and the rights and obligations of the holder of this Warrant Certificate are set forth in the Warrant Agent Agreement dated as of               , 2018 (the “ Warrant Agreement ”) between the Company and               ] (the “ Warrant Agent ”). A copy of the Warrant Agreement is available for inspection during business hours at the office of the Warrant Agent.

 

This Warrant Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by an authorized signatory of the Warrant Agent.

 

WITNESS the facsimile signature of a proper officer of the Company.

 

  ELECTRAMECCANICA VEHICLES CORP.

 

  By:  
  Name:  
  Title  

 

Dated                 ,

2018

 

  A- 1  

 

 

Countersigned:

 

              , As Warrant Agent  
     
By:    
Name:    
Title:    

 

PLEASE

DETACH HERE

——————————————————————————————————————

 

Certificate No.:________Number of Warrants:________

 

WARRANT CUSIP NO.: [●]

 

  ELECTRAMECCANICA VEHICLES CORP.
   
[Name & Address of Holder] [●]
   
  By Mail:
   
  By hand or overnight courier:

 

  A- 2  

 

 

ANNEX B

 

NOTICE OF EXERCISE

 

TO: ELECTRAMECCANICA VEHICLES CORP.

 

(1)          The undersigned hereby elects to purchase Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2)          Payment shall take the form of (check applicable box):

 

¨ in lawful money of the United States; or

 

¨ if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 3.37, to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 3.3.7.

 

(3)          Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

_________________________________

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

 

_________________________________

 

_________________________________

 

_________________________________

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity: _______________________________________________

 

Signature of Authorized Signatory of Investing Entity : _________________________________________

 

Name of Authorized Signatory: _________________________________________

 

Title of Authorized Signatory: _________________________________________

 

Date: _________________________________________

 

  B- 1  

 

 

ANNEX C

 

[FORM OF CERTIFICATED WARRANT]

COMMON SHARE PURCHASE WARRANT

ELECTRAMECCANICA VEHICLES CORP.

 

Warrant Shares: Initial Exercise Date:               , 2018
  Issue Date:                  , 2018

 

CUSIP:         

 

ISIN:            

 

THIS COMMON SHARE PURCHASE WARRANT (the “Warrant”) certifies that, for value received, __________________ or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after               , 2018 (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on the five (5) year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from Electrameccanica Vehicles Corp., a British Columbia corporation (the “Company”), up to_____________ Common Shares (as subject to adjustment hereunder, the “Warrant Shares”). The purchase price of one Common Share under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b). This Warrant shall initially be issued and maintained in the form of a security held in book-entry form and the Depository Trust Company or its nominee (“DTC”) shall initially be the sole registered holder of this Warrant, subject to a Holder’s right to elect to receive a Warrant in certificated form pursuant to the terms of the Warrant Agent Agreement, in which case this sentence shall not apply.

 

Section 1 .           Definitions . In addition to the terms defined elsewhere in this Warrant, the following terms have the meanings indicated in this Section 1:

 

Affiliate ” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

 

Business Day ” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

 

Commission ” means the United States Securities and Exchange Commission.

 

Common Share ” means the common stock of the Company, no par value, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

Common Share Equivalents ” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Share, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Share

 

Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

Person ” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

  C- 1  

 

 

Proceeding ” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

Registration Statement ” means the Company’s registration statement on Form F-1 (File No. 333-222814).

 

Rule 144 ” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

Trading Day ” means a day on which the Common Share is traded on a Trading Market.

 

Trading Market ” means any of the following markets or exchanges on which the Common Share is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange (or any successors to any of the foregoing).

 

Transfer Agent ” means               , with a mailing address of               , and any successor transfer agent of the Company.

 

Warrant Agent Agreement ” means that certain Warrant Agent Agreement, dated as of the Initial Exercise Date, between the Company and the Warrant Agent.

 

Warrant Agent ” means the Transfer Agent and any successor warrant agent of the Company.

 

Warrants ” means this Warrant and other Common Share Purchase Warrants issued by the Company pursuant to the Registration Statement.

 

Section 2 .              Exercise .

 

a)           Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before close of business on the Termination Date by delivery to the Company of a duly executed facsimile copy (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i)) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Trading Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

  C- 2  

 

 

Notwithstanding the foregoing in this Section 2(a), a holder whose interest in this Warrant is a beneficial interest in certificate(s) representing this Warrant held in book-entry form through DTC (or another established clearing corporation performing similar functions), shall effect exercises made pursuant to this Section 2(a) by delivering to DTC (or such other clearing corporation, as applicable) the appropriate instruction form for exercise, complying with the procedures to effect exercise that are required by DTC (or such other clearing corporation, as applicable), subject to a Holder’s right to elect to receive a Warrant in certificated form pursuant to the terms of the Warrant Agent Agreement, in which case this sentence shall not apply.

 

b)             Exercise Price . The exercise price per share of the Common Share under this Warrant shall be $               , subject to adjustment hereunder (the “ Exercise Price ”).

 

c)               Cashless Exercise . If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the issuance of the Warrant Shares to the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

(A) = the last VWAP immediately preceding the time of delivery of the Notice of Exercise giving rise to the applicable “cashless exercise”, as set forth in the applicable Notice of Exercise (to clarify, the “last VWAP” will be the last VWAP as calculated over an entire Trading Day such that, in the event that this Warrant is exercised at a time that the Trading Market is open, the prior Trading Day’s VWAP shall be used in this calculation);

 

(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

 

(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised. The Company agrees not to take any position contrary to this Section 2(c).

 

VWAP ” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Share is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Share for such date (or the nearest preceding date) on the Trading Market on which the Common Share is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Share for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Share is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Share are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Share so reported, or (d) in all other cases, the fair market value of a share of Common Share as determined by an independent appraiser selected in good faith by the holders of a majority in interest of the Warrants then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

 

  C- 3  

 

 

d)             Mechanics of Exercise .

