UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
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
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3711
|
N/A
|
|
(State
or other jurisdiction of
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(Primary
Standard Industrial
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Classification
Code Number)
|
Identification
Number)
|
102 East 1
st
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, 14
th
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)
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. [
]
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.
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
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Proposed
maximumaggregate offeringprice
(1)
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Amount
ofregistration fee
|
|
Common Shares,
$0.001 par value per share(2)
|
$
27,500,000
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$
3,424
|
|
Total
|
$
|
$
|
|
|
(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)
|
Includes
common shares that may be purchased by the
underwriters pursuant to their option to purchase additional common
shares to cover over-allotments.
|
|
|
(3)
|
Pursuant
to Rule 416 under the Securities Act, there are also being
registered such additional securities as may be issued to prevent
dilution resulting from share splits, share dividends or similar
transactions.
|
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 February
1
, 2018
ELECTRAMECCANICA VEHICLES CORP.
Common Shares
This prospectus relates to an offering
of
common shares of
Electrameccanica
Vehicles Corp.
Our common shares are quoted on the OTC Market Group Inc.’s
Venture Market (the “OTCQB”) under the symbol
“ECCTF”. On
January 25
, 2018, the last reported sales price of our
common share on the OTCQB was US$4.95 per share, and on
January 25,
2018 we had approximately
47,994,209
common
shares
outstanding. We submitted our application for listing on the Nasdaq
Capital Markets on October 17, 2017. This application might not be
approved.
We are an “emerging growth company” as defined in
section 3(a) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and are therefore eligible for
certain exemptions from various reporting requirements applicable
to reporting companies under the Exchange Act. (See
“
Exemptions Under the Jumpstart
Our Business Startups Act.
”)
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Per Common
Share
(1)(2)
|
|
|
|
Assumed
public offering price
|
US
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$
|
|
|
|
Underwriter fees and
commissions
(1)
|
US
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$
|
|
|
|
Proceeds to us, before expenses
(1)(2)
|
US
|
$
|
|
|
____________
(1)
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. See “Underwriting” in this
prospectus for more information regarding our arrangements with the
underwriter. This table sets out the maximum possible underwriting
fees and commissions.
(2)
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 (equal to 1.5% of the
common shares sold in this offering to investors introduced to the
underwriters by us and 5% of all other common shares sold in this
offering). The warrants will be exercisable from time to time, in
whole or in part, commencing from one year from the closing of the
offering and
expiring
years from the effective date of this
registration statement. The warrants are exercisable at a per share
price of
US$
. The 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
days from the date of this prospectus to purchase up
to
additional common shares from us at the public offering price, less
the underwriting discount, solely to cover
over-allotments.
The underwriters expect to deliver the common shares 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
shares 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.
This prospectus shall not constitute an offer to sell or the
solicitation of any offer to buy, nor shall the Underwriter sell
any of these securities in any state where such an offer to sell or
solicitation would be unlawful before registration or qualification
under such state’s securities laws.
|
THE DATE OF THIS PROSPECTUS IS
, 2018
|
TABLE OF CONTENTS
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 Underwriter, have authorized any other person to provide
you with different or additional information. Neither we, nor the
Underwriter, take responsibility for, nor can we provide assurance
as to the reliability of, any other information that others may
provide. The Underwriter is 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 Underwriter 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.
ii
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.
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 financial statements and related notes, to understand
our business, our common shares and the other considerations that
are important to your decision to invest in our common shares. You
should pay special attention to the “Risk Factors”
section 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, company
focusing on EVs that are efficient, cost-effective and
environmentally friendly methods for urban residents to commute. We
believe that our flagship EV called the SOLO, a single person car,
answers the market demand for such a vehicle. In addition, 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.
As of January 25, 2018, we have built 16 pre-production vehicles.
We have used some of these pre-production vehicles as prototypes,
have delivered four to customers and have used others as test drive
models in our two showrooms. At our facilities located in British
Colombia, we can manufacture approximately two to four vehicles per
month. Our ability to build EVs at our own facilities has been
enhanced by our recent acquisition of Intermeccanica International
Inc. (“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 Chongqing Zongshen Automobile Co., Ltd
(“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,
through its subsidiary, Chongqing Zongshen Engine Manufacturing
Co., Ltd. is a subsidiary of Zongshen Power. Since its
establishment in 1992, Zongshen Power has grown into 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 all-terrain
vehicles with motors ranging from 35CC to 500CC. Zongshen has
announced that its current annual production of motorcycles exceeds
2,000,000 per year. Zongshen beneficially owns approximately 11.1%
of our common stock and has subscribed for common shares and
warrants for a total investment of $1,017,532. If we complete this
offering, we expect to begin placing orders with Zongshen in the
first or second quarter of 2018 and to begin sales of SOLOs in
August 2018. We anticipate that Zongshen will produce up to 5,000
of our cars in 2018, 20,000 of our cars in 2019 and 50,000 of our
cars in 2020.
We estimate that we need approximately $3.6 million at our current
burn rate to continue our business for the next twelve months and
an additional $22.7 million to carry out our proposed business plan
over the next 12 months. Due to the Company not achieving
profitable operations, 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
January 25,
2018, there were
47,994,209 shares of our common share
outstanding.
Our principal executive offices are located at 102 East
1
st
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
January 25,
2018, our
executive officers and directors owned 71.8% of our common share,
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.
iii
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.
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. 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 the Company agrees to reimburse Zongshen for the cost of
the prototype tooling and molds estimated to be $1.8 million, which
shall be payable on or before March 18, 2018, 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 second 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 the Company of the first production vehicle
(which we expect will be in the third quarter of
2018).
Offering Summary
|
The
Issuer:
|
|
Electrameccanica
Vehicles Corp.
|
||
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|
Address:
102 East 1
st
Avenue,
Vancouver, British Columbia, Canada, V5T 1A4
|
||
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Telephone:
(604) 428-7656.
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||
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Shares
Offered:
|
|
common
shares
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||
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|
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Offering
Price:
|
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US$25,000,000
(excluding the underwriters’ over-allotment
option)
|
||
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||
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Over-allotment
|
|
We have
granted
a
day option (commencing from
the date of this prospectus) to the underwriters to purchase an
additional
common shares to cover
over-allotments, if any.
|
||
|
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||
|
Shares
Outstanding Prior to the Offering:
|
|
47,994,209
common
shares as of
January 25,
2018
|
||
|
|
|
|
||
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Gross
Proceeds:
|
|
$25,000,0000
|
||
|
|
|
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||
|
Warrants
to purchase additional common share:
|
|
We have agreed to issue to the underwriters warrants to purchase up
to a total of
common
shares (equal to 1.5% of the common shares sold in
this offering to investors introduced to the underwriters by us and
5% of all other common shares sold in this offering.) The warrants
will be exercisable from time to time, in whole or in part, from
one year of the closing of the offering until five years from the
first public sale of common shares in the offering. The warrants
are exercisable at a per share price of US$
.
|
||
|
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The
Underwriter:
|
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||
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Transfer
Agent:
|
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Computershare Investor Services Inc
.
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Market
for our Common share:
|
|
Our
common share is quoted on
OTCQB
operated by the OTC Markets Group Inc
. under the symbol
“ECCTF.”
|
||
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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, repayment of a note
issued in connection with the acquisition of Intermeccanica and for
general working capital.
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||
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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.
|
|
||
iv
Summary Financial Data
The summary financial information set forth below has been derived
from our financial statements for the fiscal year ended December
31, 2016, for the period from February 16, 2015 (date of inception)
to December 31, 2015, and for the nine months ended September 30,
2017. You should read the following summary financial data together
with our financial statements and the notes thereto included
elsewhere in this prospectus and with the information set forth in
the section titled “
Operating and Financial Review and
Prospects
”.
|
Statement of
Operations
|
|||
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Nine
Months ended September 30, 2017
|
Year
ended
December 31,
2016
|
Period
ended
December 31,
2015
|
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Revenues
|
-
|
-
|
-
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|
Gross
Margin
|
-
|
-
|
-
|
|
Net
Loss
|
$
6,749,268
|
$
8,973,347
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$
995,833
|
|
Basic and Diluted
Earnings (Loss) per Share
|
(0.16
)
|
$
(0.27
)
|
$
(0.22
)
|
|
Basic and Diluted
Earnings (Loss) per Share after 1 for 5 share split
|
N/A
|
N/A
|
$
(0.04
)
(1)
|
|
Balance
Sheet
|
|||
|
|
September 30,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Cash
|
$
3,464,108
|
$
3,916,283
|
$
106,357
|
|
Current
Assets
|
$
4,208,556
|
$
4,437,152
|
$
197,309
|
|
Total
Assets
|
$
4,876,118
|
$
4,787,766
|
$
213,118
|
|
Current
Liabilities
|
$
2,309,337
|
$
881,176
|
$
346,416
|
|
Total
Liabilities
|
$
2,309,337
|
$
881,176
|
$
346,416
|
|
Shareholders’
Equity (Deficiency)
|
$
2,566,781
|
$
3,906,590
|
$
(133,298
)
|
|
|
(1)
|
After taking into account the one for five share split which was
effective on
June 22,
2016.
|
v
An investment in our
common
shares 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
financial statements and related notes included elsewhere in this
prospectus, before you decide to purchase our shares. Any one of
these risks and uncertainties has the potential to cause material
adverse effects on our business, prospects, financial condition and
operating results which could cause actual results to differ
materially from any forward-looking statements expressed by us and
a significant decrease in the value of our common shares. Refer to
“Forward-Looking Statements”.
We have 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 not yet generated any
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 as
any
amounts received from the sale of our pre-production vehicles were
netted off against research and development costs as cost
recovery
. We intend in the longer term
to derive substantial revenues from the sales of our SOLO vehicle,
our Super SOLO vehicle, our Tofino vehicle and other intended
elective vehicles. The SOLO and Tofino are in development, and we
do not expect to start delivering to the SOLO customers until the
end of the second quarter or early third 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.
In the period from inception to December 31, 2015, we generated a
loss of $995,833. For the fiscal year ended December 31, 2016, we
generated a loss of $8,973,347, bringing our accumulated deficit to
$9,969,180.
For the nine months ended September 30, 2017, we
generated a loss of $6,749,268, bringing our accumulated deficit to
$16,718,448.
We anticipate generating
a significant loss for the current fiscal year. The independent
auditor’s report on our financial statements includes an
explanatory paragraph relating to our ability to continue as a
going concern.
We have no 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;
|
|
|
|
|
|
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●
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develop
and equip our manufacturing facility;
|
|
|
|
|
|
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●
|
build
up inventories of parts and components for the SOLO, the Super SOLO
and the Tofino;
|
|
|
|
|
|
|
●
|
open
Electrameccanica stores;
|
|
|
|
|
|
|
●
|
expand
our design, development, maintenance and repair
capabilities;
|
|
|
|
|
|
|
●
|
develop
and increase our sales and marketing activities; and
|
|
|
|
|
|
|
●
|
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.
1
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, we estimate that we will
need approximately $3.6 million for the next 12 months. We intend
to raise our cash requirements for the next 12 months through this
offering and, if needed, the sale of our equity securities in
private placements 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 common shares could be reduced. Interest on debt
securities could increase costs and negatively impacts operating
results. Preferred stock could be issued in series from time to
time with such designation, rights, preferences, and limitations as
needed to raise capital. The terms of preferred stock could be more
advantageous to those investors than to the holders of common
shares. In addition, if we need to raise more equity capital from
the sale of common shares, institutional or other investors may
negotiate terms at least as, and possibly more, favorable than the
terms of your investment. C
ommon
shares which we sell could be sold into any market
which develops, which could adversely affect the market
price.
Our future growth depends upon consumers’ willingness to
adopt three-wheeled single passenger electric
vehicles.
Our growth highly depends upon the adoption by consumers of, and we
are subject to an elevated risk of any reduced demand for,
alternative fuel vehicles in general and electric vehicles in
particular. If the market for three-wheeled single passenger
electric vehicles does not develop as we expect or develops more
slowly than we expect, our business, prospects, financial condition
and operating results will be negatively impacted. The market for
alternative fuel vehicles is relatively new, rapidly evolving,
characterized by rapidly changing technologies, price competition,
additional competitors, evolving government regulation and industry
standards, frequent new vehicle announcements and changing consumer
demands and behaviors. Factors that may influence the adoption of
alternative fuel vehicles, and specifically electric vehicles,
include:
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perceptions
about electric vehicle quality, safety (in particular with respect
to lithium-ion battery packs), design, performance and cost,
especially if adverse events or accidents occur that are linked to
the quality or safety of electric vehicles;
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perceptions
about vehicle safety in general, in particular safety issues that
may be attributed to the use of advanced technology, including
vehicle electronics and braking systems;
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the
limited range over which electric vehicles may be driven on a
single battery charge;
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the
decline of an electric vehicle’s range resulting from
deterioration over time in the battery’s ability to hold a
charge;
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concerns
about electric grid capacity and reliability, which could derail
our efforts to promote electric vehicles as a practical solution to
vehicles which require gasoline;
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the
availability of alternative fuel vehicles, including plug-in hybrid
electric vehicles;
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improvements
in the fuel economy of the internal combustion engine;
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the
availability of service for electric vehicles;
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the
environmental consciousness of consumers;
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volatility
in the cost of oil and gasoline;
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government
regulations and economic incentives promoting fuel efficiency and
alternate forms of energy;
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access
to charging stations, standardization of electric vehicle charging
systems and consumers’ perceptions about convenience and cost
to charge an electric vehicle;
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the
availability of tax and other governmental incentives to purchase
and operate electric vehicles or future regulation requiring
increased use of nonpolluting vehicles; and
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perceptions
about and the actual cost of alternative fuel.
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The influence of any of the factors described above may cause
current or potential customers not to purchase our electric
vehicles, which would materially adversely affect our business,
operating results, financial condition and prospects.
2
The range of our electric vehicles on a single charge declines over
time which may negatively influence potential customers’
decisions whether to purchase our vehicles.
The range of our electric vehicles on a single charge declines
principally as a function of usage, time and charging patterns. For
example, a customer’s use of their vehicle as well as the
frequency with which they charge the battery of their vehicle can
result in additional deterioration of the battery’s ability
to hold a charge. We currently expect that our battery pack will
retain approximately 85% of its ability to hold its initial charge
after approximately 3,000 charge cycles and 8 years, which will
result in a decrease to the vehicle’s initial range. Such
battery deterioration and the related decrease in range may
negatively influence potential customer decisions whether to
purchase our vehicles, which may harm our ability to market and
sell our vehicles.
Developments in alternative technologies or improvements in the
internal combustion engine may materially adversely affect the
demand for our electric vehicles.
Significant developments in alternative technologies, such as
advanced diesel, ethanol, fuel cells or compressed natural gas, or
improvements in the fuel economy of the internal combustion engine,
may materially and adversely affect our business and prospects in
ways we do not currently anticipate. For example, fuel which is
abundant and relatively inexpensive in North America, such as
compressed natural gas, may emerge as consumers’ preferred
alternative to petroleum based propulsion. Any failure by us to
develop new or enhanced technologies or processes, or to react to
changes in existing technologies, could materially delay our
development and introduction of new and enhanced electric vehicles,
which could result in the loss of competitiveness of our vehicles,
decreased revenue and a loss of market share to
competitors.
If we are unable to keep up with advances in electric vehicle
technology, we may suffer a decline in our competitive
position.
We may be unable to keep up with changes in electric vehicle
technology and, as a result, may suffer a decline in our
competitive position. Any failure to keep up with advances in
electric vehicle technology would result in a decline in our
competitive position which would materially and adversely affect
our business, prospects, operating results and financial condition.
Our research and development efforts may not be sufficient to adapt
to changes in electric vehicle technology. As technologies change
we plan to upgrade or adapt our vehicles and introduce new models
to continue to provide vehicles with the latest technology, in
particular battery cell technology. However, our vehicles may not
compete effectively with alternative vehicles if we are not able to
source and integrate the latest technology into our vehicles. For
example, we do not manufacture battery cells which makes us depend
upon other suppliers of battery cell technology for our battery
packs.
If we are unable to design, develop, market and sell new electric
vehicles and services that address additional market opportunities,
our business, prospects and operating results will
suffer.
We may not be able to successfully develop new electric vehicles
and services, address new market segments or develop a
significantly broader customer base. To date, we have focused our
business on the sale of the SOLO, a three-wheeled single passenger
electric vehicle and have targeted mainly urban residents of modest
means. We will need to address additional markets and expand our
customer demographic to further grow our business. Our failure to
address additional market opportunities would harm our business,
financial condition, operating results and prospects.
Demand in the vehicle industry is highly volatile.
Volatility of demand in the vehicle industry may materially and
adversely affect our business, prospects, operating results and
financial condition. The markets in which we will be competing have
been subject to considerable volatility in demand in recent
periods. Demand for automobile sales depends to a large extent on
general, economic, political and social conditions in a given
market and the introduction of new vehicles and technologies. As a
new start-up manufacturer, we will have fewer financial resources
than more established vehicle manufacturers to withstand changes in
the market and disruptions in demand.
We depend on a third-party for our near-term manufacturing
needs.
In October 2017, we entered into a manufacturing agreement with
Zongshen, a company located in the People’s Republic of
China, to produce 75,000 SOLO vehicles over the next three years.
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.
3
We do not currently have arrangements in place that will allow us
to fully execute our business plan.
To sell our vehicles as envisioned, we will need to enter into
agreements and arrangements that are not currently in place. These
include, entering into agreements with dealerships, arranging for
the transportation of SOLOs delivered pursuant to our manufacturing
agreement with Zongshen, obtaining battery and other essential
supplies in the quantities that we require, entering into
manufacturing agreements for the Super SOLO and the Tofino and
acquiring additional manufacturing capability. If we are unable to
enter into such agreements or are only able to do so on terms that
are unfavorable to us, we may not be able to fully carry out our
business plans.