 

i.            Delivery of Warrant Shares Upon Exercise . The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“ DWAC ”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is earlier of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise and (ii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “ Warrant Share Delivery Date ”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following the delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Share on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “ Standard Settlement Period ” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Share as in effect on the date of delivery of the Notice of Exercise.

 

ii.           Delivery of New Warrants Upon Exercise . If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

iii.          Rescission Rights . If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

  C- 4  

 

 

iv.          Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise . In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, Common Shares to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “ Buy-In ”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the Common Shares so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of Common Shares that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Share having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of Common Shares with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver Common Shares upon exercise of the Warrant as required pursuant to the terms hereof.

 

v.            No Fractional Shares or Scrip . No fractional shares or scrip representing fractional Shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

vi.           Charges, Taxes and Expenses . Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided , however , that in the event Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same- day electronic delivery of the Warrant Shares.

 

vii.          Closing of Books . The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

  C- 5  

 

 

e)              Holder’s Exercise Limitations . The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of Common Shares beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of Common Shares issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of Common Shares which would be issuable upon (i) exercise of the remaining, non-exercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or non-converted portion of any other securities of the Company (including, without limitation, any other Common Share Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding Common Shares, a Holder may rely on the number of outstanding Common Shares as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of Common Shares outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of Common Shares then outstanding. In any case, the number of outstanding Common Shares shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding Common Shares was reported. The “ Beneficial Ownership Limitation ” shall be 4.99% (or, upon election by a Holder prior to the issuance of any Warrants, 9.99%) of the number of shares of the Common Share outstanding immediately after giving effect to the issuance of Common Shares issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Share outstanding immediately after giving effect to the issuance of Common Shares upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

Section 3 .           Certain Adjustments .

 

a)             Stock Dividends and Splits . If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Share or any other equity or equity equivalent securities payable in Common Shares (which, for avoidance of doubt, shall not include any Common Shares issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding Common Shares into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding Common Shares into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Share any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of Common Shares (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of Common Shares outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

  C- 6  

 

 

b)              Subsequent Rights Offerings . In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Share Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Shares (the “ Purchase Rights ”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of Common Shares acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Shares are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such Common Shares as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

c)              Pro Rata Distributions . During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Shares, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a " Distribution "), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of Common Shares acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of Common Shares are to be determined for the participation in such Distribution ( provided , however , to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any Common Shares as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

  C- 7  

 

 

e)              Fundamental Transaction . If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Share are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Share, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Share or any compulsory share exchange pursuant to which the Common Share is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding Common Shares (not including any Common Shares held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “ Fundamental Transaction ”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of Common Shares of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “ Alternate Consideration ”) receivable as a result of such Fundamental Transaction by a holder of the number of Common Shares for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Share in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Share are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “ Successor Entity ”) to assume in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 3(d) pursuant to written agreements prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the Common Shares acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the Common Shares pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction). Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.

 

d)             Calculations . All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of Common Shares deemed to be issued and outstanding as of a given date shall be the sum of the number of Common Shares (excluding treasury shares, if any) issued and outstanding.

 

e)             Notice to Holder .

 

i.            Adjustment to Exercise Price . Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

  C- 8  

 

 

ii.            Notice to Allow Exercise by Holder . If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Share, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Share, (C) the Company shall authorize the granting to all holders of the Common Share rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Share, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Share is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Share of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Share of record shall be entitled to exchange their shares of the Common Share for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

Section 4 .            Transfer of Warrant .

 

a)              Transferability . This Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning this Warrant full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

b)             New Warrants . If this Warrant is not held in global form through DTC (or any successor depository), this Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original Initial Exercise Date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

  C- 9  

 

 

c)              Warrant Register . The Warrant Agent shall register this Warrant, upon records to be maintained by the Warrant Agent for that purpose (the “ Warrant Register ”), in the name of the record Holder hereof from time to time. The Company and the Warrant Agent may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

Section 5 .           Miscellaneous .

 

a)              No Rights as Stockholder Until Exercise . This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.

 

b)             Loss, Theft, Destruction or Mutilation of Warrant . The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond by any institutional investor), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

c)              Saturdays, Sundays, Holidays, etc . If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

 

d)             Authorized Shares .

 

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Share a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Share may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and non-assessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

 

  C- 10  

 

 

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

e)             Governing Law . All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal Proceedings concerning the interpretation, enforcement and defense of this Warrant shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “ New York Courts ”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any provision hereunder), and hereby irrevocably waives, and agrees not to assert in any suit, action or Proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such Proceeding. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal Proceeding arising out of or relating to this Warrant. If any party shall commence an action or Proceeding to enforce any provisions of this Warrant, then the prevailing party in such action or Proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or Proceeding.

 

f)              Restrictions . The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

g)              Nonwaiver and Expenses . No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate Proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

h)             Notices . Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Exercise, shall be in writing and delivered personally, by facsimile or by e-mail, or sent by a nationally recognized overnight courier service, addressed to the Company, at               , Attention:               , facsimile number: (              )               -              , email address:               .com, or such other facsimile number, email address or address as the Company may specify for such purposes by notice to the Holders. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of such Holder appearing on the books of the Warrant Agent. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the time of transmission, if such notice or communication is delivered via facsimile at the facsimile number or e-mail at the e-mail address set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or e-mail at the e-mail address set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. Notwithstanding any other provision of this Warrant, where this Warrant provides for notice of any event to the Holder, if this Warrant is held in global form by DTC (or any successor depositary), such notice shall be sufficiently given if given to DTC (or any successor depositary) pursuant to the procedures of DTC (or such successor depositary), subject to a Holder’s right to elect to receive a Warrant in certificated form pursuant to the terms of the Warrant Agent Agreement, in which case this sentence shall not apply.

 

  C- 11  

 

 

i)             Warrant Agent Agreement. If this Warrant is held in global form through DTC (or any successor depositary), this Warrant is issued subject to the Warrant Agent Agreement. To the extent any provision of this Warrant conflicts with the express provisions of the Warrant Agent Agreement, the provisions of this Warrant shall govern and be controlling.