We depend on certain key personnel, and our success will depend on
our continued ability to retain and attract such qualified
personnel.
Our success depends on the efforts, abilities and continued service
of Jerry Kroll - Chief Executive Officer, Henry Reisner - Chief
Operating Officer, Kulwant Sandher - Chief Financial Officer, and
Ed Theobald – 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 legal
requirements contained in approvals or that arise under common law.
These laws relate to the generation, use, handling, storage,
transportation and disposal of regulated substances, including
hazardous substances, 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.
4
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
January 25,
2018, we had not
sold any vehicles and had only delivered four pre-production
vehicles to customers. We do not plan for mass production to begin
for of any SOLO vehicles until the end of the second quarter or
during the third quarter of 2018 or for the Tofino until 2019. The
total number of SOLOs that we have produced is 16, of which four
have been delivered to customers. 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 these cars as they do not exist
currently. Servicing electric vehicles is different than servicing
vehicles with internal combustion engines and requires specialized
skills, including high voltage training and servicing
techniques.
We may not succeed in establishing, maintaining and strengthening
the Electrameccanica brand, which would materially and adversely
affect customer acceptance of our vehicles and components and our
business, revenues and prospects.
Our business and prospects heavily depend on our ability to
develop, maintain and strengthen the Electrameccanica brand. Any
failure to develop, maintain and strengthen our brand may
materially and adversely affect our ability to sell our planned
electric vehicles. If we are not able to establish, maintain and
strengthen our brand, we may lose the opportunity to build a
critical mass of customers. Promoting and positioning our brand
will likely depend significantly on our ability to provide high
quality electric cars and maintenance and repair services, and we
have very limited experience in these areas. In addition, we expect
that our ability to develop, maintain and strengthen the
Electrameccanica brand will also depend heavily on the success of
our marketing efforts. To date, we have limited experience with
marketing activities as we have relied primarily on the internet,
word of mouth and attendance at industry trade shows to promote our
brand. To further promote our brand, we may be required to change
our marketing practices, which could result in substantially
increased advertising expenses, including the need to use
traditional media such as television, radio and print. The
automobile industry is intensely competitive, and we may not be
successful in building, maintaining and strengthening our brand.
Many of our current and potential competitors, particularly
automobile manufacturers headquartered in Detroit, Japan and the
European Union, have greater name recognition, broader customer
relationships and substantially greater marketing resources than we
do. If we do not develop and maintain a strong brand, our business,
prospects, financial condition and operating results will be
materially and adversely impacted.
Increases in costs, disruption of supply or shortage of raw
materials, in particular lithium-ion cells, could harm our
business.
We may experience increases in the cost or a sustained interruption
in the supply or shortage of raw materials. Any such increase or
supply interruption could materially negatively impact our
business, prospects, financial condition and operating results. We
use various raw materials in our business including aluminum,
steel, carbon fiber, non-ferrous metals such as copper and cobalt.
The prices for these raw materials fluctuate depending on market
conditions and global demand for these materials and could
adversely affect our business and operating results. For instance,
we are exposed to multiple risks relating to price fluctuations for
lithium-ion cells. These risks include:
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the
inability or unwillingness of current battery manufacturers to
build or operate battery cell manufacturing plants to supply the
numbers of lithium-ion cells required to support the growth of the
electric or plug-in hybrid vehicle industry as demand for such
cells increases;
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disruption
in the supply of cells due to quality issues or recalls by the
battery cell manufacturers; and
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an
increase in the cost of raw materials, such as cobalt, used in
lithium-ion cells.
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Our business depends on the continued supply of battery cells for
our vehicles. We do not currently have any agreements for the
supply of batteries and depend upon the open market for their
procurement. Any disruption in the supply of battery cells from our
supplier could temporarily disrupt the planned production of our
vehicles until such time as a different supplier is fully
qualified. Moreover, battery cell manufacturers may choose to
refuse to supply electric vehicle manufacturers to the extent they
determine that the vehicles are not sufficiently safe. Furthermore,
current fluctuations or shortages in petroleum and other economic
conditions may cause us to experience significant increases in
freight charges and raw material costs. Substantial increases in
the prices for our raw materials would increase our operating
costs, and could reduce our margins if we cannot recoup the
increased costs through increased electric vehicle prices. We might
not be able to recoup increasing costs of raw materials by
increasing vehicle prices. We have also already announced an
estimated price for the base model of our planned SOLO, Super SOLO
and Tofino. However, any attempts to increase the announced or
expected prices in response to increased raw material costs could
be viewed negatively by our potential customers, result in
cancellations of SOLO, Super SOLO and Tofino reservations and could
materially adversely affect our brand, image, business, prospects
and operating results.
5
The unavailability, reduction or elimination of government and
economic incentives could have a material adverse effect on our
business, financial condition, operating results and
prospects.
Any reduction, elimination or discriminatory application of
government subsidies and economic incentives because of policy
changes, the reduced need for such subsidies and incentives due to
the perceived success of the electric vehicle, fiscal tightening or
other reasons may result in the diminished competitiveness of the
alternative fuel vehicle industry generally or our electric
vehicles in particular. This could materially and adversely affect
the growth of the alternative fuel automobile markets and our
business, prospects, financial condition and operating
results.
If we fail to manage future growth effectively, we may not be able
to market and sell our vehicles successfully.
Any failure to manage our growth effectively could materially and
adversely affect our business, prospects, operating results and
financial condition. We plan to expand our operations in the near
future in connection with the planned production of our vehicles.
Our future operating results depend to a large extent on our
ability to manage this expansion and growth successfully. Risks
that we face in undertaking this expansion include:
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training
new personnel;
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forecasting
production and revenue;
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controlling
expenses and investments in anticipation of expanded
operations;
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establishing
or expanding design, manufacturing, sales and service
facilities;
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implementing
and enhancing administrative infrastructure, systems and
processes;
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addressing
new markets; and
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establishing
international operations.
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We intend to continue to hire a number of additional personnel,
including design and manufacturing personnel and service
technicians for our electric vehicles. Competition for individuals
with experience designing, manufacturing and servicing electric
vehicles is intense, and we may not be able to attract, assimilate,
train or retain additional highly qualified personnel in the
future. The failure to attract, integrate, train, motivate and
retain these additional employees could seriously harm our business
and prospects.
Our business may be adversely affected by labor and union
activities.
Although none of our employees are currently represented by a labor
union, it is common throughout the automobile industry generally
for many employees at automobile companies to belong to a union,
which can result in higher employee costs and increased risk of
work stoppages. We have a manufacturing agreement with Chongqing
Zongshen Automobile Co., Ltd. to produce 75,000 SOLO vehicles over
the next three years. 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.
6
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:
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cease
selling, incorporating certain components into, or using vehicles
or offering goods or services that incorporate or use the
challenged intellectual property;
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pay
substantial damages;
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seek a
license from the holder of the infringed intellectual property
right, which license may not be available on reasonable terms or at
all;
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redesign
our vehicles or other goods or services; or
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establish
and maintain alternative branding for our products and
services.
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In the event of a successful claim of infringement against us and
our failure or inability to obtain a license to the infringed
technology or other intellectual property right, our business,
prospects, operating results and financial condition could be
materially adversely affected. In addition, any litigation or
claims, whether or not valid, could result in substantial costs,
negative publicity and diversion of resources and management
attention.
You may face difficulties in protecting your interests, and your
ability to protect your rights through the U.S. federal courts may
be limited because we are incorporated under the laws of the
Province of British Columbia, a substantial portion of our assets
are in Canada and all of our 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 directors and officers, as well as our
auditor, 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.
7
Risks Related to Our Common Shares
Our executive officers and directors own 71.8% of our common
shares.
Our executive officers and directors beneficially own, in the
aggregate, 71.8% of our common share, 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 stockholders and may decrease
the market price for our 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 stockholders. In
short, our continued need to sell equity will result in reduced
percentage ownership interests for all of our investors, which may
decrease the market price for our common shares.
Additionally, we have approximately 35,244,271 vested options and
23,713,716 warrants outstanding as of December 31, 2017. 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 could significantly decrease as
well.
Additional issuances of our common shares may result in dilution to
our existing common shareholders and issuances of our preferred
stock may adversely affect the rights of the holders of our common
shares and reduce the value of our common shares.
Our Notice of Articles authorize the issuance of an unlimited
number of
common
shares. The
Board of Directors has the authority to issue additional shares of
our capital stock to provide additional financing in the future and
the issuance of any such shares may result in a reduction of the
book value or market price, if one exists at the time, of the
outstanding common shares. 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 stockholders.
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.
In addition, 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.
The market price of our common shares may be volatile and may
fluctuate in a way that is disproportionate to our operating
performance.
Our
common
shares began trading
on the OTCQB in September 2017. The volume of trading has been low
and the share price has fluctuated significantly. Although we have
applied to list on the Nasdaq, we may not eventually list on the
Nasdaq Capital Markets and, if we do, such listing might not affect
our volume or volatility. 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:
|
|
●
|
sales
or potential sales of substantial amounts of our common
shares;
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||
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|
●
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announcements
about us or about our competitors;
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●
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litigation
and other developments relating to our patents or other proprietary
rights or those of our competitors;
|
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●
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conditions
in the
automobile
industry;
|
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●
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governmental
regulation and legislation;
|
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●
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|
variations
in our anticipated or actual operating results;
|
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●
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|
change
in securities analysts’ estimates of our performance, or our
failure to meet analysts’ expectations;
|
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●
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change
in general economic trends; and
|
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|
●
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|
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, regardless of our actual operating
performance.
8
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.
Because the SEC imposes additional sales practice requirements on
brokers who deal in shares of penny stocks, some brokers may be
unwilling to trade our securities. This means that you may have
difficulty reselling your shares, which may cause the value of your
investment to decline.
Our shares 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. This could prevent you from reselling your
shares 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, which could depress the price of our
shares.
FINRA rules require broker-dealers to have reasonable grounds for
believing that an investment is suitable for a customer before
recommending that investment to the customer. Prior to recommending
speculative low-priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain
information about the customer’s financial status, tax status
and investment objectives, among other things. Under
interpretations of these rules, FINRA believes that there is a high
probability such speculative low-priced securities will not be
suitable for at least some customers. Thus, FINRA requirements may
make it more difficult for broker-dealers to recommend that their
customers buy our common shares, which may limit your ability to
buy and sell our shares, have an adverse effect on the market for
our shares and, thereby, depress our share price.
You may face significant restrictions on the resale of your shares
due to state “blue sky” laws.
Each state has its own securities laws, often called “blue
sky” laws, which: (1) limit sales of securities to a
state’s residents unless the securities are registered in
that state or qualify for an exemption from registration; and (2)
govern the reporting requirements for broker-dealers doing business
directly or indirectly in the state. Before a security is sold in a
state, there must be a registration in place to cover the
transaction, or it must be exempt from registration. The applicable
broker must also be registered in that state.
We do not know whether our securities will be registered or exempt
from registration under the laws of any state. A determination
regarding registration will be made by the broker-dealers, if any,
who agree to serve as market makers for our common shares. There
may be significant state blue sky law restrictions on the ability
of investors to sell, and on purchasers to buy, our securities. You
should therefore consider the resale market for our common shares
to be limited, as you may be unable to resell your shares without
the significant expense of state registration or
qualification.
9
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-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-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
Operating and Financial Review and Prospects
, 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:
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●
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general
economic and business conditions, including changes in interest
rates;
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●
|
prices
of other electric vehicles, costs associated with manufacturing
electric vehicles and other economic conditions;
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●
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natural
phenomena;
|
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●
|
actions
by government authorities, including changes in government
regulation;
|
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●
|
uncertainties
associated with legal proceedings;
|
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|
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●
|
changes
in the electric vehicle market;
|
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●
|
future
decisions by management in response to changing
conditions;
|
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●
|
our
ability to execute prospective business plans;
|
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●
|
misjudgments
in the course of preparing forward-looking statements;
|
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|
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|
●
|
our
ability to raise sufficient funds to carry out our proposed
business plan;
|
|
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|
|
|
|
●
|
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;
|
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|
●
|
developments
in alternative technologies or improvements in the internal
combustion engine;
|
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|
|
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|
●
|
inability
to keep up with advances in electric vehicle
technology;
|
|
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|
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|
●
|
inability
to design, develop, market and sell new electric vehicles and
services that address additional market opportunities;
|
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●
|
dependency
on certain key personnel and any inability to retain and attract
qualified personnel;
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●
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inexperience
in mass-producing electric vehicles;
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●
|
inability
to reduce and adequately control operating costs;
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●
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failure
of our vehicles to perform as expected;
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●
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inexperience
in servicing electric vehicles;
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●
|
inability
to succeed in establishing, maintaining and strengthening the
Electrameccanica brand;
|
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●
|
disruption
of supply or shortage of raw materials;
|
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●
|
the
unavailability, reduction or elimination of government and economic
incentives;
|
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|
|
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|
●
|
failure
to manage future growth effectively; and
|
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|
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●
|
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.
10
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$
22,732,326
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 (0.5% of gross proceeds)
|
US
|
$
125,000
|
|
Retainer
Fee
|
US
|
$
55,000
|
|
Miscellaneous
underwriting fees expenses
|
US
|
$
100,000
|
|
Other
offering expenses (1)
|
US
|
$
237,674
|
|
Net
proceeds
|
US
|
$
22,732,326
|
(1)
These
consist of SEC filing fees of $3,424, legal fees and expenses of
approximately $150,000, the NASDAQ Capital Markets listing fee of
$50,000, accountant and auditing fees and expenses of approximately
$20,000, FINRA filing fees of $4,250 and other fees of
approximately $10,000.
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
|
|
EstimatedAmount
of NetProceeds
|
|
Manufacturing
Plant & Equipment
|
US
|
$
2,404,730
|
|
Production
Molds
|
US
|
$
4,018,535
|
|
Furniture
& Fixtures
|
US
|
$
125,829
|
|
Inventory
|
US
|
$
4,026,524
|
|
Research
& Development
|
US
|
$
3,643,045
|
|
Sales
& Marketing
|
US
|
$
2,804,985
|
|
Repayment
of Promissory Note in purchase of Intermeccanica
|
US
|
$
1,500,000
|
|
Unallocated
Working Capital
|
US
|
$
4,208,678
|
|
Total
|
US
|
$
22,732,326
|
|
|
|
|
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.
The following table sets forth our capitalization as of
November 30
, 2017 on a pro forma as
adjusted basis giving effect to the offering at a public offering
price of US$ per share and to reflect the application of the
proceeds after deducting the estimated offering expenses. You
should read this table in conjunction with our financial statements
and related notes appearing elsewhere in this prospectus and
“Use of Proceeds.”
(1)
Gives
effect to the sale of common shares at an offering price of US$
per share and reflects the application
of the proceeds after deducting the estimated underwriting
discounts and our estimated offering expenses. Converted into
Canadian dollars as set out in “Currency and Exchange
Rates”.
(2)
Pro forma adjusted for additional paid in capital
reflects the net proceeds we expect to receive, after deducting
underwriting discount, underwriter expense allowance and other
expenses. We expect to receive net proceeds of approximately US$
(US$
offering, less underwriting discount of US$ ,
non-accountable expense allowance of US$ and other accountable
expenses of US$ , and offering expenses of US$ ). Converted into
Canadian dollars as set out in “Currency and Exchange
Rates”.
11
DILUTION
If you invest in our common shares, your interest will be diluted
to the extent of the difference between the offering price per
common share and the pro forma net tangible book value per common
share after the offering. Dilution results from the fact that the
per common share offering price is substantially in excess of the
book value per common share attributable to the existing
shareholders for our presently outstanding common share. 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 share outstanding.
We will have
common shares
outstanding upon completion of the offering (and
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 common share. Net tangible book value per
common share would increase to the benefit of present shareholders
by
$
per share attributable to the purchase
of the common share 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 common share based on the foregoing offering
assumptions.
|
|
|
Offering Without
Over-Allotment
(1)
|
Offering With
Over-Allotment
(1)
|
|
|
|
Assumed
offering price per common share
|
|
$
|
|
|
|
|
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)
US
dollar amounts converted into $ as set out in “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
and the last available exchange rate in March during the relevant
fiscal year. 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 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.
|
Year Ended
|
Period End
|
Period Average Rate
|
High Rate
|
Low Rate
|
|
December 31,
2015
|
$
1.3839
|
$
1.2791
|
$
1.3989
|
$
1.1725
|
|
December 31,
2016
|
$
1.3426
|
$
1. 3243
|
$
1. 4592
|
$
1.2544
|
|
|
||||
|
Last Six Months
|
|
|
|
|
|
June
2017
|
$
1.2982
|
$
1.3295
|
$
1.3514
|
$
1.2982
|
|
July
2017
|
$
1.2490
|
$
1.2690
|
$
1.3000
|
$
1.2436
|
|
August
2017
|
$
1.2515
|
$
1.2608
|
$
1.2745
|
$
1.2492
|
|
September
2017
|
$
1.2509
|
$
1.2279
|
$
1.2509
|
$
1.2131
|
|
October
2017
|
$
1.2894
|
$
1.2607
|
$
1.2894
|
$
1.2470
|
|
November
2017
|
$
1.2884
|
$
1.2773
|
$
1.2890
|
$
1.2693
|
|
December
2017
|
$
1.2517
|
$
1.2769
|
1.2900
|
1.2517
|
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.
12
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 superior 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.
In 2015, we entered into an arrangement with Intermeccanica to
leverage Intermeccanica’s over 50 years of experience.
Pursuant to a Joint Operating Agreement entered into between us,
Intermeccanica and Mr. Reisner, dated July 15, 2015, and as amended
on September 19, 2016, we agreed on an arrangement dealing with
leased premises, production assembly and an option to acquire
Intermeccanica. We exercised this option in October 2017 to further
enhance the combination of our proprietary SOLO design with
Intermeccanica’s manufacturing expertise.
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 one of the existing
prototypes.
As of
January 25,
2018, we have
a number of marketing efforts that have succeeded in helping us
achieve a non-binding order book of approximately $2.4 billion,
including 729 private and 59,831 corporate pre-sales. Interested
individuals are able to place reservations for the SOLO and the
Tofino with a refundable deposit of $250 and $1,000 respectively.
We have private orders for 609 SOLOs, each with a refundable
deposit of $250, 14 Super SOLOs; each with a refundable deposit of
$1,000 and 106 Tofinos, each with a refundable deposit of $1,000.
The 59,831 corporate orders are from entities that have provided
non-binding letters of interest, and are comprised of 20,330 orders
for the SOLO and 39,570 orders for the Tofino.
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
January 25,
2018, our
directors and executive officers owned 71.8% 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
1
st
Avenue,
Vancouver, British Columbia, Canada, V5T 1A4. Our phone number is
(604) 428-7656.
Subsidiaries
We have one subsidiary, Intermeccanica International Inc., a
corporation subsisting under the laws of the Province of British
Columbia, Canada.
13
General
We are a development-stage EV company focusing on the market demand
for EVs that are efficient, cost-effective and environmentally
friendly methods for urban residents to commute. We believe that
our flagship EV called the SOLO is the answer to such market
demand. In addition, we have two other EV candidates in an advanced
stage of development, the Super SOLO and the Tofino.
SOLO
We created the SOLO’s first prototype in January of 2015.
Since the completion of the prototype, our engineers and designers
have devoted efforts to provide the SOLO with an appealing design,
and have engaged in proprietary research and development leading to
a high performance electric rear drive motor.
The SOLO features a lightweight aerospace composite chassis to
allow for a top speed of 130km/h, an attainable cruise speed of
110km/h and is able to go from 0 km/h to 100 km/h in approximately
eight seconds. Our SOLO features a lithium ion battery system that
requires only three hours of charging time on a 220-volt charging
station or six hours from a 110-volt outlet. The lithium battery
system utilizes approximately 8.64 kW/h for up to 160 km in range.
We also offer a comprehensive warranty package for two years of
unlimited mileage which is included in the price of the SOLO.
Standard equipment in the SOLO includes, but is not limited to the
following:
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|
●
|
LCD
Digital Instrument Cluster;
|
|
|
|
|
|
|
●
|
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.
|
Optional equipment will include air conditioning at an additional
cost.
The purchase price for our SOLO is $19,888.
Our production department has completed sixteen pre-production
SOLOs as at December 31, 2017, and we intend to produce up to
fourteen further pre-production SOLOs by the end of July 31, 2018.
Producing the pre-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-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.
14
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.
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 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”. 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.
15
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 adding additional suppliers of the chassis
to mitigate the risk of depending on only one
supplier.
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
January 25,
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.
Market Overview
Investment in clean technology has been trending for several years
as nations, governments, and society overall become more aware of
the damaging effects pollution and greenhouse gas emissions
(“GHG”) have on the environment. In an attempt to
prevent and/or slow-down these damaging effects and create a more
sustainable environment, nations and government agencies have
announced their proposals to reduce GHGs, contribute funding into
research and development in clean technology, and offer
incentives/rebates for clean technology investments by businesses
and consumers.
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 more categories that further
segment into alternative vehicles that embrace 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
SOLO 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.
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.
16
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: a search on Yellow Pages reveals
that there are 439 gas stations alone in the City of Vancouver
whereas the entire Province of British Columbia has approximately
500 public EV charging stations. The convenience and availability
of public EV charging stations may prove to be an obstacle of mass
adoption of EVs.
Consumers may be afraid that their EVs may run out of charge while
they are out on the road and this fear is recognized by the public
and has been popularized with the term “range anxiety”.
Despite this fear, the distance travelled by most urban commuters
is a lot lower than the typical range of an EV. Data from
Statistics Canada’s National Household Survey in 2011
reported the average Canadian takes 25 minutes to commute to
work.
There currently exists different categories of charging stations
depending on the voltage they provide. EV owners can often charge
at home on a regular 110-volt outlet which may take between 10
hours to 20 hours depending on the model and make of the EV. This
type of outlet and charging is termed level 1 charging. Level 2
charging means the voltage at the charging station is typically
around 240 volts and this type of outlet is usually available at
public charging stations, shopping malls and big box retailer
parking lots, and even located in certain residential hi-rises.
Charging at a level 2 station typically cuts down the level 1
charge time in half and may require a small fee for the
service.
Electric Vehicles/Automotive – Global Market
EVs have been around for a number of years, but have only recently
gained mass adoption and public interest due to open discussions of
GHG 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. According to Navigant Research, the global light duty EV
market is estimated to grow from 2.6 million vehicle sales in 2015
to over 6.0 million vehicle sales in 2024.
1
EVs in the global market are gaining adoption by the general public
and these efforts have also been aided by traditional automotive
manufacturers’ entry into the market. The majority of growth
in the EV industry has been led by the following top five EV
models: (1) Nissan Leaf; (2) Chevrolet Volt (PHEV); (3) Toyota
Prius (PHEV); (4) Tesla Model S; and, (5) Mitsubishi Outlander
(PHEV).
2
There
are few manufacturers that are solely devoted to the manufacturing
of EVs, the most well-known and popular one being Tesla
Motors.
On a global scale, EVs are gaining popularity, particularly in
countries where there is high population density, narrow roads, and
limited urban space. According to an April article from Pedestrian
Observations
3
, an online
website dedicated to transit-oriented developments, several
European countries are formulating programs that ban cars fueled by
petrol or diesel. This initiative was introduced by Norway’s
Minister for the Environment and co-spokesperson for the Green
Party, which expects to implement the ban completely by
2025.
4
In France, the Paris region has been calling for a phase-out of the
internal combustion engine due to rising levels of particulate
pollution from diesel vehicles and the local government is looking
into implement more battery charging stations to help commuters
refuel along the way.
5
The
German government is expecting German automakers to spend more
money on research and development for improved battery range and
charging stations.
6
In Belgium, Switzerland, and the Netherlands, such governments
would like a similar phase-out program akin to that of
Norway’s.
7
These
countries expect the phase-out to be complete by
2030.
8
In
some of these countries, however, there remain opposing parties to
the phase-out program and it is uncertain as to how it will
ultimately play out.
We believe that the aforementioned initiatives show that there is
significant demand for EVs and with government support, adoption of
EVs and changes to the industry can be made more rapidly. Our
management believes that these initiatives will materialize and are
optimistic at the prospects of an overall cleaner environment and
bigger market for EVs.
Electric Vehicles/Automotive – Canadian Market
Data from FleetCarma.com (“FleetCarma”), a clean
technology information and communications technology website,
reported 2015 EV sales in Canada to be 6,933.
9
Although this number pales in comparison to
the total 1.898 million internal combustion vehicles sold in Canada
in 2015, the 2015 EV sales numbers represent an approximate 32%
increase in sales over 2014. The graph below from FleetCarma
further breaks down the number of vehicles sold by each EV
automaker in Canada in 2014 and 2015.
17
1
Navigant Research Report, Global Forecasts for
Light Duty Hybrid, Plug-in Hybrid, and Battery Electric Vehicle
Sales and Vehicles in Use: 2015-2024, online:
<
https://www.navigantresearch.com/research/electric-vehicle-market-forecasts
>.
2
“Electric Car Demand Growing, Global Market
Hits 240,000 Units”, Cleantechnica (28 March 2015), online:
<
https://cleantechnica.com/2015/03/28/ev-demand-growing-global-market-hits-740000-units/
>.
3
“Several European Countries to Follow
Norway’s Lead, Ban Fuel-Powered Cars”, Pedestrian
Observations (1 April 2016), online: <
https://pedestrianobservations.wordpress.com/2016/04/01/several-european-countries-to-follow-norways-lead-ban-fuel-powered-cars/
>.
4
Ibid.
5
Ibid.
6
Ibid.
7
Ibid.
8
Ibid.
As can be seen from the graph above, Tesla Motor’s Model S
made huge strides in sales, recording a 137% increase in 2015 over
2014. Nissan Leaf sales also increased by 23% in 2015 while
Chevrolet Volt sales were down 8% in 2015 as compared to the
previous year.
FleetCarma also states the total number of EVs on the road in
Canada at 18,451.
10
54%
of Canada’s total EVs are BEVs with the rest being PHEVs.
FleetCarma’s data also highlights that the Province of Quebec
currently leads the rest of Canada with the most registered EVs at
8,500 vehicles, representing 46% of the entire Canadian EV
population. The bar chart below from FleetCarma indicates the
provinces and their respective number of registered EVs as at
December 31, 2015.
Data from British Columbia Air Quality
11
, a
government division focused on transportation emissions, indicates
that pollutant emissions from conventional gasoline vehicles
produce almost five times as much volatile organic compounds
(“VOCs”) than gasoline/electric hybrid
vehicles.
18
* NO
x
refers
to Nitrogen Oxides | PM2.5refers to particles in air pollutants
that are 2.5 micrometers or less in size
Data from Environment and Climate Change Canada
12
indicates
that Canada is one of the top countries with large ratios of
emissions to GDP. Canada has been working towards reducing its air
pollutant emissions alongside other member countries of the
Organisation for Economic Co-operation and Development
(“OECD”). As can be seen in the bar chart and table
below, Canada’s nitrogen levels in 2014 were reduced by 23.3%
from 2004 levels.
13
|
Countries
|
2004 nitrogen oxide emissions
(kilotonnes)
|
2014 nitrogen oxide emissions
(kilotonnes)
|
2004 nitrogen oxide emissions intensity (tonnes per million US
dollars of gross domestic product)
|
2014 nitrogen oxide emissions intensity (tonnes per million US
dollars of gross domestic product)
|
|
United
States
|
19,248
|
11,092
|
1.38
|
0.69
|
|
Canada
|
2,506
|
1,923
|
2.01
|
1.28
|
The below bar chart and table also illustrates the 23.6% decrease
in VOC emissions in 2014 from 2004 levels.
14
The
table compares Canada’s VOC emission levels with that of the
United States.
19
|
Countries
|
2004 VOC emissions
(kilotonnes)
|
2014 VOC emissions
(kilotonnes)
|
2004 VOC emissions intensity (tonnes per million US dollars of
gross domestic product)
|
2014 VOC emissions intensity (tonnes per million US dollars of
gross domestic product)
|
|
United
States
|
14,787
|
12,917
|
1.06
|
0.80
|
|
Canada
|
2,823
|
2,157
|
2.26
|
1.44
|
The above presented data also points out opportunities for EV
markets in countries that have difficulties reducing the air
pollution. From the bar charts above, it appears that Australia,
Turkey, Poland and the United Kingdom will also be ideal markets
for EVs which allow for substantial reduction in VOC and
NO
X
emissions.
A February 2016 article from the Globe and Mail provides more
insights on the expected levels of emissions in the coming years.
According to the article, in 2020, emissions will hit 768 megatons
of carbon dioxide – way above Canada’s target of 622
megatons. By 2030, they will have jumped to 815 megatons, compared
with a target for that year of 524 megatons. As a result,
provincial governments in Canada are carefully monitoring GHG
emissions and providing funding and incentives to help reduce these
emission levels.
15
Another reason EVs have become popular is due to variable fuel
costs and vehicle maintenance costs that have become a burden for
conventional gasoline automobile owners. According to the American
Automobile Association, the owner of an average sedan would incur
US$8,876 a year in driving costs and an average cost per mile of
US$0.592 cents (US$0.367 cents per km).
16
In
comparison to the above statistic, an October 2015 Globe and Mail
article reports electric vehicles typically cost owners $0.016 per
km to drive.
17
Canada is seen as a leader in many industries, but clean-tech and
EVs seems not to be one of them. However, research and data reveals
significant interest in EVs from Canadians. According to a recent
study completed by Ipsos
18
, a market
research firm, 80% of Canadians believe electric cars are the way
of the future and 75% would like to drive a car not powered by
gasoline. Converting that interest to likelihood to purchase,
approximately 64% of respondents in the Ipsos survey expressed they
would consider buying or leasing a hydrogen fuel cell
vehicle.
19
Normally, it is difficult for innovative breakthrough technology to
be rapidly adopted by the mass public unless they are well-educated
on the technology and the technology is affordable and sufficiently
promoted via incentives from the government. In the case of Canada,
government incentives and initiatives allow for affordable EVs and
convenient free or low-cost charging stations, further promoting
the benefits of clean-tech to the general
public.
20
Below
is an overview of current and prospective provincial government
incentives that encourage consumers to embrace EVs. As Ontario,
Quebec and British Columbia are the top three most populous
provinces in Canada, the overview will focus on these
provinces.
In Ontario, 35% of GHGs are created from transportation
emissions.
21
In
an effort to reduce GHGS, the Province of Ontario has established
government rebates for consumers purchasing EVs. The government of
Ontario has plans to allocate $325 million for investments in green
technology, a portion of it will be devoted to EV
programs.
22
The Province of British Columbia has allotted $7.5 million funding
for the Clean Energy Vehicle Program (the “CEVforBC
Program”) which provides a $5,000 rebate to consumers of a
qualifying battery electric, fuel-cell electric, or plug-in hybrid
electric vehicle.
23
A
further $1.59 million in funding will be invested by the Province
of British Columbia into charging infrastructure and hydrogen
fueling infrastructure.
24
20
15
“Canada’s Greenhouse Gas Emissions
Can’t Be Cut Without a Little
Pain”,
Globe and
Mail
(4 February 2016),
online: <
http://www.theglobeandmail.com/opinion/editorials/canadas-greenhouse-gas-emissions-cant-be-cut-without-a-little-pain/article28560158/
>.
16
American Automobile Association (Electric Car Fuel
Costs Savings). online: <
http://exchangeev.aaa.com/benefits-of-driving-electric/fuel-cost-savings/
>.
17
“How much does it cost in fuel to run an
electric vehicle?”,
Globe and
Mail
(28 October 2015),
online: <
http://www.theglobeandmail.com/globe-drive/culture/commuting/how-much-does-it-cost-in-fuel-to-run-an-electric-vehicle/article26999091/
>.
18
“Eight in Ten (80%) Canadians believe
Electric Cars are the Way of the
Future”,
Iposos
(Tuesday,
August 11, 2015), online: <
http://www.ipsos-na.com/news-polls/pressrelease.aspx?id=6941
>.
20
Government of Ontario, Ministry of Transportation
Website, online: <
http://www.mto.gov.on.ca/english/vehicles/electric/index.shtml?utm_source=hootsuite
>.
21
“Ontario Spends $20M to Build Electric
Vehicle Charging Stations”,
The Canadian
Press
(8 December 2015),
online: <
http://www.cbc.ca/news/canada/toronto/ontario-electric-vehicle-charging-stations-1.3355595
>.
23
CEV for BC Dealer Manual, online:
<
https://www.cevforbc.ca/sites/default/files/dealer_manual_may13_2016_update_0.pdf
>.
In British Columbia alone, there are over 500 public electric
vehicle charging stations to allow for convenient charging. The
City of Vancouver alone boasts over 90 public electric charging
stations. According to the City of Vancouver website, the
municipality now has the biggest municipal EV fleet in Canada,
consisting of 26 Mitsubishi iMiEVS and one Nissan
Leaf.
25
British Columbia is not the only province in Canada offering
incentives for EVs. According to a February 2016 article from CBC
News, the Province of Ontario has announced, effective as of
February 10, 2016, a boost to its incentives from the current range
of $5,000 to $8,500 per vehicle up to $6,000 to $10,000 for the
purchase or lease of eligible plug-in EVs.
26
Additional
incentives are available for EVs with larger battery capacity or a
five-seater vehicle. CBC News reports there are currently 5,800 EVs
in Ontario alone.
27
According to CBC News
28
, the
Ontario government is expected to allot $20 million in grants to
encourage public and private sector partners to construct a network
of public EV charging stations which will be available in cities,
offices, residential high-rises, and along commuter highways. The
EV rebates, along with the EV charging station network, are
expected to help reduce Ontario GHGs by 80% of 1990 levels by the
year 2050.
29
The Province of Quebec will be allocating $420 million to promote
EVs over the five years between 2015 to 2020. As reported by CBC
News
30
, Montreal
and the Province of Quebec expects to add 106 curbside charging
stations by Spring 2016. Curbside charging stations will allow EV
owners easier access compared to current charging stations that are
often located in underground parking lots. The proposed charging
stations will primarily be level 2 chargers, with approximately six
stations being level 3 chargers. Costs of utilizing the stations
are very affordable: $1 per hour for the level 2 stations (parking
costs extra) and $10 per hour for level 3 stations. Denis Coderre,
the Mayor of Montreal expects the city to have a total of 1,000
charging stations by 2020.
31
Manufacturing Plan
As of January 15, 2018, we have built 16 pre-production vehicles.
We have used some of these pre-production vehicles as prototypes,
have delivered four to customers upon payment of the purchase
price, and have used others as test drive models in our two
showrooms. At our facilities located in British Colombia, we can
manufacture approximately two to four vehicles per month. Our
ability to build EVs at our own facilities has been enhanced by our
recent acquisition of Intermeccanica which has 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 Chongqing Zongshen Automobile Co., Ltd
(“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,
through its subsidiary, Chongqing Zongshen Engine Manufacturing
Co., Ltd. is a subsidiary of Zongshen Power. Since its
establishment in 1992, Zongshen Power has grown into 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 the
industry leader for many successive years. Zongshen beneficially
owns approximately 11.1% of our common stock and has subscribed for
common shares and warrants for a total investment of $1,017,532. If
we complete this offering, we expect to begin placing orders with
Zongshen in the first or second quarter of 2018 and to begin sales
of SOLOs in August 2018. We anticipate that Zongshen will produce
up to 5,000 of our cars in 2018, 20,000 of our cars in 2019 and
50,000 of our cars in 2020.