 

j)               Limitation of Liability . No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Share or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

k)              Remedies . The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

l)               Successors and Assigns . Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

m)             Amendment . This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company, on the one hand, and the Holder or the beneficial owner of this Warrant, on the other hand.

 

n)              Severability . Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

o)              Headings . The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

 

(Signature Page Follows)

 

  C- 12  

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

  ELECTRAMECCANICA VEHICLES CORP.

 

  By:  
  Name:  
  Title  

 

 

 

 

NOTICE OF EXERCISE

 

TO: Electrameccanica Vehicles Corp.

 

(1) The undersigned hereby elects to purchase Warrant Shares of the Companypursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2) Payment shall take the form of (check applicable box):

 

¨ in lawful money of the United States; or

 

¨ if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

 

(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

 
 

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

 

 
 
 
 
 

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity: _______________________________________________

 

Signature of Authorized Signatory of Investing Entity : _________________________________________

 

Name of Authorized Signatory: _________________________________________

 

Title of Authorized Signatory: _________________________________________

 

Date: _________________________________________

 

 

 

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:    
  (Please Print)  
     
Address:    
  (Please Print)  

 

Phone Number: :    
  (Please Print)  
     
Email Address: :    
  (Please Print)  

 

Dated: ________

 

Holder’s Signature: ________________

 

Holder’s Address:    
  (Please Print)  

 

 

 

 

ANNEX D

 

AUTHORIZED

REPRESENTATIVES

 

Name   Title   Signature
         

 

 

 

 

Annex E: Form of Warrant Certificate Request Notice

 

WARRANT CERTIFICATE REQUEST NOTICE

 

To: as Warrant Agent for Electrameccanica Vehicles Corp. (the “Company”)

 

The undersigned Holder of Common Share Purchase Warrants (“Warrants”) in the form of Global Warrants issued by the Company hereby elects to receive a Definitive Certificate evidencing the Warrants held by the Holder as specified below:

 

1) Name of Holder of Warrants in form of Global Warrants:

 

2) Name of Holder in Definitive Certificate (if different from name of Holder of Warrants in form of Global Warrants):

 

3) Number of Warrants in name of Holder in form of Global Warrants:

 

4) Number of Warrants for which Definitive Certificate shall be issued:

 

5) Number of Warrants in name of Holder in form of Global Warrants after issuance of

 

Definitive Certificate, if any:

 

6) Definitive Certificate shall be delivered to the following address:

 

 
 
 
 
 
 
 

 

The undersigned hereby acknowledges and agrees that, in connection with this Warrant Exchange and the issuance of the Definitive Certificate, the Holder is deemed to have surrendered the number of Warrants in form of Global Warrants in the name of the Holder equal to the number of Warrants evidenced by the Definitive Certificate.

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity: _____________________________________

 

Signature of Authorized Signatory of Investing Entity: _____________________________

 

Name of Authorized Signatory: _____________________________________

 

Title of Authorized Signatory: _____________________________________

 

Date:____________________________________

 

 

 

Exhibit 4.5

 

Form of Underwriter’s Warrant

 

THE REGISTERED HOLDER OF THIS PURCHASE WARRANT BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE WARRANT OR ANY COMMON SHARES FOR WHICH IT IS EXERCISED EXCEPT AS HEREIN PROVIDED AND THE REGISTERED HOLDER OF THIS PURCHASE WARRANT AGREES THAT IT WILL NOT SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE THIS PURCHASE WARRANT OR ANY COMMON SHARES FOR WHICH IT IS EXERCISED FOR A PERIOD OF ONE HUNDRED EIGHTY DAYS FOLLOWING THE EFFECTIVE DATE (DEFINED BELOW) TO ANYONE OTHER THAN (I) THE BENCHMARK COMPANY LLC OR AN UNDERWRITER OR A SELECTED DEALER IN CONNECTION WITH THE OFFERING, OR (II) A BONA FIDE OFFICER OR PARTNER OF THE BENCHMARK COMPANY LLC OR OF ANY SUCH UNDERWRITER OR SELECTED DEALER.

 

THIS PURCHASE WARRANT IS NOT EXERCISABLE PRIOR TO [●], 2018. VOID AFTER 5:00 P.M., EASTERN TIME, [●], 2023.

 

COMMON SHARE PURCHASE WARRANT

 

For the Purchase of [●] Common Shares

of

ELECTRAMECCANICA VEHICLES CORP.

 

1.             Purchase Warrant . THIS CERTIFIES THAT, in consideration of funds duly paid by or on behalf of                                  or its assigns (“ Holder ”), as registered owner of this Purchase Warrant, to Electrameccanica Vehicles Corp., a British Columbia corporation (the “ Company ”), Holder is entitled, at any time or from time to time from [●], 2018 (the “ Commencement Date ”), and at or before 5:00 p.m., Eastern time, [●], 2023 (the ” Expiration Date ”), but not thereafter, to subscribe for, purchase and receive, in whole or in part, up to [●] 1 common shares (the “ Shares ”) of the Company, no par value per share, subject to adjustment as provided in Section 6 hereof. If the Expiration Date is a day on which banking institutions are authorized by law to close, then this Purchase Warrant may be exercised on the next succeeding day which is not such a day in accordance with the terms herein. During the period ending on the Expiration Date, the Company agrees not to take any action that would terminate this Purchase Warrant except as otherwise provided herein or with the Holder’s consent. This Purchase Warrant is initially exercisable at $[●] 2 per Share; provided , however , that upon the occurrence of any of the events specified in Section 6 hereof, the rights granted by this Purchase Warrant, including the exercise price per Share and the number of Shares to be received upon such exercise, shall be adjusted as therein specified. The term “ Exercise Price ” shall mean the initial exercise price or the adjusted exercise price, depending on the context. This Purchase Warrant is being issued pursuant to that certain Underwriting Agreement, dated [●], 2018 (the “ Agreement ”), between the Company and, on behalf of the Underwriters named on Schedule 1 thereto, The Benchmark Company, LLC (“ Benchmark ”). The Company’s offering contemplated by the Agreement is referred to herein as the “ Offering .”

 

 

1 Number of shares equal to 1.5% of the common shares and common shares underlying the warrants included in the units sold to investors introduced to the underwriters by the Company and 4% of the common shares and common shares underlying the warrants included in the units sold to all other investors in the offering.

2 Equal to 125% of the price of a unit sold in the offering.

 

1

 

 

2.             Exercise .

 

2.1            Exercise Form . In order to exercise this Purchase Warrant, the exercise form attached hereto must be duly executed and completed and delivered to the Company, together with this Purchase Warrant and payment of the Exercise Price for the Shares being purchased payable in cash by wire transfer of immediately available funds to an account designated by the Company or by certified check or official bank check. If the subscription rights represented hereby shall not be exercised at or before 5:00 p.m., Eastern time, on the Expiration Date, this Purchase Warrant shall become and be void without further force or effect, and all rights represented hereby shall cease and expire.

 

2.2            Cashless Exercise . In lieu of exercising this Purchase Warrant by payment of cash or check payable to the order of the Company pursuant to Section 2.1 above, Holder may elect to receive the number of Shares equal to the value of this Purchase Warrant (or the portion thereof being exercised), by surrender of this Purchase Warrant to the Company, together with the exercise form attached hereto, in which event the Company will issue to Holder Shares in accordance with the following formula:

 

    Y*(A-B)  
X = A  

 

Where,      
  X = The number of Shares to be issued to Holder;
  Y = The number of Shares for which the Purchase Warrant is being exercised;
  A = The fair market value of one Share; and
  B = The Exercise Price.

 

For purposes of this Section 2.2, the fair market value of a Share is defined as follows:

 

(i) if the Company’s common shares are traded on a national securities exchange, the fair value shall be deemed to be the closing price on such exchange on the trading day immediately preceding the date on which Holder elects to exercise this Purchase Warrant, which shall be set forth in the applicable notice of exercise;

 

(ii) if the Company’s common shares are traded on any tier of the OTC Markets or any successor over-the-counter market, the fair value shall be deemed to be the closing bid price on the over-the-counter market on the trading day immediately preceding the date on which Holder elects to exercise this Purchase Warrant, which shall be set forth in the applicable notice of exercise; or

 

(iii) if there is no active trading market, the fair value shall be the fair market value as determined in good faith by the Company’s Board of Directors.

 

2.3           Legend . Each certificate for the Shares purchased under this Purchase Warrant shall bear a legend as follows unless such Shares have been registered under the Securities Act of 1933, as amended (the “ Act ”):

 

“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “ Act ”), or applicable state law. Neither the securities nor any interest therein may be offered for sale, sold or otherwise transferred except pursuant to an effective registration statement under the Act, or pursuant to an exemption from registration under the Act and applicable state law which, in the opinion of counsel to the Company, is available.”

 

2

 

 

3.             Transfer .

 

3.1            General Restrictions . The registered Holder of this Purchase Warrant agrees by his, her or its acceptance hereof, that such Holder will not: (a) sell, transfer, assign, pledge or hypothecate this Purchase Warrant or any Shares for a period of one hundred eighty (180) days following the commencement of sales in the public offering referenced in the Underwriting Agreement (defined below) (the commencement of sales in the public offering is referred to as the “ Effective Date ”) to anyone other than: (i) Benchmark or an underwriter or a selected dealer participating in the Offering, or (ii) a bona fide officer or partner of Benchmark or of any such underwriter or selected dealer, in each case in accordance with FINRA Conduct Rule 5110(g)(1), or (b) cause this Purchase Warrant or the securities issuable hereunder to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of this Purchase Warrant or the securities hereunder, except as provided for in FINRA Rule 5110(g)(2). After 180 days after the Effective Date, transfers to others may be made subject to compliance with or exemptions from applicable securities laws. In order to make any permitted assignment, the Holder must deliver to the Company the assignment form attached hereto duly executed and completed, together with the Purchase Warrant and payment of all transfer taxes, if any, payable in connection therewith. The Company shall within five (5) business days upon receipt of the completed assignment form and payment of all transfer taxes, if any, transfer this Purchase Warrant on the books of the Company and shall execute and deliver a new Purchase Warrant or Purchase Warrants of like tenor to the appropriate assignee(s) expressly evidencing the right to purchase the aggregate number of Shares purchasable hereunder or such portion of such number as shall be contemplated by any such assignment.

 

3.2           Restrictions Imposed by the Act . The Shares evidenced by this Purchase Warrant shall not be transferred unless and until: (i) the Company has received the opinion of counsel for the Holder that the securities may be transferred pursuant to an exemption from registration under the Act and applicable state securities laws, the availability of which is established to the reasonable satisfaction of the Company (the Company hereby agreeing that the opinion of Ellenoff Grossman & Schole LLP shall be deemed satisfactory evidence of the availability of an exemption), or (ii) a registration statement or a post-effective amendment to the Registration Statement relating to the offer and sale of the Shares has been filed by the Company and declared effective by the U.S. Securities and Exchange Commission (the “ Commission ”) and compliance with applicable state securities law has been established. The Company acknowledges that this Purchase Warrant and the Shares have been registered pursuant to the Registration Statement (as defined in the Underwriting Agreement).