21
25
West Coast Electric Car Fleets, Partner Fleet
Profile: City of Vancouver – EV Fleet Management, online:
<
http://www.westcoastelectricfleets.com/portfolio-items/vancouverbc_fleet_profile/
>.
28
“Ontario Spends $20M to Build Electric
Vehicle Charging Stations”,
The Canadian
Press
(8 December 2015),
online: <
http://www.cbc.ca/news/canada/toronto/ontario-electric-vehicle-charging-stations-1.3355595
>.
30
“Montreal to Get 106 Electric Car Charging
Stations by Next Spring”,
CBC
News
(25 October 2015),
online: <
http://www.cbc.ca/news/canada/montreal/montreal-electric-car-stations-1.3287858
>.
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: 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 amazing 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 and at the Consumer
Electronics Show in Las Vegas in January 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 showrooms in and near 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
January 25,
2018, we have received
deposits for 609 SOLOs, 14 Super SOLOs and 106 Tofinos. In
addition, we have received non-binding letters of intent for 59,831
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.
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.
22
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 have submitted a SOLO for U.S. compliance certification at a
testing facility in Quebec, Canada. The completion of certification
depends on the cooperation of winter weather for testing of braking
capabilities of SOLO, which is required for the testing. If there
is no snow or sub-zero temperatures which would adversely affect
these outdoor braking tests, completion is estimated to be by the
end of January 2018. Compliance certification of the SOLO for
Canada, and for any other EMV models, will not begin until U.S.
compliance certification has been achieved. Canadian compliance of
the SOLO is estimated to take 77 days, which again is weather
dependent.
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 two U.S. states.
Competition
The worldwide automotive market, particularly for alternative fuel
vehicles, is highly competitive today and we expect it will become
even more so in the future as we move towards production of the
SOLO, the Super SOLO and the Tofino and the introduction of other
models such as the anticipated “Twinn” and the
“Cargo.” 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.
A matrix of our SOLO compared to the top three selling EVs in
Canada is presented below (note: in the below matrix, each vehicle
may be available in different models, and only the lowest
model’s specs and prices are quoted in the matrix), which
information is readily available from each manufacturer’s
website. Information in the below matrix analyzes key
considerations of a potential purchaser of an EV.
23
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
|
|
|
|
|
|
|
●
|
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.
Research and Development
We have allocated substantial resources in developing our first
vehicles. We expended $2,725,094 during the nine months ended
September 30, 2017, $2,778,295 during the fiscal year ended
December 31, 2016 and $486,809 during the period from February 16,
2015 (date of inception) to December 31, 2015 on research and
development costs which include labor and materials.
Employees
As of
January 25,
2018, we
employed a total of 42 full-time and
no
part-time people at our principal executive
offices in Vancouver, British Columbia. None of our employees are
covered by a collective bargaining agreement.
The breakdown of employees by main category of activity is as
follows:
|
Activity
|
Number
of Employees
|
|
Engineering/R&D
|
28
|
|
Sales &
Marketing
|
3
|
|
General &
Administration
|
6
|
|
Executives
|
5
|
24
Property, Plants and Equipment
Our principal office is located at 102 East 1
st
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 1
st
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 four pre-production
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. 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 allow our company to produce 25,000 to
50,000 SOLOs per year. We have also consulted a 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 the 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 satisfy
the production capabilities of the above mentioned facility.
However, we do not anticipate building a new production facility
until sometime in 2018 or later if the demand for the SOLO
materializes.
25
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$1,000,000,000 (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
$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.
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.
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 under different assumptions or conditions, but we do not
believe such differences will materially affect our financial
position or results of operations.
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 have not changed
significantly.
26
Our directors and executive officers, their positions and state or
province of residence are as follows:
|
|
Jerry
Kroll, British Columbia, Canada
|
President,
Chief Executive Officer, Secretary and Director
|
|
|
Iain
Ball, British Columbia, Canada
|
Vice-President,
Finance
|
|
|
Henry
Reisner, British Columbia, Canada
|
Chief
Operating Officer
|
|
|
Kulwant
Sandher, British Columbia, Canada
|
Chief
Financial Officer
|
|
|
Ed
Theobald, British Columbia, Canada
|
General
Manager
|
|
|
Shaun
Greffard, British Columbia, Canada
|
Director
|
|
|
Rob
Tarzwell, British Columbia, Canada
|
Director
|
|
|
Mark
West, British Columbia, Canada
|
Vice-President,
Sales & Dealerships
|
For additional information concerning our directors and senior
management, please see the discussion under the heading,
“Directors And Senior Management And
Employees”.
We have a full 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. It is
comprised of the
following individuals:
|
|
Name
|
State/province of residence
|
Position
|
|
|
John
Douglas Reynolds
|
British
Columbia, Canada
|
Chairperson
of Advisory Board
|
|
|
Myron
Trenne
|
Michigan,
USA
|
Advisory
Board member
|
|
|
Anthony
Luzi
|
Nevada,
USA
|
Advisory
Board member
|
|
|
Bill
Calsbeck, British Columbia, Canada
|
British
Columbia, Canada
|
Advisory
Board member
|
|
|
Mike
Volker, British Columbia, Canada
|
British
Columbia, Canada
|
Advisory
Board member
|
|
|
Jim
Fletcher, British Columbia, Canada
|
British
Columbia, Canada
|
Advisory
Board member
|
|
|
Ted
Wilkinson, British Columbia, Canada
|
British
Columbia, Canada
|
Advisory
Board member
|
John Douglas Reynolds, Chairperson of Advisory Board
Starting in 1983, Mr. Reynolds was heavily involved in the Social
Credit Party of British Columbia and served as Speaker of the BC
Legislative Assembly. He also served as a cabinet minister. Mr.
Reynolds was a Member of Parliament for the West Vancouver –
Sunshine Coast – Sea to Sky riding from 1997 to 2006 and was
a coordinator of the Conservative campaign in British Columbia
during that time. In 2001, Mr. Reynolds was chosen as interim party
leader and leader of the opposition and served in this capacity for
one year. Mr. Reynolds remained active in politics until his
retirement in 2006. Currently, Mr. Reynolds is a senior strategic
advisor at McMillan LLP.
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.
27
Anthony Luzi, Advisory Board
Mr. Luzi has been involved in the EV industry for over 18 years. As
a key member of the Corbin Motor Company’s Sparrow team,
Anthony played an integral part in the development of the Sparrow
electric vehicle. He was also the founder of Ecar Motors and served
as President of Corbin Motors Daytona Beach from 2000 to 2004 and
worked closely with Mike Corbin on the development of the EV
Sparrow 2 in 2010. Mr. Luzi’s knowledge of sustainability and
alternative resource implementation has proven invaluable in the
research and development of EVs.
Bill Calsbeck, Advisory Board
Mr. Calsbeck is the founder of Ubequity Capital Partners Inc. and
has been actively involved in the business of raising capital since
January of 2005.
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.
Jim Fletcher, Advisory Board
Mr. Fletcher is an angel investor who has been active in the
Canadian venture capital industry for over 30 years. Currently, Mr.
Fletcher is an advisor/director for several venture firms
including: Inbound Retargeting, TenX Ventures Inc., BitLit Media,
ChangeHeroes, BDC ICE Fund, Accelerating Social Impact CCC, Enterra
Feed Corporation, Cross Pacific Capital Partners, OMERS Ventures,
and Recombo Inc. Mr. Fletcher is also the founder of Northwest
Venture Developments.
Mr. Fletcher holds a Master’s in Business Administration from
Harvard Business School and a Bachelor’s Degree in
Engineering Physics from Queen’s University.
Ted Wilkinson, Advisory Board
Mr. Wilkinson has operated North America’s premiere
Automobile Collectible Registry (Wilkinson Automobilia) for 20
years.
28
Selected Financial Data
The selected financial information set forth below has been derived
from our financial statements for the fiscal year ended December
31, 2016, for the period from February 16, 2015 (date of inception)
to December 31, 2015, and for the nine months ended September 30,
2017. You should read the following selected financial data
together with our financial statements and the notes thereto
included elsewhere in this prospectus and with the information set
forth in the section titled “
Operating and Financial
Review and Prospects
”.
|
Statement of
Operations
|
|||
|
|
Nine
Months ended September 30, 2017
|
Year
ended
December 31,
2016
|
Period
ended
December 31,
2015
|
|
Revenues
|
-
|
-
|
-
|
|
Gross
Margin
|
-
|
-
|
-
|
|
Net
Loss
|
$
6,749,268
|
$
8,973,347
|
$
995,833
|
|
Basic and Diluted
Earnings (Loss) per Share
|
(0.16
)
|
$
(0.27
)
|
$
(0.22
)
|
|
Basic and Diluted
Earnings (Loss) per Share after 1 for 5 share split
|
N/A
|
N/A
|
$
(0.04
)
(1)
|
|
Balance
Sheet
|
|||
|
|
September 30,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Cash
|
$
3,464,108
|
$
3,916,283
|
$
106,357
|
|
Current
Assets
|
$
4,208,556
|
$
4,437,152
|
$
197,309
|
|
Total
Assets
|
$
4,876,118
|
$
4,787,766
|
$
213,118
|
|
Current
Liabilities
|
$
2,309,337
|
$
881,176
|
$
346,416
|
|
Total
Liabilities
|
$
2,309,337
|
$
881,176
|
$
346,416
|
|
Shareholders’
Equity (Deficiency)
|
$
2,566,781
|
$
3,906,590
|
$
(133,298
)
|
|
|
(1)
|
After
taking into account the 1 for 5 share split effective June 22,
2016.
|
Capitalization and Indebtedness
The following table sets forth our capitalization as of November
30, 2017, on a historical basis and as adjusted to reflect the sale
of the shares:
|
|
As of November 30, 2017 (pro-forma adjusted)
(1)(2)
|
|
Stockholder’s
Equity (Unaudited)
|
|
|
Preferred
Stock: Unlimited shares authorized with no par value
|
|
|
Nil
shares issued and outstanding
|
|
|
Common
Share: Unlimited shares authorized with no par value
|
|
|
shares
issued and outstanding
|
|
|
Contributed
surplus
|
|
|
Share-based
payment reserve
|
|
|
Equity
component of convertible loan
|
|
|
Deficit
|
|
|
Accumulated
other comprehensive income
|
|
|
Total Stockholder’s Equity
|
|
(1)
Gives
effect to the sale of common shares at an offering price of US$ per
share and reflects the application of the proceeds after deducting
the estimated underwriting discounts and our estimated offering
expenses. Converted into Canadian dollars as set out in
“Currency and Exchange Rates”.
(2)
Pro forma adjusted for additional paid in capital
reflects the net proceeds we expect to receive, after deducting
underwriting discount, underwriter expense allowance and other
expenses. We expect to receive net proceeds of approximately US$
(US$
offering, less underwriting discount of US$ ,
non-accountable expense allowance of US$ and other accountable
expenses of US$ , and offering expenses of US$ ). Converted into
Canadian dollars as set out in “Currency and Exchange
Rates”.
29
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
January 25,
2018, our
outstanding equity and convertible securities were as
follows:
|
Securities
|
Outstanding
|
|
Voting
equity securities issued and outstanding
|
47,994,209
common shares
|
|
Preferred
shares
|
None
|
|
Securities
convertible or exercisable into voting equity securities –
stock options
|
Vested
Stock options to acquire up to 35,244,271 common
shares
|
|
Securities
convertible or exercisable into voting equity securities –
warrants
|
Warrants
to acquire up to 23,713,716 common shares
|
Common Shares
The holders of shares of our common share 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 share carries 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 share by us except to the extent
that any such repurchase or redemption would render us insolvent
pursuant to the
Business Corporations
Act
.
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”.
Non-cumulative voting
Holders of shares of our common share 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 share 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,
2
nd
Floor,
Vancouver, British Columbia, Canada V6C 3B9, and its telephone
number is (604) 661-9400.
Indebtedness as of November 30, 2017:
|
Contractual obligations
|
|
Payments due by period
|
|
||
|
Total
|
Less than
1
year
|
2-3 years
|
4-5 years
|
More than
5
years
|
|
|
Operating
Lease Obligations
|
$836,248
(1)
|
$309,046
|
$527,202
|
Nil
|
Nil
|
|
Other
Long-Term Liabilities Reflected on the Registrant’s Balance
Sheet under IFRS
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
Total
|
$836,248
|
$309,046
|
$527,202
|
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.
|
30
Financings
During the nine months ended September 30, 2017, we issued the
following shares;
|
Issuance of Shares
|
Number of Shares Issued
|
Cash Proceeds
|
|
Private
Placements
|
1,964,970
|
$
2,497,415
|
|
Finder’s
Fee
|
105,001
|
$
Nil
|
|
Shares
issued for convertible loan
|
1,300,034
|
$
1,300,034
|
|
Shares
issued for Services
|
50,000
|
$
nil
|
|
Share
issued costs
|
Nil
|
$
131,159
|
On February 8, 2017, we completed a private placement of 320,000
units at a price of $1.00 per unit for gross proceeds of $320,000.
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 $2 per
warrant share until February 8, 2022. We incurred share issue costs
of $42,655 relating to this private placement.
On March 29, 2017, we completed a private placement of 108,000
units at a price of $1.00 per unit for gross proceeds of $108,000.
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 $2 per
warrant share until March 29, 2022. On March 29, 2017, we issued
5,000 units at a price of $1.00 per unit with a fair value of
$8,223 for third party finder’s fees relating to this private
placement. We incurred share issue costs of $10,417 relating to
this private placement.
On March 30, 2017, we completed a private placement of 100,000
units at a price of $1.00 per unit for gross proceeds of $100,000.
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 $2 per
warrant share until March 30, 2022. We incurred share issue costs
of $12,194 relating to this private placement.
On April 17, 2017, we completed a private placement of 200,000
units at a price of $1.00 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 $2 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 200,000
units at a price of $1.00 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 $2 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 75,000 units
at a price of $1.00 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 $2 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 25,000 units
at a price of $1.00 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 $2 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 300,000 units
at a price of $1.00 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 $2 per warrant share
until July 13, 2022. We has agreed to pay cash third party
finder’s fees of $30,000 relating to this private
placement.
On July 27, 2017, we completed a private placement of 1,500 units
at a price of $1.00 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 $2 per warrant share
until July 27, 2022.
On July 31, 2017, a previously issued unsecured convertible loan
for $300,000 (note 10) was converted by the holder into units at a
price of $1.00 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 $2 per warrant share for a period of five years from
date of issue.
31
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 is convertible, at the holder’s
option at any time before maturity into units at a price of $1.00
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 $2.00 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 $2 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 200,000
units at a price of $1.00 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 $2 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 12,500 common shares pursuant the
exercise of stock options of $0.15 per share for proceeds of
$1,875.
On
October 16, 2017, we completed a private placement of 50,000 units
at a price of USD $6.00 per unit for gross proceeds of USD $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 USD $12.00 per warrant share until October 16, 2019. On October
16, 2017, we issued 2,000 common shares at a price of USD $6.00 per
share with a fair value of USD $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
USD $18,000 (CAD $23,642) cash relating to this private
placement.
On
October 17, 2017, we issued an unsecured convertible loan for USD
$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 USD $3.60 per unit or will automatically convert into
units at a price of USD $3.60 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 USD $8.00 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 USD 7.20 per warrant share for a period of five years from date
of issue. We agreed to pay a third party finder’s fee of USD
$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 45,045 common
shares at a price of USD $5.55 per share for gross proceeds of USD
$250,000 (CAD $315,790).
On
October 31, 2017, we completed a private placement of 250,000 units
at a price of USD $3.75 per unit for gross proceeds of USD $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 USD $7.50 per warrant share until October 31, 2024. On October
31, 2017, we issued 12,500 common shares at a price of USD $3.75
per share with a fair value of USD $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
USD $65,625 (CAD $83,475) cash relating to this private
placement.
On
November 6, 2017, we entered into a private placement and option
subscription agreement. Pursuant to the agreement, we issued
352,941 shares at a price of $0.85 for gross proceeds of $300,000.
We agreed to pay a third party finder’s fee of $30,000 cash
relating to this private placement.
On
November 9, 2017, we completed a private placement of 250,000 units
at a price of USD $3.75 per unit for gross proceeds of USD $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 USD $7.50 per warrant share until November 9, 2019. On November
9, 2017, we issued 12,500 common shares at a price of USD $3.75 per
share with a fair value of USD $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
USD $65,625 (CAD $83,153) cash relating to this private
placement.
Incentive Stock Options
During
the nine months ended September 30, 2017, we granted 1,120,000
additional stock options with an exercise price of $1.00 per share,
which options will expire on February 17, 2023. The following table
represents the number of stock options that are outstanding as at
September 30, 2017.
|
Date
of Grant
|
Number
of Options
|
Price
Per Option
|
Expiry
Date
|
|
June 11,
2015
|
45,000,000
|
$
0.15
|
June 11,
2022
|
|
August 13,
2015
|
2,675,000
|
$
0.15
|
August 13,
2022
|
|
December 9,
2015
|
8,400,000
|
$
0.40
|
December 9,
2022
|
|
March 7,
2016
|
25,000
|
$
0.40
|
March 7,
2023
|
|
June 21,
2016
|
75,000
|
$
1.00
|
June 21,
2023
|
|
February 17,
2017
|
935,000
|
$
1.00
|
February 17,
2023
|
|
August 8,
2017
|
100,000
|
$
1.00
|
August 8,
2023
|
32
The following discussion and analysis should be read in conjunction
with our financial statements and the related notes included
elsewhere in this prospectus. This discussion contains
forward-looking statements that are based on our management’s
current expectations, estimates and projections for our business,
which are subject to a number of risks and uncertainties. Our
actual results may differ materially from those anticipated in
these forward-looking statements as a result of many factors,
including those set forth under the headings entitled
“
Forward-Looking
Statements
” and
“
Risk
Factors
”.