 

4.             Registration Rights .

 

4.1            Grant of Rights . For so long as the Shares cannot be freely traded pursuant to an exemption from registration under the Securities Act, the Holder shall have the right to include the Shares underlying the Purchase Warrants (collectively, the “ Registrable Securities ”) as part of any other registration of securities filed by the Company (other than in connection with a transaction contemplated by Rule 145(a) promulgated under the Act or pursuant to Form S-8 or any equivalent form); provided, however, that if, solely in connection with any primary underwritten public offering for the account of the Company, the managing underwriter(s) thereof shall, in its reasonable discretion, impose a limitation on the number of common shares which may be included in the Registration Statement because, in such underwriter(s)’ judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which the Holder requested inclusion hereunder as the underwriter shall reasonably permit. Any exclusion of Registrable Securities shall be made pro rata among the Holders seeking to include Registrable Securities in proportion to the number of Registrable Securities sought to be included by such Holders; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such Registration Statement or are not entitled to pro rata inclusion with the Registrable Securities. In addition, if, at any time prior to the Expiration Date, a registration statement under the Act covering the Registrable Securities is not effective, the Company, upon written demand (the “ Demand Notice ”) of the Holder(s) of at least 51% of the Warrant (measured by the number of shares underlying the Warrants) (“ Majority Holders ”), agrees to use its commercially reasonable efforts to register (the “ Demand Registration ”) under the Act, all or any portion of the Registrable Securities requested by the Majority Holders in the Demand Notice. Upon its receipt of the Demand Notice, the Company will use its commercially reasonable efforts to file a registration statement under the Act covering the Registrable Securities within thirty days after receipt of the Demand Notice and use its commercially reasonable efforts to have such registration statement declared effective as soon as possible thereafter. The Demand Notice shall specify the number of shares of Registrable Securities proposed to be sold and the intended method(s) of distribution thereof. The Company will notify all holders of the Warrants and shares underlying the Warrants of the demand within ten days from the date of the receipt of the Demand Notice. Each holder of Warrants or shares underlying the Warrants who wishes to include all or a portion of such holder’s Registrable Securities in the Demand Registration (each such holder including shares of Registrable Securities in such registration, a “ Demanding Holder ”) shall so notify the Company within fifteen days after the receipt by the holder of the notice from the Company. Upon any such request, the Demanding Holders shall be entitled to have their Registrable Securities included in the Demand Registration. The Company shall not be obligated to effect more than one (1) Demand Registration under this Section 4.1.

 

3

 

 

4.2             Terms . The Company shall bear all fees and expenses attendant to registering the Registrable Securities pursuant to this Section 4 hereof, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. In the event of such a proposed registration, the Company shall furnish the then Holders of outstanding Registrable Securities with not less than ten (10) days written notice prior to the proposed date of filing of such registration statement. Such notice to the Holders shall continue to be given for each registration statement filed by the Company during the term of this Purchase Warrant. The holders of the Registrable Securities shall exercise the “piggy-back” rights provided for herein by giving written notice within ten (10) days of the receipt of the Company’s notice of its intention to file a registration statement. Except as otherwise provided in this Purchase Warrant, there shall be no limit on the number of times the Holder may request registration under this section; provided, however, that such “piggy-back” registration rights shall terminate on the fifth anniversary of the Effective Date in accordance with FINRA Rule 5110(f)(2)(G)(v).

 

4.3            Exercise of Purchase Warrants . Nothing contained in this Purchase Warrant shall be construed as requiring the Holder(s) to exercise their Purchase Warrants prior to or after the initial filing of any registration statement or the effectiveness thereof.

 

4.4            Documents Delivered to Holders . The Company shall deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing underwriter, if any, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of FINRA. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times, during normal business hours, as any such Holder shall reasonably request.

 

4

 

 

4.5            Underwriting Agreement . If the Company shall enter into an underwriting agreement, pursuant to which Registrable Securities of a Holder are being registered, such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holders, their Shares and their intended methods of distribution.

 

4.6            Documents to be Delivered by Holder(s) . Each of the Holder(s) participating in any of the foregoing offerings shall furnish to the Company a completed and executed questionnaire provided by the Company requesting information customarily sought of selling security holders.

 

4.7            Damages . Should the Company fail to comply with the provisions of this Section 4, the Holder(s) shall, in addition to any other legal or other relief available to the Holder(s), be entitled to seek specific performance or other equitable (including injunctive) relief against the threatened breach of such provisions or the continuation of any such breach, without the necessity of proving actual damages and without the necessity of posting bond or other security.

 

5.             New Purchase Warrants to be Issued .

 

5.1            Partial Exercise or Transfer . Subject to the restrictions in Section 3 hereof, this Purchase Warrant may be exercised or assigned in whole or in part. In the event of the exercise or assignment hereof in part only, upon surrender of this Purchase Warrant for cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay any Exercise Price and/or transfer tax if exercised pursuant to Section 2.1 hereto, the Company shall cause to be delivered to the Holder without charge a new Purchase Warrant of like tenor to this Purchase Warrant in the name of the Holder evidencing the right of the Holder to purchase the number of Shares purchasable hereunder as to which this Purchase Warrant has not been exercised or assigned.

 

5.2            Lost Certificate . Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Purchase Warrant and of reasonably satisfactory indemnification or the posting of a bond, the Company shall execute and deliver a new Purchase Warrant of like tenor and date. Any such new Purchase Warrant executed and delivered as a result of such loss, theft, mutilation or destruction shall constitute a substitute contractual obligation on the part of the Company.

 

6.             Adjustments .

 

6.1             Adjustments to Exercise Price and Number of Securities . The Exercise Price and the number of Shares underlying the Purchase Warrant shall be subject to adjustment from time to time as hereinafter set forth:

 

6.1.1            Share Dividends; Split Ups. If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is increased by a share dividend payable in Shares or by a split up of Shares or other similar event, then, on the effective day thereof, the number of Shares purchasable hereunder shall be increased in proportion to such increase in outstanding Shares, and the Exercise Price shall be proportionately decreased.

 

5

 

 

6.1.2            Aggregation of Shares . If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is decreased by a consolidation, combination or reclassification of Shares or other similar event, then, on the effective date thereof, the number of Shares purchasable hereunder shall be decreased in proportion to such decrease in outstanding Shares, and the Exercise Price shall be proportionately increased.

 

6.1.3             Replacement of Securities upon Reorganization, etc. In case of any reclassification or reorganization of the outstanding Shares other than a change covered by Section 6.1.1 or 6.1.2 hereof or that solely affects the par value of such Shares, or in the case of any share reconstruction or amalgamation or consolidation of the Company with or into another corporation (other than a consolidation or share reconstruction or amalgamation in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of the outstanding Shares), or in the case of any sale or conveyance to another corporation or entity of the property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the Holder of this Purchase Warrant shall have the right thereafter (until the expiration of the right of exercise of this Purchase Warrant) to receive upon the exercise hereof, for the same aggregate Exercise Price payable hereunder immediately prior to such event, the kind and amount of shares or other securities or property (including cash) receivable upon such reclassification, reorganization, share reconstruction or amalgamation, or consolidation, or upon a dissolution following any such sale or transfer, by a Holder of the number of Shares of the Company obtainable upon exercise of this Purchase Warrant immediately prior to such event; and if any reclassification also results in a change in Shares covered by Section 6.1.1 or 6.1.2, then such adjustment shall be made pursuant to Sections 6.1.1, 6.1.2 and this Section 6.1.3. The provisions of this Section 6.1.3 shall similarly apply to successive reclassifications, reorganizations, share reconstructions or amalgamations, or consolidations, sales or other transfers.

 

6.1.4             Changes in Form of Purchase Warrant. This form of Purchase Warrant need not be changed because of any change pursuant to this Section 6.1, and Purchase Warrants issued after such change may state the same Exercise Price and the same number of Shares as are stated in the Purchase Warrants initially issued pursuant to this Agreement. The acceptance by any Holder of the issuance of new Purchase Warrants reflecting a required or permissive change shall not be deemed to waive any rights to an adjustment occurring after the Commencement Date or the computation thereof.

 

6.2            Substitute Purchase Warrant . In case of any consolidation of the Company with, or share reconstruction or amalgamation of the Company with or into, another corporation (other than a consolidation or share reconstruction or amalgamation which does not result in any reclassification or change of the outstanding Shares), the corporation formed by such consolidation or share reconstruction or amalgamation shall execute and deliver to the Holder a supplemental Purchase Warrant providing that the holder of each Purchase Warrant then outstanding or to be outstanding shall have the right thereafter (until the stated expiration of such Purchase Warrant) to receive, upon exercise of such Purchase Warrant, the kind and amount of shares and other securities and property receivable upon such consolidation or share reconstruction or amalgamation, by a holder of the number of Shares of the Company for which such Purchase Warrant might have been exercised immediately prior to such consolidation, share reconstruction or amalgamation, sale or transfer. Such supplemental Purchase Warrant shall provide for adjustments which shall be identical to the adjustments provided for in this Section 6. The above provision of this Section shall similarly apply to successive consolidations or share reconstructions or amalgamations.

 

6

 

 

6.3            Elimination of Fractional Interests . The Company shall not be required to issue certificates representing fractions of Shares upon the exercise of the Purchase Warrant, nor shall it be required to issue scrip or pay cash in lieu of any fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up or down, as the case may be, to the nearest whole number of Shares or other securities, properties or rights.

 

7.             Reservation and Listing . The Company shall at all times reserve and keep available out of its authorized Shares, solely for the purpose of issuance upon exercise of the Purchase Warrants, such number of Shares or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Purchase Warrants and payment of the Exercise Price therefor, in accordance with the terms hereby, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any shareholder. As long as the Purchase Warrants shall be outstanding, the Company shall use its commercially reasonable efforts to cause all Shares issuable upon exercise of the Purchase Warrants to be listed (subject to official notice of issuance) on a national securities exchange or quoted on any tier of the OTC Markets or any successor trading market on which the Shares issued to the public in the Offering may then be listed and/or quoted.

 

8.             Certain Notice Requirements .

 

8.1            Holder’s Right to Receive Notice . Nothing herein shall be construed as conferring upon the Holders the right to vote or consent or to receive notice as a shareholder for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the Company. If, however, at any time prior to the expiration of the Purchase Warrants and their exercise, any of the events described in Section 8.2 shall occur, then, in one or more of said events, the Company shall give written notice of such event at least ten (10) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the shareholders entitled to such dividend, distribution, conversion or exchange of securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of the closing of the transfer books, as the case may be. Notwithstanding the foregoing, the Company shall deliver to each Holder a copy of each notice given to the other shareholders of the Company in connection with the events described in Section 8.2 below at the same time and in the same manner that such notice is given to the shareholders.

 

8.2            Events Requiring Notice . The Company shall be required to give the notice described in this Section 8 upon one or more of the following events: (i) if the Company shall take a record of the holders of its Shares for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company, (ii) the Company shall offer to all the holders of its Shares any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor, or (iii) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or share reconstruction or amalgamation) or a sale of all or substantially all of its property, assets and business shall be proposed.

 

8.3            Notice of Change in Exercise Price . The Company shall, promptly after an event requiring a change in the Exercise Price pursuant to Section 6 hereof, send notice to the Holders of such event and change (“ Price Notice ”). The Price Notice shall describe the event causing the change and the method of calculating same and shall be certified as being true and accurate by the Company’s Chief Financial Officer.

 

7

 

 

8.4            Transmittal of Notices . Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via e-mail attachment at the email address set forth below at or prior to 5:30 p.m. (New York City time) on a business day, (b) the next business day after the date of transmission, if such notice or communication is delivered via e-mail attachment at the e-mail address as set forth below on a day that is not a business day or later than 5:30 p.m. (New York City time) on any business day, (c) the second (2nd) business day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given.

 

If to the Holder:

 

The Benchmark Company, LLC

150 East 58th St, 17th Floor

New York, NY 10155

 

If to the Company:

 

Electrameccanica Vehicles Corp.

102 East 1 st Avenue

Vancouver, British Columbia, Canada, V5T 1A4

 

9.             Miscellaneous .

 

9.1            Amendments . The Company and the Holder may from time to time supplement or amend this Purchase Warrant. All modifications or amendments shall require the written consent of and be signed by the party against whom enforcement of the modification or amendment is sought.