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 1
st
Avenue, Vancouver,
British Columbia, Canada, V5T 1A4.
Results of Operations
The period ended September 30, 2017 as compared to the period ended
September 30, 2016
Three months ended September 30, 2017
During
the quarter ended September 30, 2017, we incurred a comprehensive
loss of $2,984,732 compared to $1,453,885 loss for the
corresponding period in 2016. The largest expense items that
resulted in an increase in net comprehensive loss for the quarter
ended September 30, 2017 were;
General
and administrative expenses for quarter ended September 30, 2017
were $589,707 compared to $363,345 for the quarter ended September
30, 2016. The following items are included in office and general
expenses;
●
Rent increased to
$65,698 for the quarter ended September 30, 2017 from $36,794 for
the corresponding quarter ended September 30, 2016. The increase
was caused by the increase in our production premises as it expands
its production capabilities to produce the SOLO and an increase in
its retail presence.
●
Office expenses
increased to $29,637 for the quarter ended September 30, 2017 from
$19,440 for the corresponding quarter ended September 30, 2016. As
we increase our staffing levels, office expenses will increase as
well.
●
Legal &
Professional increased to $269,296 for the quarter ended September
30, 2017 from $196,001 for the corresponding quarter ended
September 30, 2016. The increase in legal and professional expenses
relate to the purchase of Intermeccanica, and fees related to our
filing and receiving of its Scientific, Research and Experimental
Development (SRED) claim.
●
Consulting fees
were $67,148 for the quarter September 30, 2017 compared to $67,484
for the corresponding quarter ended September 30, 2016. Consulting
fees relate to services provided for accounting, finance and
corporate advisory services.
●
Investor relations
expenses increased to $76,004 for the quarter ended September 30,
2017 from $nil for the corresponding period ended September 30,
2016. We increased our investor relations activities as we
transition to a public company.
●
Salaries increased
to $81,924 for the quarter ended September 2017 compared to $43,626
for the corresponding period ended September 30, 2016. The increase
is related to performance increases to certain salaried
employees.
Research
and development expenses were $820,044 for the quarter ended
September 30, 2017 from $850,295 for the corresponding quarter
ended September 30, 2016. We continue to develop our first electric
vehicles, and all of our research and development costs are
attributable to the build of our prototypes. All costs related to
pre-production vehicles are being expensed to research and
development. During the quarter ended September 30, 2017, we
received $111,380 (2016: $50,319) in government
grants.
Sales
and marketing expenses increased to $441,253 for the quarter ended
September 30, 2017, from $53,938 for the corresponding quarter
ended September 30, 2016. 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. During the three months ended September
2017, we issued 45,045 warrants to a consultant to provide
marketing services which were fair valued at $288,000.
Stock-based
compensation charges for the quarter ended September 30, 2017 were
$282,167 as compared to $175,180 for the quarter ended September
30, 2016. We issued 1,020,000 stock options at an exercise price of
$1.00 per share during the quarter ended March 31, 2017 and 100,000
stock options at an exercise price of $1.00 per share during the
three months ended September 30, 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.
Our
operating expenses for the quarter ended September 30, 2017
increased to $2,163,168 as compared to $1,447,366 for the quarter
ended September 30, 2017. The increase in operating loss was caused
by the aforementioned expenses for the year.
We
incurred an interest accretion expense of $145,985 for the quarter
ended September 30, 2017 (2016: $(5,181)), relating to a
convertible loan (see note 11 in the financial statements for the
nine months ended September 30, 2017). We valued our finder’s
fee related to the convertible loan of $675,007 (2016: $nil). We
also had a foreign exchange loss of $572 (2016:
$(1,338)).
Our net
loss and comprehensive loss for the quarter ended September 30,
2017 was $2,984,732 (2016: $1,453,885).
33
Nine months ended September 30, 2017
During
the nine months ended September 30, 2017, we incurred a
comprehensive loss of $6,749,268 compared to $3,536,039 loss for
the corresponding period. The largest expense items that resulted
in an increase in net comprehensive loss for the nine months ended
September 30, 2017 were;
General
and administrative expenses for the nine months ended September 30,
2017 were $1,517,662 compared to $751,216 for the nine months ended
September 30, 2016. The following items are included in general and
administrative expenses;
●
Rent increased to
$186,392 for the nine months ended September 30, 2017 from $94,129
for the corresponding period ended September 30, 2016. The increase
was caused by the increase in our production premises as we expand
our production capabilities to produce the SOLO and an increase in
its retail presence
●
Office expenses
increased to $90,335 for the nine months ended September 30, 2017
from $53,747 for the corresponding quarter ended September 30,
2016. As we increase our staffing levels, office expenses will
increase as well.
●
Legal &
Professional increased to $622,700 for the nine months ended
September 30, 2017 from $375,332 for the corresponding period ended
September 30, 2016. The majority of the legal expenses was due to
our filing of its application for a ticker symbol to FINRA in the
United States of America; other legal costs associated with
contracts, together with professional fees associated with the
filing of our amended F1 resale registration statement; the
purchase of Intermeccanica, and fees related to our filing and
receiving of its Scientific, Research and Experimental Development
(SRED) claim.
●
Consulting fees
increased to $254,056 for the nine months September 30, 2017 from
$127,187 for the corresponding period ended September 30, 2016.
Consulting fees relate to services provided for accounting, finance
and corporate advisory services.
Research
and development expenses increased to $2,725,094 for the nine
months ended September 30, 2017, from $1,977,205 for the
corresponding period ended September 30, 2016. We continue to
develop our first electric vehicles, and all of our research and
development costs are attributable to the build of our prototypes.
All costs related to pre-production vehicles are being expensed to
research and development. During the nine months ended September
30, 2017, we received $304,914 (2016: $145,780) in government
grants.
Sales
and marketing expenses increased to $731,491 for the nine months
ended September 30, 2017, from $129,998 for the corresponding
period ended September 30, 2016. We have increased our sales and
marketing efforts in the period by opening two retail stores,
increasing our social media presence and increasing our staff as
our first electric vehicle, the SOLO, nears full production. During
the nine months ended September 2017, we issued 45,045 warrants to
a consultant to provide marketing services which were fair valued
at $288,000.
Stock-based
compensation charges for the nine months ended September 30, 2017
were $819,546 (2016: $659,802). We issued 1,120,000 stock options
at an exercise price of $1.00 per share during the nine months
ended September 30, 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.
Our
operating expenses for the nine months ended September 30, 2017
increased to $5,878,994 (2016: $3,526,478). The increase in
operating loss was caused by the aforementioned expenses for the
year.
We
incurred an interest accretion expense of $186,764 for the nine
months ended September 30, 2017 (2016: $(5,181)), relating to a
convertible loan (note 11 in the financial statements for the nine
months ended September 30, 2017). We valued our finder’s fee
related to the convertible loan of $675,007 (2016: $nil). We also
had a foreign exchange loss of $8,503 (2016:
$(4,380)).
Our net
loss and comprehensive loss of the nine months ended September 30,
2017 was $6,749,268 (2016: $3,536,039).
34
Year ended December 31, 2016 as 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, an 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
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 expand our production
capabilities;
|
|
|
|
|
|
|
o
|
Office
expenses increased to $113,158 for the year ended December 31, 2016
from $18,013 for the period ended December 31, 2015. As we increase
our staffing levels, office expenses will increase as
well;
|
|
|
|
|
|
|
o
|
Legal
& Professional 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 our filing of
our Form F-1 registration statement with the United States
Securities and Exchange Commission and negotiation and preparation
of contractual arrangements; and
|
|
|
|
|
|
|
o
|
Consulting
fees 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. We continue to develop our first electric vehicles. All costs
related to pre-production vehicles are being expensed to research
and development. During the year ended December 31, 2016, we
received $203,997 (2015: $12,775) in government
grants.
|
|
|
|
|
|
|
●
|
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 have increased our sales and marketing efforts as our
first electric vehicle, the SOLO, nears production.
|
|
|
|
|
|
|
●
|
Stock-based
compensation charges for the year ended December 31, 2016 were
$1,461,189 (2015: $354,015). We granted 25,000 stock options with
an exercise price of $0.40 per share, and 75,000 additional stock
options with an exercise price of $1.00 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 organizations.
|
Other Items
We incurred an interest accretion expense of $25,908 for the year
ended December 31, 2016 (2015: $92) relating to a 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 US 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).
35
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 are 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 $6,749,268 during the nine months ended September 30, 2017 and
had a cash balance and a working capital surplus of $3,464,108 and
$1,899,219, respectively, as at September 30, 2017. 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.
We had
$1,899,219 of working capital surplus as at September 30, 2017
compared to $3,555,976 working capital surplus as at December 31,
2016. The decrease in working capital surplus resulted from the
cash used in operations of $4,405,321, (2016: $2,651,682); cash
used in investing activities of $402,149 (2016: $77,162); which was
offset by financing activities generating cash of $4,355,295,
(2016: $2,856,700), due to the issuance of 1,964,970 common shares
for net cash proceeds of $2,146,000 (2016: $2,585,200) and net
proceeds from the issuance of a convertible loan of $2,209,295
(2016: $300,000).
As at
September 30, 2017, we had cash and cash equivalents of $3,464,108
(2016: $234,213).
As at December 31,
2016, we had cash and cash equivalents of $3,916,283 (2015:
$106,357).
We are pursuing equity financing, but we might
not successful in our endeavors.
As of
November 19, 2017, 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. We have not
pledged any of our assets as security for loans, or otherwise and
are not subject to any debt covenants.
As of December 31, 2016, we had total current assets of $4,437,152
and total current liabilities in the amount of $881,176. As a
result, we had working capital surplus of $3,555,976 as of December
31, 2016 (2015: $(149,107)).
Subsequent to December 31, 2016, we issued 528,000 common shares
for proceeds of $491,000, net of share issue costs.
Our monthly burn rate is currently $310,000 per month.
Cash Used in Operating Activities
Operating activities used $4,405,321 in cash for the nine months
ended September 30, 2017 compared to $2,651,682 in cash for the
nine months ending September 30, 2016. Operating activities used
$4,162,835 in cash for the fiscal year ended December 31, 2016,
compared to $570,725 in cash used in operating activities for the
period from February 16, 2015 (date of inception) to December 31,
2015. Our negative cash flow from operating activities for the nine
month periods and the fiscal year ended December 31, 2016 was
caused by our being in development phase of our overall business
plan, and we do not expect to realize any revenues until the second
quarter of 2018.
Cash Used in Investing Activities
Cash flows used in investing activities for the nine months ending
September 30, 2017 was $402,149 compared to $77,162 cash flows used
in investing activities for the nine months ending September 30,
2016.
Cash flows used in investing activities for the fiscal year ended
December 31, 2016 was $357,372 compared to $16,438 cash flows used
in investing activities for the period from February 16, 2015 (date
of inception) to December 31, 2015. The cash flows used in
investing activities for the fiscal year ended December 31, 2016,
was caused by expenditures in equipment of $232,027 (2015:
$16,438), investment of $100,000 (2015: $nil) and expenditures on
patents and trademarks of $25,345 (2015: $nil).
Cash flows from Financing Activities
Cash flows generated from financing activities for the nine months
ended September 30, 2017 were $4,355,295, compared to $2,856,700
for the nine months ended September 30, 2016, due to the issuance
of 1,964,970 common shares for net cash proceeds of $2,146,000
(2016: $2,585,200) and net proceeds from the issuance of a
convertible loan of $2,209,295 (2016: $300,000).
Cash flows generated from financing activities for the fiscal year
ended December 31, 2016 were $8,330,133, compared to $693,520 for
the period from February 16, 2015 (date of inception) to December
31, 2015. During the fiscal year ended December 31, 2016, we repaid
a shareholder loan of $135,000, from proceeds generated from the
issuance of Common Shares net of share issue costs of $8,063,633
(2015: $458,520) and also received $300,000 from a convertible loan
which converted to equity at $1.00 per share when received a ticker
symbol and our Common Shares posted for trading on the
OTCQB.
36
Off-Balance Sheet Arrangements
As of September 30, 2017, 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.
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 year ended December 31, 2016 as well as
for the period from inception to December 31, 2015:
|
|
Nine
Months ended September 30, 2017
|
Fiscal year ended December
31,
2016
|
February
16 to December 31, 2015
|
|
Labor
|
$
1,359,508
|
$
1,715,562
|
$
382,047
|
|
Materials
|
1,670,500
|
1,266,730
|
117,537
|
|
Government
grants
|
(304,914
)
|
(203,997
)
|
(12,775
)
|
|
Total
|
$
2,725,094
|
$
2,778,295
|
$
486,809
|
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
January 25,
2018, we had an order backlog of 609 SOLOs, 14
Super SOLOs and 106 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 no revenues and have incurred a net loss and comprehensive
loss of $8,973,347 during the year ended December 31, 2016 and have
a cash balance and a working capital surplus of $3,916,283 and
$3,555,976, respectively, as at December 31, 2016. We raised
$491,000 subsequent to December 31, 2016, 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
September 30, 2017, we had not commenced 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. 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.
37
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.
Critical Accounting 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.
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.
38
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:
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 September 30,
2017:
|
At September 30,
2017
|
Within
one year
|
Between
one and five years
|
More
than
five
years
|
|
Trade
payables
|
$
318,054
|
$
-
|
$
-
|
|
Customer
deposits
|
205,000
|
-
|
-
|
|
Deposit on
financing
|
1,209,261
|
-
|
-
|
|
Total
|
$
1,732,315
|
$
-
|
$
-
|
Foreign Exchange Risk
Foreign
currency risk is the risk that the fair values of future cash flows
of a financial instrument will fluctuate because they are
denominated in currencies that differ from the respective
functional currency. We are exposed to currency risk as we incur
expenditures that are denominated in US dollars while our
functional currency is the Canadian dollar. We do not hedge our
exposure to fluctuations in foreign exchange rates.
The
following is an analysis of Canadian dollar equivalent of financial
assets and liabilities that are denominated in US
dollars:
|
|
September
30,
2017
|
December
31,
2016
|
December
31,
2015
|
|
Cash and cash
equivalents
|
$
1,874,044
|
$
98,762
|
$
43,638
|
|
Trade
payables
|
(124,479
)
|
(4,804
)
|
(18,804
)
|
|
Total
|
$
1,749,565
|
$
93,958
|
$
25,554
|
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 our
net loss by $140,339 (December 31, 2016 - $6,992).
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 $9,338 for the period ended
September 30, 2017 (December 31, 2016 - $39,163)
39
Classification of Financial Instruments
Financial
assets included in the statement of financial position are as
follows:
|
|
September
30,
2017
|
December
31,
2016
|
December
31,
2015
|
|
Loans and
receivables:
|
|
|
|
|
Cash
and cash equivalents
|
$
3,464,108
|
$
3,916,283
|
$
106,357
|
|
Other
receivables
|
143,717
|
271,284
|
28,639
|
|
Total
|
$
3,607,825
|
$
4,187,567
|
$
134,996
|
Financial
liabilities included in the statement of financial position are as
follows:
|
|
September
30,
2017
|
December
31,
2016
|
December
31,
2015
|
|
Non-derivative
financial liabilities:
|
|
|
|
|
Trade
payable
|
$
318,054
|
$
150,305
|
$
67,718
|
|
Advance
payable
|
-
|
-
|
50,000
|
|
Customer
deposits
|
205,000
|
169,500
|
28,506
|
|
Shareholder
loan
|
-
|
-
|
185,000
|
|
Convertible
loan
|
1,209,261
|
243,676
|
-
|
|
|
$
1,732,315
|
$
563,481
|
$
331,224
|
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.
|
The following is an analysis of our financial assets measured at
fair value as at December 31, 2015:
|
|
As
at December 31, 2015
|
||
|
|
Level
1
|
Level
2
|
Level
3
|
|
Cash and cash
equivalents
|
$
106,357
|
-
|
-
|
The following is an analysis of our financial assets measured at
fair value as at December 31, 2016:
|
|
As
at December 31, 2016
|
||
|
|
Level
1
|
Level
2
|
Level
3
|
|
Cash and cash
equivalents
|
$
3,916,283
|
-
|
-
|
The following is an analysis of our financial assets measured at
fair value as at September 30, 2017:
|
|
As
at September 30, 2017
|
||
|
|
Level
1
|
Level
2
|
Level
3
|
|
Cash and cash
equivalents
|
$
3,464,108
|
-
|
-
|
40
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with IFRS
requires us to make estimates and assumptions concerning the
future. Our 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 property, plant and equipment,
fair value measurements for financial instruments and share-based
payments, and the recoverability and measurement of deferred tax
assets.
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,
2016 and for the period ended December 31, 2015 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. During the fiscal year ended December 31,
2016 there were no material changes to these policies. 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.
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”
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.
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.
41
Our Notice of Articles and Articles are attached to this
registration statement as exhibits. The Articles of the Company
provide that the number of directors is set at:
|
|
(a)
|
subject
to paragraphs (b) and (c), the number of directors that is equal to
the number of our first directors;
|
|
|
|
|
|
|
(b)
|
if we
are a public company, the greater of three and the number most
recently elected by ordinary resolution (whether or not previous
notice of the resolution was given); and
|
|
|
(c)
|
if we
are not a public company, the number most recently elected by
ordinary resolution (whether or not previous notice of the
resolution was given).
|
Our Board of Directors (the “Board”) currently consists
of three directors. Our directors are elected annually at each
annual meeting of our company’s shareholders.
Our Board of Directors currently has one committee, the Audit
Committee. The Board has not appointed a compensation committee or
a nominating committee because the Board fulfills these functions.
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.
The following table sets forth the names and ages of all of our
directors, executive officers and key employees.
|
Name, Province/State
and Country of
Residence
|
Age
|
Position
|
Director/Officer
Since
|
|
|
|
|
Jerry Kroll
(1)(2)(3)(4)
British
Columbia, Canada
|
57
|
President, CEO and
director
|
February 16,
2015
|
|
|
|
|
|
|
|
|
|||
|
Iain Ball
British Columbia,
Canada
|
63
|
Vice-President,
Finance
|
February 16,
2015
|
|
|
|
|
|
|
|
|
|||
|
Henry Reisner
British Columbia,
Canada
|
53
|
Chief Operating
Officer
|
February 16,
2015
|
|
|
|
|
|
|
|
|
|||
|
Kulwant Sandher
(5)
British
Columbia, Canada
|
56
|
Chief Financial
Officer and Secretary
|
June 15,
2016
|
|
|
|
|
|
|
|
|
|||
|
Ed Theobald
British Columbia,
Canada
|
65
|
General
Manager
|
February 16,
2015
|
|
|
|
|
|
|
|
|
|||
|
Shaun Greffard
(2)(3)(4)
British
Columbia, Canada
|
43
|
Director
|
August 8,
2016
|
|
|
|
|
|
|
|
|
|||
|
Robert Tarzwell
(2)(3)(4)
British
Columbia, Canada
|
47
|
Director
|
August 8,
2016
|
|
|
|
|
|
|
|
|
|||
|
Mark West
British Columbia,
Canada
|
50
|
Vice-President,
Sales & Dealerships
|
November 1,
2016
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Mr.
Kroll was appointed President, CEO and a director of the Company
effective February 16, 2015.
|
|
|
(2)
|
Member
of the Audit Committee.
|
|
|
(3)
|
Member
of the Compensation Committee.
|
|
|
(4)
|
Member
of the Nominating and Corporate Governance Committee.
|
|
|
(5)
|
Mr.
Sandher was appointed CFO of the Company on June 15, 2016. Mr.
Sandher was appointed as Secretary of the Company on August 8,
2016.
|
42
Business Experience
The following summarizes the occupation and business experience
during the past five years or more for our directors, executive
officers and key employees as of the date of this
prospectus:
Jerry Kroll – President, Chief Executive Officer and a
director
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 scene and has been a member of the Vancouver Angel
Technology Network, an investing and mentoring network for new
technology start-ups, since 2003.
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; he served as COO & CFO for Marketrend
Interactive Inc., from March 2004 to March 2006.
Mr. Sandher has 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). 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 and CFO of Delta Oil and Gas
Inc. since 2007 and Director of The Cloud Nine Education Group Inc
since December 2015.
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 strategic and
financial advice, to growing companies and start-ups since
2012.
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.
43
Henry Reisner, 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 incredibly 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.
On
October 18, 2017 we entered into a Share Purchase Agreement (the
“SPA”) with Mr. Reisner and two of his family members
to acquire Intermeccanica. Under the SPA we agreed to purchase all
the shares of Intermeccanica for $2,500,000. We also entered into a
Promissory Note (the “Note”) for $1,500,000. The Note
was issued to Mr. Reisner. We agreed in the SPA that until all
amounts under the Note are fully paid, Mr. Reisner, as a director
and officer of Intermeccanica, will have the right at all times,
working with our management, to manage its day-to-day operations
and business decisions. Mr. Reisner has not been appointed as a
director of our company.
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 19 years as
General Manager at Envirotest Canada. He also oversaw the
operations of 16 automotive repair shops as Regional Manager of
Speedy Glass.
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.
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.
Shaun Greffard, Director
Mr. Greffard is a management professional with over 20 years of
experience in telecommunications, information technology and
government. During his career as a management professional, Mr.
Greffard has been responsible for Ledcor's over $80M Canadian
telecommunications division and responsible for negotiating
commercial and contractual terms for the largest P3
telecommunications deal in North America valued at close to US$600M
over a three-year Design/Build contract and 30 year Operations
contract. He was also responsible for negotiating numerous US
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. He 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 Group. He
is currently the Vice President of Strategic Projects at the Ledcor
Group.
Mr. Greffard holds a Master’s in Business Administration from
Royal Roads University.
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 2012 to 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.
Family Relationships
There are no family relationships among any of our directors and
executive officers.
44
Term of Office
Each director of our company is to serve for a term of one year
ending on the date of the subsequent annual meeting of stockholders
following the annual meeting at which such director was elected.
Notwithstanding the foregoing, each director is to serve until his
successor is elected and qualified or until his death, resignation
or removal. Our Board of Directors appoints our officers and each
officer is to serve until his successor is appointed and qualified
or until his or her death, resignation or removal.
Involvement in Certain Legal Proceedings
During the past ten years, Messrs. Jerry Kroll, Iain Ball, Henry
Reisner, Kulwant Sandher, Ed Theobald, Shaun Greffard, Robert
Tarzwell and Mark West have not 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
|
|
|
|
|
|
|
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; and
|
|
|
|
|
|
|
●
|
Robert
Tarzwell.
|
45
Audit Committee and Financial Expert
Our Audit Committee consists of Jerry Kroll, Shaun Greffard and
Robert Tarzwell. Messrs. Greffard and Tarzwell are independent
under the listing standards regarding “independence” of
the NASDAQ Capital Markets. Mr. Kroll is not independent as he
is our Chief Executive Officer.
National Instrument 52-110
Audit
Committees
(“
NI 52-110
”) of the Canadian Securities Administrators
provides that a member of an audit committee is
“independent” if the member has no direct or indirect
material relationship with the issuer, which could, in the view of
the issuer’s board of directors, reasonably interfere with
the exercise of the member’s independent judgment. Each of
Messrs. Greffard and Tarzwell are also considered independent
within the meaning of NI 52-110.
Our Audit Committee is mandated to monitor the audit and
preparation of our financial statements and to review and recommend
to the Board of Directors all financial disclosure contained in our
public documents. The Audit Committee is also mandated to recommend
to the Board of Directors the external auditors to be nominated for
appointment by the Board, to set the compensation for the external
auditors, to provide oversight of the external auditors, and to
ensure that the external auditors report directly to the Audit
Committee. The Audit Committee also approves in advance any
permitted services to be provided by the external auditors which
are not related to the audit.
Our company provides appropriate funding as determined by the Audit
Committee to permit the Audit Committee to perform its duties and
to compensate its advisors. The Audit Committee, at its discretion,
has the authority to initiate special investigations, and if
appropriate, hire special legal, accounting or other outside
advisors or experts to assist the Audit Committee to fulfill its
duties.
The Audit Committee operates pursuant to a written charter, a copy
of which is included as an exhibit to our registration statement on
Form F-1 under the U.S. Securities Act, as filed with the SEC on
October 11, 2016.
Our Audit Committee Financial Expert is Robert Tarzwell who is also
the Audit Committee’s Chairman.
Other Board Committees
Our Board of Directors has established a Nominating and Corporate
Governance Committee that operates under a written charter approved
by the Board, a copy of which is included as an exhibit to our
registration statement on Form F-1 under the U.S. Securities Act,
as filed with the SEC on October 11, 2016. The Nominating and
Corporate Governance Committee is comprised of Jerry Kroll, Shaun
Greffard and Robert Tarzwell. Mr. Tarzwell is the Chairman of the
Nominating and Corporate Governance Committee. The Nominating and
Corporate Governance Committee is responsible for developing an
appropriate approach to corporate governance issues and compliance
with governance rules. The Nominating and Corporate Governance
Committee is responsible for reviewing on a periodic basis the
composition of the Board and, when appropriate, with maintaining a
list of potential candidates for Board membership and interviewing
potential candidates for Board membership.
Our Board of Directors has established a Compensation Committee
that operates under a written charter approved by the Board, a copy
of which is included as an exhibit to this registration statement
on Form F-1 under the U.S. Securities Act, as filed with the SEC on
October 11, 2016. The Compensation Committee is comprised of Jerry
Kroll, Shaun Greffard and Robert Tarzwell. Mr. Greffard is the
Chairman of the Compensation Committee.
Code of Business Conduct and Ethics
We have adopted a Code of Ethics that applies to our Chief
Executive Officer, Chief Financial Officer and all other employees,
a copy of which is included as an exhibit to our registration
statement on Form F-1 under the U.S. Securities Act, as filed with
the SEC on October 11, 2016.
46
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 acting as the Compensation Committee
considers a variety of factors when designing and establishing,
reviewing and making recommendations for executive compensation
arrangements for all our executive officers. The Board typically
does not position executive pay to reflect a single percentile
within the industry for each executive. Rather, in determining the
compensation level for each executive, the Board looks 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).
|
The key features of these two primary components of compensation
are discussed below:
|
1.
|
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.
|
2.
|
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.
47
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;
|
|
|
(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 the Company during
the fiscal periods indicated in respect of 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
|
2016
|
30,000
|
Nil
|
887,605
|
Nil
|
Nil
|
Nil
|
Nil
|
917,605
|
|
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
Kulwant Sandher
(3)
|
2017
|
65,000
|
Nil
|
125,777
|
Nil
|
Nil
|
Nil
|
Nil
|
190,777
|
|
Chief
Financial
|
2016
|
31,000
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
31,000
|
|
Officer and Secretary
|
|
|
|
|
|
|
|
|
|
|
Iain Ball
(4)
|
2017
|
60,000
|
Nil
|
37,883
|
Nil
|
Nil
|
Nil
|
Nil
|
97,883
|
|
Vice-President,
|
2016
|
52,500
|
Nil
|
87,958
|
Nil
|
Nil
|
Nil
|
Nil
|
140,458
|
|
Finance
|
|
|
|
|
|
|
|
|
|
|
Henry Reisner
(5)
|
2017
|
60,000
|
Nil
|
70,405
|
Nil
|
Nil
|
Nil
|
Nil
|
130,405
|
|
Chief
Operating
|
2016
|
53,000
|
Nil
|
168,494
|
Nil
|
Nil
|
Nil
|
Nil
|
221,494
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
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,
|
2016
|
16,000
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
16,000
|
|
Sales & Dealerships
|
|
|
|
|
|
|
|
|
|
|
|
(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,
2016.
|
|
|
(2)
|
Mr.
Kroll was appointed the President and Chief Executive Officer of
the Company on February 16, 2015, and served as the Secretary of
the Company from June 11, 2015 to August 8, 2016.
|
|
|
(3)
|
Mr.
Sandher was appointed Chief Financial Officer of the Company on
June 15, 2016. Mr. Sandher was appointed as Secretary of the
Company on August 8, 2016.
|
|
|
(4)
|
Mr.
Ball was appointed Chief Financial Officer of the Company on June
4, 2015 and subsequently was appointed Vice- President, Finance of
the Company on June 27, 2016.
|
|
|
(5)
|
Mr.
Reisner was appointed Chief Operating Officer of the Company on
February 16, 2015.
|
|
|
(6)
|
Mr.
Theobald was appointed General Manager of the Company on February
16, 2015.
|
|
|
(7)
|
Mr.
West was appointed Vice-President, Sales & Dealerships of the
Company on November 1, 2016.
|
48
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
45,000,000 stock options exercisable into 45,000,000
common
shares at an exercise price of $0.15
per share expiring on June 11, 2022 and 5,000,000 stock options
exercisable into 5,000,000
common
shares at an exercise price of $0.40 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.
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.
49
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.
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 500,000 stock options
exercisable into 500,000
common
shares at an exercise price of $0.15 per share
expiring on August 13, 2022 and 750,000 stock options exercisable
into 750,000
common
shares at
an exercise price of $0.40 per share expiring on December 9, 2022
(such options have already been granted prior to the Ball
Agreement); (d) provide Mr. Ball 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.
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.
50
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”
).
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 500,000 stock
options exercisable into 500,000
common
shares at an exercise price of $0.15 per share
expiring on August 13, 2022 and 750,000 stock options exercisable
into 750,000
common
shares at
an exercise price of $0.40 per share expiring on December 9, 2022
(such options have already been granted prior to the Theobald
Agreement); (d) provide Mr. Theobald 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.
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.
51
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
$5,000; (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 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.
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.
52
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 1,250,000
stock options exercisable into 1,250,000
common
shares at an exercise price of $0.15 per share
expiring on August 13, 2022 and 1,250,000 stock options exercisable
into 1,250,000
common
shares at
an exercise price of $0.40 per share expiring on December 9, 2022
(such options have already been granted prior to the Reisner
Agreement); (d) provide Mr. Reisner 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.
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.
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.
53
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 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 (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.
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.
54
Stock Option Plans and Stock Options
The following table sets forth, as at December 31, 2016, 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
|
-
|
-
|
-
|
|
Equity
compensation plans not approved by securityholders
|
56,175,000
|
$0.19
|
3,825,000
|
|
Total
|
56,175,000
|
|
3,825,000
|
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 60,000,000 shares may be issued, subject to adjustment
as described in the Stock Option Plan.
As at December 31, 2016 there were 56,175,000 outstanding options
under the Stock Option Plan leaving an additional 3,825,000 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.
As of
September 30
, 2017, there
were stock options outstanding under our Stock Option Plan
exercisable for an aggregate of 57,210,000 shares of our common
share.
55
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:
|
|
Option–based
Awards
|
|
|
|
|
|||
|
Named
Executive Officer
or
Director
|
Number of securities
underlying
unexercised options
(#)
|
Option
exercise price
($)
|
Option
expiration date
|
Value of
unexercised in-
the-money
options
($)
(1)
|
|
|
|
|
|
Jerry
Kroll
President, Chief
Executive Officer and a director
|
45,000,0005,000,00010,000
|
US
$0.15 US $0.40
US
$1.00
|
June 11,
2022 Dec. 9, 2022
Feb. 17,
2024
|
US$203,159,583
|
|
|
|
|
|
Kulwant
Sandher
Chief Financial
Officer and Secretary
|
250,000
|
$
1.00
|
Feb. 17,
2024
|
$
523,699
|
|
|
|
|
|
|
|
|
|
|
||||
|
Iain
Ball
Vice-President,
Finance
|
500,000750,00010,000
|
$
0.15$0.40$1.00
|
Aug. 13,
2022 Dec. 9, 2022
Feb. 17,
2024
|
$
4,360,701
|
|
|
|
|
|
|
|
|
|
|
||||
|
Henry
Reisner
Chief Operating
Officer
|
1,250,0001,250,00010,000
|
$
0.15$0.40$1.00
|
Aug. 13,
2022 Dec. 9, 2022
Feb. 17,
2024
|
$
8,888,040
|
|
|
|
|
|
|
|
|
|
|
||||
|
Ed
Theobald
General
Manager
|
500,000750,00010,000
|
$
0.15$0.401.00
|
Aug. 13,
2022 Dec. 9, 2022
Feb. 17,
2024
|
$
4,360,701
|
|
|
|
|
|
|
|
|
|
|
||||
|
Mark
West
Vice-President, Sales
& Dealerships
|
225,000
|
$
1.00
|
Feb. 17,
2024
|
$
366,589
|
|
|
|
|
|
|
|
|
|
|
||||
|
Shaun
Greffard
Director
|
50,00025,000250,000
|
$
0.15$0.40$1.00
|
Aug. 13,
2022 Dec. 9, 2022
Feb. 17,
2024
|
$
274,973
|
|
|
|
|
|
Robert
Tarzwell
Director
|
25,0005,000
|
$
0.15$1.00
|
Aug. 13,
2022
Feb. 17,
2024
|
$
97,212
|
|
|
|
|
|
(1)
|
This
column contains the aggregate value of in-the-money unexercised
vested options as at December 31, 2016, calculated based on the
difference between the last price that shares were sold by us
pursuant to a private placement, which was $1.00, and the exercise
price of the options, multiplied by the number of options that have
vested.
|
Incentive Plan Awards
The following table provides information concerning our incentive
award plans with respect to each Named Executive Officer and
directors during the fiscal year ended December 31, 2017. Our only
incentive award plan during such fiscal year was the Stock Option
Plan:
|
Named
Executive Officer
and
Director
|
Option-based Awards –
Value
Vested During the
Year
($)
(1)
|
Non-Equity Incentive
Plan
Compensation
– Value Vested
During the Year
($)
|
|
Jerry
Kroll
President and Chief
Executive Officer
|
$
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
|
$
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.
|
56
Director Compensation for Fiscal 2016
Our Board of Directors acting as the Compensation Committee
assesses the appropriate level of remuneration for our directors
and officers. The Board as a whole makes the final determination in
respect of compensation matters. Remuneration is 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 are 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, 2016, are 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, 2016, there were three
directors, Jerry Kroll, Shaun Greffard and Robert Tarzwell. Mr.
Kroll whose 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.
Incentive Plan Awards – Value Vested or Earned
During the fiscal year ended December 31, 2016, there were three
directors. Mr. Kroll’s incentive plan awards are reported in
the Summary Compensation Table for Named Executive Officers above
and Mr. Greffard’s and Mr. Tarzwell’s option awards are
reported above.
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
.”
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
January 25,
2018 by (a) each stockholder who is
known to us to own beneficially 5% or more of our outstanding
common share; (b) all directors; (c) our executive officers, and
(d) all executive officers and directors as a group. Except as
otherwise indicated, all persons listed below have (i) sole voting
power and investment power with respect to their
common
shares, except to the extent that
authority is shared by spouses under applicable law, and (ii)
record and beneficial ownership with respect to their
common
shares.