 

9.2            Headings . The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Purchase Warrant.

 

9.3.           Entire Agreement . This Purchase Warrant (together with the other agreements and documents being delivered pursuant to or in connection with this Purchase Warrant) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.

 

9.4            Binding Effect . This Purchase Warrant shall inure solely to the benefit of and shall be binding upon, the Holder and the Company and their permitted assignees, respective successors, legal representative and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Purchase Warrant or any provisions herein contained.

 

8

 

 

9.5            Governing Law; Submission to Jurisdiction; Trial by Jury . This Purchase Warrant shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Purchase Warrant shall be brought and enforced in the New York Supreme Court, County of New York, or in the courts of the United States District Court for the Southern District of New York located in the County of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 8 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company and the Holder agree that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The Company and the Holder hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

 

9.6            Waiver, etc . The failure of the Company or the Holder to at any time enforce any of the provisions of this Purchase Warrant shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Purchase Warrant or any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Purchase Warrant. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Purchase Warrant shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.

 

9.7            Exchange Agreement . As a condition of the Holder’s receipt and acceptance of this Purchase Warrant, Holder agrees that, at any time prior to the complete exercise of this Purchase Warrant by Holder, if the Company and Benchmark enter into an agreement (“ Exchange Agreement ”) pursuant to which they agree that all outstanding Purchase Warrants will be exchanged for securities or cash or a combination of both, then Holder shall agree to such exchange and become a party to the Exchange Agreement.

 

[ Signature Page Follows ]

 

9

 

 

IN WITNESS WHEREOF, the Company has caused this Purchase Warrant to be signed by its duly authorized officer as of the [●] day of [●], 2018.

 

Electrameccanica Vehicles Corp.  
     
By:    
  Name:  
  Title:  

 

10

 

 

[ Form to be used to exercise Purchase Warrant ]

 

Date: __________, 20___

 

The undersigned hereby elects irrevocably to exercise the Purchase Warrant for ______ common shares, no par value per share (the “ Shares ”), of Electrameccanica Vehicles Corp., a British Columbia corporation (the “ Company ”), and hereby makes payment of $____ (at the rate of $____ per Share) in payment of the Exercise Price pursuant thereto. Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been exercised.

 

or

 

The undersigned hereby elects irrevocably to convert its right to purchase ___ Shares of the Company under the Purchase Warrant for ______ Shares, as determined in accordance with the following formula:

 

 

    Y*(A-B)  
X = A  

 

 

Where,      
  X = The number of Shares to be issued to Holder;
  Y = The number of Shares for which the Purchase Warrant is being exercised;
  A = The fair market value of one Share which is equal to $_____; and
  B = The Exercise Price which is equal to $______ per share

 

The undersigned agrees and acknowledges that the calculation set forth above is subject to confirmation by the Company and any disagreement with respect to the calculation shall be resolved by the Company in its sole discretion.

 

Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been converted.

 

Signature    

 

Signature Guaranteed    

 

11

 

 

INSTRUCTIONS FOR REGISTRATION OF SECURITIES

 

Name:    
  (Print in Block Letters)  
     
Address:    
     
     
     
     

 

NOTICE: The signature to this form must correspond with the name as written upon the face of the Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.

 

12

 

 

[ Form to be used to assign Purchase Warrant ]

 

ASSIGNMENT

 

(To be executed by the registered Holder to effect a transfer of the within Purchase Warrant):

 

FOR VALUE RECEIVED, __________________ does hereby sell, assign and transfer unto __________________________ the right to purchase common shares, no par value per share, of Electrameccanica Vehicles Corp., a British Columbia corporation (the “ Company ”), evidenced by the Purchase Warrant and does hereby authorize the Company to transfer such right on the books of the Company.

 

Dated: __________, 20__

 

Signature    

 

Signature Guaranteed    

 

NOTICE: The signature to this form must correspond with the name as written upon the face of the within Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.

 

13

 

 

Exhibit 5.1

 

 

 

 

 

Our File No. 1007463-254429
Date July 2, 2018


Electrameccanica Vehicles Corp.
102 East 1 st Avenue
Vancouver, British Columbia
Canada V5T 1A4

 

 

Dear Sirs:

 

Re: Electrameccanica Vehicles Corp. - Registration Statement on Form F-1

 

We have acted as special legal counsel to Electrameccanica Vehicles Corp., a British Columbia corporation (the “ Company ”), in connection with the Company’s Registration Statement on Form F-1 filed on February 1, 2018 (as amended and supplemented from time to time, the “ Registration Statement ”) with the Securities and Exchange Commission (the “ Commission ”) including a related prospectus filed with the Registration Statement (the “ Prospectus ”), covering the offering (the “ Offering ”) for sale to The Benchmark Company, LLC, ThinkEquity, a division of Fordham Financial Management Inc. and Cuttone & Co., LLC (together the “ Underwriters ”) of an aggregate of up to US$25,000,000 of units, plus an additional US$3,750,000 of units pursuant to an over-allotment option granted to the Underwriters (each, a “ Unit ”) at an offering price to be determined by the Company and the Underwriters (the “ Offering Price ”), and the public offering of such securities by the Underwriters.

 

Each Unit consists of (i) one common share without par value in the capital of the Company (each a “ Share ”) and (ii) one common share purchase warrant (each, a “ Warrant ”). Each Warrant entitles the holder to purchase one common share without par value in the capital of the Company (each a “ Warrant Share ”) at an exercise price per Warrant Share equal to 125% of the final Offering Price of the Units sold in the Offering for a period of five years following its date of issue.