57
|
Name
and Municipality of Residence
|
Common
Shares of the Company Beneficially Owned, or Controlled
or Directed, Directly or Indirectly
(1)
|
Percentage
of Common Shares Beneficially Owned, or Controlled or
Directed, Directly or Indirectly
(2)
|
|
Directors and Executive Officers:
|
|
|
|
Jerry
Kroll Vancouver, B.C., Canada
President, CEO and a
director
|
50,058,324
(3)
|
61.9
%
|
|
|
|
|
|
Iain
Ball Vancouver, B.C., Canada
Vice-President, Finance
|
843,749
(4)
|
1.7
%
|
|
|
|
|
|
Henry
Reisner Vancouver, B.C., Canada
COO
|
7,508,331
(5)
|
15.2
%
|
|
|
|
|
|
Kulwant
Sandher Vancouver, B.C., Canada
CFO
|
Nil
|
Nil
|
|
|
|
|
|
Ed
Theobald Vancouver, B.C., Canada
General Manager
|
1,218,749
(6)
|
2.5
%
|
|
|
|
|
|
Shaun
Greffard Surrey, B.C., Canada
Director
|
44,789
(7)
|
*
|
|
|
|
|
|
Robert
Tarzwell Vancouver, B.C., Canada
Director
|
765,623
(8)
|
1.6
%
|
|
|
|
|
|
Mark
West Vancouver, B.C., Canada
Vice-President, Sales &
Dealerships
|
101,313
(9)
|
*
|
|
|
|
|
|
Directors
and Executive Officers as a Group (Eight Persons)
|
60,540,878
(10)
|
71.8
%
|
|
|
|
|
|
Other 5% or more Shareholders:
|
|
|
|
Megan
Martin
Shareholder
|
5,400,000
(11)
|
10.3
%
|
|
|
|
|
|
Yuan Sheng
Zhang
Shareholder
|
5,400,000
(12)
|
10.3
%
|
|
|
|
|
|
Shang Wen
Yang
Shareholder
|
4,000,000
(13)
|
8.1
%
|
|
|
|
|
|
Unison
International Holdings Ltd.
Shareholder
|
6,400,000
(14)
|
12.4
%
|
|
|
|
|
|
Zongshen (Canada)
Environtech Ltd.
Shareholder
|
5,600,000
(15)
|
11.1
%
|
|
|
|
|
58
|
*
|
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 January 25, 2018.
|
|
(2)
|
The
percentage is calculated based on 47,994,209 common shares that
were outstanding as of January 25, 2018.
|
|
(3)
|
This
figure consists of (i) 7,175,000 common
shares
registered directly to Jerry Kroll,
(ii) 10,000,000 common
shares
registered to Ascend Sportmanagement Inc., which Mr. Kroll has
discretionary voting and investment authority over securities held
by Ascend Sportmanagement Inc., (iii) 175,000 common
shares
issuable upon exercise of warrants
registered directly to Mr. Kroll, (iv) 30,625,000 stock options to
purchase 30,625,000 shares of our common share which have vested,
and (v) 2,083,332 stock options to purchase 2,083,332 shares of our
common share which will vest within 60 days of January 25,
2018.
|
|
(4)
|
This
figure consists of (i) 62,500 common
shares
registered directly to Iain Ball,
(ii) 62,500 common
shares
issuable upon exercise of warrants registered directly to Mr. Ball,
(iii) 666,667 stock options to purchase 666,667 shares of our
common share which have vested, and (iv) 52,082 stock options to
purchase 52,082 shares of our common share which will vest within
60 days of January 25, 2018.
|
|
(5)
|
This
figure consists of (i) 4,750,000 common
shares
registered directly to Henry
Reisner, (ii) 1,050,000 common
shares
held of record by Mr.
Reisner’s wife, (iii) 250,000 common
shares
held of record by Mr.
Reisner’s daughter, (iv) 1,354,167 stock options to purchase
1,354,167 shares of our common share which have vested, and (v)
104,164 stock options to purchase 104,164 shares of our common
share which will vest within 60 days of January 25,
2018.
|
|
(6)
|
This
figure consists of (i) 500,000 common
shares
registered directly to Ed Theobald,
(ii) 666,667 stock options to purchase 666,667 shares of our common
share which have vested, and (iii) 52,082 stock options to purchase
52,082 shares of our common share which will vest within 60 days of
January 25, 2018.
|
|
(7)
|
This
figure consists of (i) 41,667 stock options to purchase 41,667
shares of our common share which have vested, and (ii) 3,122 stock
options to purchase 3,122 shares of our common share which will
vest within 60 days of January 25, 2018.
|
|
(8)
|
This
figure consists of (i) 187,500 common
shares
registered directly to Robert
Tarzwell, (ii) 187,500 common
shares
held of record by Robert Tarzwell
M.D. Inc., which Mr. Tarzwell has discretionary voting and
investment authority over such securities, (iii) 187,500 common
shares
issuable upon exercise
of warrants registered directly to Mr. Tarzwell, (iv) 187,500
common
shares
issuable upon
exercise of warrants held of record by Robert Tarzwell M.D. Inc.,
(v) 14,583 stock options to purchase 14,583 shares of our common
share which have vested, and (vi) 1,040 stock options to purchase
1,040 shares of our common share which will vest within 60 days of
January ,25 2018.
|
|
(9)
|
This
figure consists of (i) 15,500 common
shares
registered directly to Mark West,
(ii) 15,500 common
shares
issuable upon exercise of warrants registered directly to Mr. West,
(iii) 60,938 stock options to purchase 60.938 shares of our common
share which have vested, and (iv) 9,375 stock options to purchase
9,375 shares of our common stock which will vest within 60 days of
January 25, 2018.
|
|
(10)
|
This
figure consists of (i) 24,178,000 common
shares and
(ii) 36,362,878 of common shares
underlying warrants and stock options which have vested or will
vest within 60 days of January 25, 2018.
|
|
(11)
|
This
figure consists of (i) 1,250,000 common
shares
registered directly to Megan Martin,
(ii) 1,250,000 common
shares
held of record by Ms. Martin’s husband, Yuan Sheng Zhang,
(iii) 200,000 common
shares
held of record by Ms. Martin’s son, Bo Hong Zhang, (iv)
1,250,000 common
shares
issuable upon exercise of warrants registered directly to Ms.
Martin, (v) 1,250,000 common
shares
issuable upon exercise of warrants
held of record by Ms. Martin’s husband, and (vi) 200,000
common
shares
issuable upon
exercise of warrants held of record by Ms. Martin’s
son.
|
|
(12)
|
This
figure consists of (i) 1,250,000 common
shares
registered directly to Yuan Sheng
Zhang, (ii) 1,250,000 common
shares
held of record by Mr. Zhang’s
wife, Megan Martin, (iii) 200,000 common
shares
held of record by Mr. Zhang’s
son, Bo Hong Zhang, (iv) 1,250,000 common
shares
issuable upon exercise of warrants
registered directly to Mr. Zhang, (v) 1,250,000 common
shares
issuable upon exercise of warrants
held of record by Mr. Zhang’s wife, and (vi) 200,000 common
shares
issuable upon exercise
of warrants held of record by Mr. Zhang’s son.
|
|
(13)
|
This
figure consists of (i) 2,000,000 common
shares
registered directly to Cheng Qun
Sang and (ii) 2,000,000 common
shares
issuable upon exercise of warrants
registered directly to Cheng Qun Sang.
|
|
(14)
|
This
figure consists of (i) 2,400,000 common
shares
registered to Unison International
Holdings Ltd. and (ii) 4,000,000 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.
|
|
(15)
|
This
figure consists of (i) 2,800,000 common
shares
registered to Zongshen (Canada)
Environtech Ltd. and (ii) 2,800,000 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 or controlled or
directed, directly or indirectly, not being within our knowledge,
has been furnished by the officers and directors.
As at December 18, 2017, there were 98 holders of record of
our
common
shares.
Approximately nine registered holders have mailing addresses in the
United States and together hold approximately 944,000
common
shares, which constitutes
approximately 2% of our issued and outstanding
common
shares as of December 18,
2017.
59
Transactions with Related Parties
Jerry Kroll
On
October 16, 2017, Jerry Kroll, our President and 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 800,000 common shares of the Company
at a deemed price of USD $2.00. 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 $2.00 per common
share.
From February 16, 2015 to November 13, 2015, Mr. Kroll provided us
with a loans 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 125,000 post-subdivision units at a price of $0.40 per
unit.
On February 16, 2015, Mr. Kroll acquired 7,000,000 Common Shares
and Ascend Sportmanagement Inc., a corporation under the control
and direction of Mr. Kroll, acquired 10,000,000 Common Shares at a
price of $0.0002 per Common Share pursuant to a private placement.
In addition, on June 15, 2015, Mr. Kroll acquired 50,000 units at a
price of $0.20 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 $0.40 per Common Share until June 15, 2020.
Furthermore, on January 22, 2016, Mr. Kroll acquired 125,000 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 $1.00 per Common Share until January 22,
2021.
On June 11, 2015 we granted 45,000,000 stock options to Mr. Kroll
having an exercise price of $0.15 per Common Share until June 11,
2022. In addition, on December 9, 2015 we granted 5,000,000 stock
options to Mr. Kroll having an exercise price of $0.40 per Common
Share until December 9, 2022. Furthermore, on February 17, 2017 we
granted 10,000 stock options to Mr. Kroll having an exercise price
of $1.00 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 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. The Note bears
interest at 5% per annum, and is payable in installments of
$500,000 plus accrued interest on the sixth, twelfth and eighteenth
month after purchase. Under the Note, if we raise 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 Note is
secured by the assets of Intermeccanica. We also agreed in the SPA
that until all amounts under the Note are fully paid, Mr. Reisner,
as a director and officer of Intermeccanica, will have the right at
all times, working with our management, to manage its day-to-day
operations and business decisions.
On February 16, 2015, Mr. Henry Reisner acquired 4,750,000 Common
Shares at a price of $0.0002 per Common Share pursuant to a private
placement. Mr. Reisner’s wife and daughter acquired 1,050,000
Common Shares and 250,000 Common Shares, respectively, at a price
of $0.0002 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 1,250,000 stock options to Mr.
Reisner having an exercise price of $0.15 per Common Share until
August 13, 2022. In addition, on December 9, 2015, we granted
1,250,000 stock options to Mr. Reisner having an exercise price of
$0.40 per Common Share until December 9, 2022. Furthermore, on
February 17, 2017, we granted 10,000 stock options to Mr. Reisner
having an exercise price of $1.00 per Common Share until February
17, 2024.
Iain Ball
On August 13, 2015, we granted 500,000 stock option to Iain Ball
having an exercise price of $0.15 per Common Share until August 13,
2022. In addition on December 9, 2015, we granted 750,000 stock
options to Mr. Ball having an exercise price of $0.40 per Common
Share until December 9, 2022. Furthermore, on February 17, 2017 we
granted 10,000 stock options to Mr. Ball having an exercise price
of $1.00 per Common Share until February 17, 2024.
On August 19, 2015, Mr. Iain Ball acquired 62,500 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 $1.00 per Common Share until
August 19, 2020.
60
Kulwant Sandher
On February 17, 2017, we granted 250,000 stock options to Mr.
Sandher having an exercise price of $1.00 per Common Share until
February 17, 2024.
Ed Theobald
On February 16, 2015, Mr. Ed Theobald acquired 500,000 Common
Shares at a price of $0.0002 per Common Share pursuant to a private
placement.
On August 13, 2015, we granted 500,000 stock options to Mr.
Theobald having an exercise price of $0.15 per Common Share until
August 13, 2022. In addition on December 9, 2015, we granted
750,000 stock options to Mr. Theobald having an exercise price of
$0.40 per Common Share until December 9, 2022. Furthermore, on
February 17, 2017 we granted 10,000 stock options to Mr. Theobald
having an exercise price of $1.00 per Common Share until February
17, 2024.
Shaun Greffard
On August 13, 2015, we granted 50,000 stock options to Mr. Sean
Greffard having an exercise price of $0.15 per Common Share until
August 13, 2022. In addition on December 9, 2015, we granted 25,000
stock options to Mr. Greffard having an exercise price of $0.40 per
Common Share until December 9, 2022. Furthermore, on February 17,
2017 we granted 250,000 stock options to Mr. Greffard having an
exercise price of $1.00 per Common Share until February 17,
2024.
Robert Tarzwell
On June 26, 2015, Mr. Robert Tarzwell acquired 187,500 units and
Robert Tarzwell M.D. Inc., a corporation under the control and
direction of Mr. Tarzwell, acquired 187,500 units at a price of
$0.20 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 $0.40 per Common Share until
June 26, 2020.
On August 13, 2015, we granted 25,000 stock options to Mr. Tarzwell
having an exercise price of $0.15 per Common Share until August 13,
2022. In addition, on February 17, 2017, we granted 5,000 stock
options to Mr. Tarzwell having an exercise price of $1.00 per
Common Share until February 17, 2024.
Mark West
On December 1, 2015, Mr. Mark West acquired 15,500 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 $1.00 per Common Share until
December 1, 2020.
On February 17, 2017, we granted 225,000 stock options to Mr. West
having an exercise price of $1.00 per Common Share until February
17, 2024.
Zongshen (Canada) Environtech Ltd.
On October 2, 2017, we announced a manufacturing agreement with
Zongshen to produce 75,000 SOLO all-electric vehicles over the next
three years. Zongshen is an entity under common control with
Zongshen (Canada) Environtech Ltd., which is the beneficial owner
of approximately 11.1% of our common shares. 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 the Company agrees to reimburse
Zongshen for the cost of the prototype tooling and molds estimated
to be $1.8 million, which shall be payable on or before March 18,
2018, 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
second 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 the Company of the first
production vehicle (which we expect will be in the third quarter of
2018).
61
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 1
st
Avenue,
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 over the next
three years. 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 the Company agrees to reimburse Zongshen for the cost of
the prototype tooling and molds estimated to be $1.8 million, which
shall be payable on or before March 18, 2018, 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 second 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 the Company of the first production vehicle
(which we expect will be in the third quarter of
2018).
Share Pledge Agreement
In
connection with the manufacturing agreement with Zongshen, on
October 16, 2017, Jerry Kroll, our President and CEO, entered into
a Share Pledge Agreement to guarantee the payment by us for the
cost of the prototype tooling and molds estimated to be $1.8
million to Zongshen through the pledge of 800,000 of our common
shares at a deemed price of USD $2.00. 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. The Note
bears interest at 5% per annum, and is 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 we raise 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 Note is secured by the
assets of Intermeccanica. We also agreed in the SPA that until all
amounts under the Note are fully paid, Mr. Reisner, as a director
and officer of Intermeccanica, will have the right at all times,
working with its management, to manage its day-to-day operations
and business decisions.
On September 1, 2017, our common share began to be quoted on the
OTC Market Group Inc.’s Venture Market (the
“OTCQB”) under the symbol “ECCTF”.
On
January 25, 2018
, the last
reported sale price of our common share on the OTCQB was US$4.95
per share, and on
January 25, 2018,
we had approximately
47,994,209 common
shares outstanding. The market for our
common shares is limited, volatile and sporadic. The following
table sets forth, for the periods indicated, the high and low bid
prices of our common shares on the OTCQB as reported by Google
Finance. The following quotations reflect inter-dealer prices,
without retail mark-up, markdown, or commissions, and may not
reflect actual transactions.
|
Month ended
|
|
High
Bid
|
|
Low
Bid
|
|
September
30, 2017
|
US$
|
8.00
|
US$
|
1.50
|
|
October
31, 2017
|
US$
|
7.50
|
US$
|
6.20
|
|
November
30, 2017
|
US$
|
6.75
|
US$
|
5.75
|
|
December
31, 2017
|
US$
|
7.50
|
US$
|
5.00
|
We submitted our application for listing on the Nasdaq Capital
Markets on October 17, 2017. This application might not be
approved.
62
Shares Eligible for Future Sale
Upon completion of this offering, we will have
common
shares
outstanding, not
including shares underlying underwriter warrants (please see below
“Underwriter Warrants”) or any shares that may be sold
pursuant to the underwriter’s 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 no public market for our
common share
. We have applied to
list the common share on the NASDAQ Capital Market, but we cannot
assure you that our application will be approved or a regular
trading market will develop in the common share.
We might consummate and close this
offering without a listing approval letter from the Nasdaq Capital
Market.
Additionally, we have approximately 35,244,271 vested options and
23,713,716 warrants outstanding as of December 31, 2017. The
exercise price of the majority of these options and warrants is
significantly below our current market price.
Underwriter 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 sold in this offering to investors introduced to the
underwriters by us and 5% of all other common shares sold in this
offering). The warrants will be exercisable from time to time, in
whole or in part, from one year of the closing of the offering
until five years from the first public sale of common shares in the
offering. The warrants are exercisable at a per share price equal
to IPO 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
All of our common shares that will be outstanding upon the
completion of this offering, other than those common shares sold in
this offering, are “restricted securities” as that term
is defined in Rule 144 under the Securities Act and may be sold
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
those provided by Rule 144 and Rule 701 promulgated under the
Securities Act. In general, beginning 90 days after the date of
this prospectus, 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, 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.
|
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.
Rule 701
In general, under Rule 701 of the Securities Act as currently in
effect, each of our employees, consultants or advisors who
purchases our
common
share
from us in connection
with a compensatory stock plan or other written agreement executed
prior to the completion of this offering is eligible to resell
those
common shares
in reliance
on Rule 144, but without compliance with some of the restrictions,
including the holding period, contained in Rule 144. However, the
Rule 701 shares would remain subject to lock-up arrangements and
would only become eligible for sale when the lock-up period
expires.
63
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
|
|
|
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.
64
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 the Company for any profit or gain realized
on it, or both); or (ii) our directors’ power, in the absence
of an independent quorum, to vote compensation to themselves or any
members of their body.
Our Articles do not set out a mandatory retirement age for our
directors. Our directors are not required to own securities of our
company to serve as directors.