 

Pursuant to the underwriting agreement to be entered into among the Company and the Underwriters, the Company agrees to issue to the Underwriters, as partial compensation for their services, common share purchase warrants (each, an “ Underwriter Warrant ”) in an amount equal to 1.5% of the Shares sold in the Offering and 1.5% of the Shares underlying the Warrants sold in the Offering to investors introduced to the Underwriters by the Company and 4% of the Shares sold in the Offering and 4% of the Shares underlying Warrants sold in the Offering to all other investors in the Offering. Each Underwriter Warrant will entitle the holder to purchase one Share (each, an “ Underwriter Warrant Share ”) commencing six months after the effective date of the Registration Statement (the “ Effective Date ”) at a price per Underwriter Warrant Share equal to 125% of the final Offering Price of the Units sold in the Offering and expiring five years following its date of issue.

 

 

 

 

 

July 2, 2018
Page 2

 

In connection with this opinion, we have reviewed and relied upon the Registration Statement and Prospectus, the Company’s Notice of Articles, the Company’s Articles, records of the Company’s corporate proceedings in connection with the offering, and such other documents, records, certificates, memoranda and other instruments as we deem necessary as a basis for this opinion. With respect to the foregoing documents, we have assumed: (i) the authenticity of all records, documents, and instruments submitted to us as originals; (ii) the genuineness of all signatures on all agreements, instruments and other documents submitted to us; (iii) the legal capacity and authority of all persons or entities (other than the Company) executing all agreements, instruments or other documents submitted to us; (iv) the authenticity and the conformity to the originals of all records, documents, and instruments submitted to us as copies; (v) that the statements contained in the certificates and comparable documents of public officials, officers and representatives of the Company and other persons on which we have relied for purposes of this opinion are true and correct; and (vi) the due authorization, execution and delivery of all agreements, instruments and other documents by all parties thereto (other than the due authorization, execution and delivery of each such agreement, instrument and document by the Company). We have also obtained from officers of the Company certificates as to certain factual matters and, insofar as this opinion is based on matters of fact, we have relied on such certificates without independent investigation.

 

Our opinion is limited to law of the Province of British Columbia, including all applicable provisions of the British Columbia Business Corporations Act (the “ BC Business Corporations Act ”). We have not considered, and have not expressed any opinion with regard to, or as to the effect of, any other law, rule, or regulation, state or federal, applicable to the Company. In particular, we express no opinion as to United States federal securities laws.

 

Based upon the foregoing and in reliance thereon, and subject to the qualifications and limitations set forth herein, we are of the opinion that:

 

1. the Shares have been duly authorized and, when the Shares are issued and sold in the manner and under the terms described in the Registration Statement, will be validly issued, fully paid and non-assessable;

 

2. The Warrants have been duly authorized and, when issued and sold in accordance with and in the manner described in the Registration Statement, will constitute a valid and binding agreement of the Company enforceable against the Company in accordance with their terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, arrangement, winding-up, moratorium, liquidation, fraudulent conveyance, or other similar law affecting creditors’ rights, and subject to general principles of equity and to limitations on availability of equitable relief, including specific performance;

 

3. The Underwriter Warrants have been duly authorized and, when issued and sold in accordance with and in the manner described in the Registration Statement, will constitute a valid and binding agreement of the Company enforceable against the Company in accordance with their terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, arrangement, winding-up, moratorium, liquidation, fraudulent conveyance, or other similar law affecting creditors’ rights, and subject to general principles of equity and to limitations on availability of equitable relief, including specific performance;

 

 

 

 

 

July 2, 2018
Page 3

 

4. The Warrant Shares have been duly authorized and, when issued and paid for upon exercise of the Warrants as contemplated by the Warrants, will be validly issued, fully paid and non-assessable; and

 

5. The Underwriter Warrant Shares have been duly authorized and, when issued and paid for upon exercise of the Underwriter Warrants as contemplated by the Underwriter Warrants, will be validly issued, fully paid and non-assessable.

 

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our firm’s name in the section of the Registration Statement and the Prospectus included therein entitled “Legal Matters”. In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended (the “ Securities Act ”), or the rules and regulations of the Commission.

 

This opinion is furnished in accordance with the requirements of Item 8.a. of Form F-1 and Item 601(b)(5)(i) of Regulation S-K in connection with the filing of the Registration Statement and the related Prospectus, and is not to be used, circulated, quoted or otherwise relied upon for any other purpose. This opinion is limited to the specific issues addressed herein, and no opinion may be inferred or implied beyond that expressly stated herein. We disclaim any obligation to advise you of facts, circumstances, events or developments that hereafter may be brought to our attention and that may alter, affect or modify the opinion expressed herein after the effective date of the Registration Statement.

 

  Yours truly,
  /s/ McMillan LLP

 

 

 

 

Exhibit 21.1

 

LIST OF SUBSIDIARIES

 

Subsidiaries

 

1. Intermeccanica International Inc., a corporation subsisting under the laws of the Province of British Columbia, Canada; and

 

2. EMV Automotive USA Inc., a Nevada corporation.

 

 

 

 

Exhibit 23.1

 

 

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We consent to the use in this Registration Statement on Form F-1 (as amended) of our report dated April 2, 2018 relating to the consolidated financial statements of Electrameccanica Vehicles Corp. for the years ended December 31, 2017, 2016 and the period from inception on February 16, 2015 to December 31, 2015, and to the reference to our firm under the caption "Experts" in the related Prospectus of Electrameccanica Vehicles Corp.

 

 

/s/DMCL

 

DALE MATHESON CARR-HILTON LABONTE LLP

Chartered Professional Accountants

 

Vancouver, Canada

July 3, 2018

 

 

 

 

 

 

 

Exhibit 23.2

 

 

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We consent to the use in this Registration Statement on Form F-1 (as amended) of our report dated June 7, 2018 relating to the financial statements of Intermeccanica International Inc. for the years ended March 31, 2017 and 2016 and the years then ended, and to the reference to our firm under the caption "Experts" in the related Prospectus of Electrameccanica Vehicles Corp.

 

 

/s/DMCL

 

DALE MATHESON CARR-HILTON LABONTE LLP

Chartered Professional Accountants

 

Vancouver, Canada

July 3, 2018