Authorized Capital
Our Notice of Articles provide that our authorized capital consists
of an unlimited number of common shares, without par value, and an
unlimited number of preferred shares, without par value, which have
special rights or restrictions.
Rights, Preferences and Restrictions Attaching to Our
Shares
The
Business Corporations
Act
provides the following
rights, privileges, restrictions and conditions attaching to our
common shares:
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to vote
at meetings of shareholders, except meetings at which only holders
of a specified class of shares are entitled to vote;
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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
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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.
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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:
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(a)
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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;
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(b)
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create
an identifying name for the shares of that series, or alter any
such identifying name; and
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(c)
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attach
special rights or restrictions to the shares of that series, or
alter any such special rights or restrictions.
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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.
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Shareholder Meetings
The
Business Corporations
Act
provides that: (i) a
general meetings of shareholders must be held in British Columbia,
or may be held at a location outside British Columbia since our
Articles do not restrict our company from approving a location
outside of British Columbia for the holding of the general meeting
and the location for the meeting is approved by ordinary
resolution, or the location for the meeting is approving in writing
by the British Columbia Registrar of Companies before the meeting
is held; (ii) directors must call an annual meeting of shareholders
not later than 15 months after the last preceding annual meeting;
(iii) for the purpose of determining shareholders entitled to
receive notice of or vote at meetings of shareholders, the
directors may fix in advance a date as the record date for that
determination, provided that such date shall not precede by more
than two months or by less than 21 days the date on which the
meeting is to be held; (iv) the holders of not less than 5% of the
issued shares entitled to vote at a meeting may requisition the
directors to call a meeting of shareholders for the purposes stated
in the requisition; (v) only shareholders entitled to vote at the
meeting, our directors and our auditor are entitled to be present
at a meeting of shareholders; and (vi) upon the application of a
director or shareholder entitled to vote at the meeting, the
British Columbia Supreme Court may order a meeting to be called,
held and conducted in a manner that the Court
directs.
Pursuant to Article 8.20 of our Articles, a shareholder or proxy
holder who is entitled to participate in a meeting of shareholders
may do so in person, or by telephone or other communications
medium, if all shareholders and proxy holders participating in the
meeting are able to communicate with each other; provided, however,
that nothing in Article 8.20 of our Articles shall obligate us to
take any action or provide any facility to permit or facilitate the
use of any communications medium at a meeting of shareholders. If
one or more shareholders or proxy holders participate in a meeting
of shareholders in a matter contemplated by Article 8.20 of our
Articles:
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(a)
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each
such shareholder or proxy holder shall be deemed to be present at
the meeting; and
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(b)
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the
meeting shall be deemed to be help at the location specified in the
notice of the meeting.
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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.
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 “Certain Canadian Federal Income Tax
Information For United States Residents,” below.
There is no limitation imposed by Canadian law or by the charter or
other constituent documents of our company on the right of a
non-resident to hold or vote common shares of our company. However,
the
Investment Canada
Act
(Canada) (the
“Investment Act”) has rules regarding certain
acquisitions of shares by non-residents, along with other
requirements under that legislation.
The following discussion summarizes the principal features of the
Investment Act for a 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.
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For a proposed indirect acquisition that is not a so-called WTO
transaction and that would result in an acquisition of control of
our company through the acquisition of a non-Canadian parent
entity, the investment would be reviewable where (a) the value of
the Canadian assets acquired in the transaction is $50 million or
more, or (b) the value of the Canadian assets is greater than 50%
of the value of all of the assets acquired in the transaction and
the value of the Canadian assets is $5 million or
more.
In the case of a direct acquisition by or from a “WTO
investor”, the threshold is significantly higher. The 2016
threshold was $600 million was increased to $800 million in April
2017 for a two year period. Other than the exception noted below,
an indirect acquisition involving a WTO investor is not reviewable
under the Investment Act.
The higher WTO threshold for direct investments and the exemption
for indirect investments do not apply where the relevant Canadian
business is carrying on a “cultural business”. The
acquisition of a Canadian business that is a “cultural
business” is subject to lower review thresholds under the
Investment Act because of the perceived sensitivity of the cultural
sector.
In 2009, amendments were enacted to the Investment Act concerning
investments that may be considered injurious to national security.
If the Minister of Industry has reasonable grounds to believe that
an investment by a non-Canadian “could be injurious to
national security,” the Minister of Industry may send the
non-Canadian a notice indicating that an order for review of the
investment may be made. The review of an investment on the grounds
of national security may occur whether or not an investment is
otherwise subject to review on the basis of net benefit to Canada
or otherwise subject to notification under the Investment Act. To
date, there is neither legislation nor guidelines published, or
anticipated to be published, on the meaning of “injurious to
national security.” Discussions with government officials
suggest that very few investment proposals will cause a review
under these new sections.
Certain transactions, except those to which the national security
provisions of the Investment Act may apply, relating to common
shares of our company are exempt from the Investment Act,
including
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(a)
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the
acquisition of our common shares by a person in the ordinary course
of that person’s business as a trader or dealer in
securities,
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(b)
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the
acquisition of control of our company in connection with the
realization of security granted for a loan or other financial
assistance and not for a purpose related to the provisions on the
Investment Act, and
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(c)
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the
acquisition of control of our company by reason of an amalgamation,
merger, consolidation or corporate reorganization following which
the ultimate direct or indirect control in fact of our company,
through the ownership of common shares, remained
unchanged.
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MATERIAL INCOME TAX INFORMATION
Canadian Federal Income Tax Considerations
For United States Residents
The following is a summary of the principal Canadian federal income
tax considerations generally applicable to the holding and
disposition of our common shares 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
is not affiliated with us, (iii) holds our common shares as capital
property, (iv) does not use or hold the common shares in the course
of carrying on, or otherwise in connection with, a business carried
on or deemed to be carried on in Canada and (v) is not a
“registered non-resident insurer” or “authorized
foreign bank” (each as defined in the Tax Act), and (b) for
the purposes of the Canada-U.S. Tax Convention, 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, for purposes of the Tax Act, and who
otherwise qualifies for the full benefits of the Canada-U.S. Tax
Convention. The common shares will generally be considered to be
capital property to a holder unless such common shares are held in
the course of carrying on a business of buying or selling
securities, or as part of an adventure or concern in the nature of
trade. Holders who meet all the criteria in clauses (a) and (b)are
referred to herein as “Non-Canadian
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. Such holders and
other holders who do not meet the criteria in clauses (a) and
(b)should consult their own tax advisers.
This summary is based upon the current provisions of the Tax Act,
the regulations thereunder in force at the date hereof
(“Regulations”), the current provisions of the
Canada-U.S. Tax Convention 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 from those discussed in this summary. For the purposes of
the Tax Act, all amounts relating to the acquisition, holding or
disposition of our common shares 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 Non-Canadian Holder and no representation with respect
to the Canadian federal income tax consequences to any particular
Non-Canadian Holder or prospective Non-Canadian Holder is made.
This summary is not exhaustive of all Canadian federal income tax
considerations. Accordingly, prospective purchasers should consult
with their own tax advisors for advice with respect to their own
particular circumstances.
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Withholding Tax on Dividends
Amounts paid or credited or deemed to be paid or credited as, on
account or in lieu of payment, or in satisfaction of, dividends on
our common shares to a Non Canadian Holder will be subject to
Canadian withholding tax. Under the Canada-U.S. Tax Convention, the
rate of Canadian withholding tax on dividends paid or credited by
us to a Non-Canadian Holder that beneficially owns such dividends
is generally 15% unless the beneficial owner is a company, which
owns at least 10% of our voting stock at that time, in which case
the rate of Canadian withholding tax is reduced to 5%.
Dispositions
A Non-Canadian Holder will not be subject to tax under the Tax Act
on any capital gain realized on a disposition or deemed disposition
of a common share, unless the common shares are “taxable
Canadian property” to the Non-Canadian Holder for purposes of
the Tax Act and the Non-Canadian Holder is not entitled to relief
under an applicable income tax convention between Canada and the
country in which the Non-Canadian Holder is resident.
Generally, the common shares will not constitute “taxable
Canadian property” to a Non-Canadian 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 the common shares 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 in any of the
foregoing whether or not the property exists. Notwithstanding the
foregoing, in certain circumstances set out in the Tax Act, common
shares could be deemed to be “taxable Canadian
property”. Non-Canadian Holders whose common shares may
constitute “taxable Canadian property” should consult
their own tax advisors.
Under the Canada-U.S. Tax Convention, the gains derived by a
Non-Canadian Holder from the disposition of common shares would
generally not be taxable in Canada unless the value of the common
shares is derived principally from real property situated in
Canada. We believe that the value of our common shares are not
currently derived principally from real property situated in
Canada, and we do not expect this to change in the foreseeable
future.
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 common share. This summary applies only to U.S. Holders that
acquire our common shares pursuant to this prospectus and does not
apply to any subsequent U.S. Holder of our common
shares.
This summary is for general information purposes only and does not
purport to be a complete analysis or listing of all potential U.S.
federal income tax considerations that may apply to a U.S. Holder
as a result of the acquisition, ownership and disposition of our
common shares. In addition, this summary does not take into account
the individual facts and circumstances of any particular U.S.
Holder that may affect the U.S. federal income tax consequences to
such U.S. Holder, including specific tax consequences to a U.S.
Holder under an applicable tax treaty. Accordingly, this summary is
not intended to be, and should not be construed as, legal or U.S.
federal income tax advice with respect to any particular U.S.
Holder.
In addition, this summary does not address the
U.S. federal alternative minimum, U.S. federal estate and gift,
U.S. Medicare contribution, U.S. state and local, or non-U.S. tax
consequences of the acquisition, ownership or disposition of our
common shares. Except as specifically set forth below, this summary
does not discuss applicable tax reporting
requirements.
Each U.S. Holder should consult
its own tax advisor regarding all U.S. federal, U.S. state and
local and non-U.S. tax consequences of the acquisition, ownership
and disposition of our common shares.
No opinion from U.S. legal counsel or ruling from the Internal
Revenue Service (the “IRS”) has been requested, or will
be obtained, regarding the U.S. federal income tax consequences of
the acquisition, ownership or disposition of our common shares.
This summary is not binding on the IRS, and the IRS is not
precluded from taking a position that is different from, or
contrary to, any position taken in this summary. In addition,
because the authorities upon which this summary is based are
subject to various interpretations, the IRS and the U.S. courts
could disagree with one or more of the positions taken in this
summary.
Scope of This Disclosure
Authorities
This summary is based on the Internal Revenue Code of 1986, as
amended (the “Code”), Treasury Regulations (whether
final, temporary, or proposed), published rulings of the IRS,
published administrative positions of the IRS, the Convention
Between Canada and the United States of America with Respect to
Taxes on Income and on Capital, signed September 26, 1980, as
amended (the “Canada-U.S. Tax Convention”), and U.S.
court decisions that are applicable and, in each case, as in effect
and available, as of the date hereof. Any of the authorities on
which this summary is based could be changed in a material and
adverse manner at any time, and any such change could be applied on
a retroactive or prospective basis, which could affect the U.S.
federal income tax considerations described in this summary. This
summary does not discuss the potential effects, whether adverse or
beneficial, of any proposed legislation that, if enacted, could be
applied on a retroactive or prospective basis.
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U.S. Holders
For purposes of this summary, the term “U.S. Holder”
means a beneficial owner of our common shares that is for U.S.
federal income tax purposes:
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an
individual who is a citizen or resident of the U.S.;
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a
corporation (or other entity taxable as a corporation for U.S.
federal income tax purposes) created or organized in or under the
laws of the U.S., any state thereof or the District of
Columbia;
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an
estate, the income of which is subject to U.S. federal income
taxation regardless of its source; or
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a trust
that (a) is subject to the primary supervision of a court within
the U.S. and the control of one or more U.S. persons for all
substantial decisions or (b) has a valid election in effect under
applicable Treasury Regulations to be treated as a U.S.
person.
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Transactions Not Addressed
This summary does not address the tax consequences of transactions
effected prior or subsequent to, or concurrently with, any purchase
of our common shares pursuant to this prospectus (whether or not
any such transactions are undertaken in connection with the
purchase of our common shares pursuant to this
prospectus).
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not
Addressed
This summary does not address the U.S. federal income tax
considerations of the acquisition, ownership or disposition of our
common shares 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 common shares 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
common shares in connection with the exercise of employee stock
options or otherwise as compensation for services; (g) U.S. Holders
that hold our common shares 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 common shares in
connection with carrying on a business in Canada; (d) persons whose
common shares in our company constitutes “taxable Canadian
property” under the Income Tax Act (Canada); or (e) persons
that have a permanent establishment in Canada for purposes of the
Canada-U.S. Tax Convention. U.S. Holders that are subject to
special provisions under the Code, including U.S. Holders described
immediately above, should consult their own tax advisors regarding
all U.S. federal, U.S. state and local, and non-U.S. tax
consequences (including the potential application and operation of
any income tax treaties) relating to the acquisition, ownership or
disposition of our common shares.
If an entity or arrangement that is classified as a partnership (or
other “pass-through” entity) for U.S. federal income
tax purposes holds our common shares, the U.S. federal income tax
consequences to such partnership and the partners (or other owners)
of such partnership of the acquisition, ownership or disposition of
our common shares generally will depend on the activities of the
partnership and the status of such partners (or other owners). This
summary does not address the U.S. federal income tax considerations
for any such partner or partnership (or other
“pass-through” entity or its owners). Owners of
entities and arrangements that are classified as partnerships (or
other “pass-through” entities) for U.S. federal income
tax purposes should consult their own tax advisors regarding the
U.S. federal income tax consequences of the acquisition, ownership
or disposition of our common shares.
Acquisition of Our Common shares
A U.S. Holder generally will not recognize gain or loss upon the
acquisition of our common shares for cash pursuant to this
prospectus. A U.S. Holder’s initial tax basis in our common
shares acquired pursuant to this prospectus will be equal to the
U.S. Holder’s U.S. dollar cost for the common shares. A U.S.
Holder’s holding period for such common shares will begin on
the day after the acquisition.
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Ownership and Disposition of Our Common Shares
Distributions on Our Common Shares
Subject to the “passive foreign investment company”
(“PFIC”) rules discussed below (see “Tax
Consequences if the Company is a PFIC”), a U.S. Holder that
receives a distribution, including a constructive distribution,
with respect to our common shares will be required to include the
amount of such distribution in gross income as a dividend (without
reduction for any Canadian income tax withheld from such
distribution) to the extent of the current or accumulated
“earnings and profits” of the Company, as computed for
U.S. federal income tax purposes. To the extent that a distribution
exceeds the current and accumulated “earnings and
profits” of the Company, such distribution will be treated
first as a tax-free return of capital to the extent of a U.S.
Holder’s tax basis in our common shares and thereafter as
gain from the sale or exchange of such common shares (see
“Sale or Other Taxable Disposition of Our Common
Shares” below). However, the Company may not maintain
calculations of earnings and profits in accordance with U.S.
federal income tax principles, and each U.S. Holder should
therefore assume that any distribution by the Company with respect
to our common shares will constitute a dividend. Dividends received
on our common shares generally will not be eligible for the
“dividends received deduction” available to U.S.
corporate shareholders receiving dividends from U.S. corporations.
If the Company is eligible for the benefits of the Canada-U.S. Tax
Convention or our common shares is readily tradable on an
established securities market in the U.S., dividends paid by the
Company to non-corporate U.S. Holders generally will be eligible
for the preferential tax rates applicable to long-term capital
gains, provided certain holding period and other conditions are
satisfied, including that the Company not be classified as a PFIC
in the tax year of distribution or in the preceding tax year. The
dividend rules are complex, and each U.S. Holder should consult its
own tax advisor regarding the application of such
rules.
Sale or Other Taxable Disposition of Our Common Shares
Subject to the PFIC rules discussed below, upon the sale or other
taxable disposition of our common shares, a U.S. Holder generally
will recognize capital gain or loss in an amount equal to the
difference between the amount of cash plus the fair market value of
any property received and such U.S. Holder’s tax basis in the
common shares sold or otherwise disposed of. Such capital gain or
loss will be long-term capital gain or loss if, at the time of the
sale or other taxable disposition, the U.S. Holder’s holding
period for our common shares is more than one year. Preferential
tax rates apply to long-term capital gains of non-corporate U.S.
Holders. There are currently no preferential tax rates for
long-term capital gains of a U.S. Holder that is a corporation.
Deductions for capital losses are subject to significant
limitations under the Code.
PFIC Status of the Company
If the Company is or becomes a PFIC, the preceding sections of this
summary may not describe the U.S. federal income tax consequences
to U.S. Holders of the ownership and disposition of our common
shares. The U.S. federal income tax consequences of owning and
disposing of our common shares if the Company is or becomes a PFIC
are described below under the heading “Tax Consequences if
the Company is a PFIC.”
A non-U.S. corporation is a PFIC for each tax year in which (i) 75%
or more of its gross income is passive income (as defined for U.S.
federal income tax purposes) (the “income test”) or
(ii) on average for such tax year, 50% or more (by value) of its
assets either produces or is held for the production of passive
income (the “asset test”). For purposes of the PFIC
provisions, “gross income” generally includes sales
revenues less cost of goods sold, plus income from investments and
from incidental or outside operations or sources, and
“passive income” generally includes dividends,
interest, certain rents and royalties, and certain gains from
commodities or securities transactions. In determining whether or
not it is a PFIC, a non-U.S. corporation is required to take into
account its pro rata portion of the income and assets of each
corporation in which it owns, directly or indirectly, at least a
25% interest (by value). If certain conditions are met, a start-up
non-U.S. corporation is not a PFIC in the first year that it has
gross income, but could be a PFIC in one or more earlier years in
which it has no gross income but satisfies the asset
test.
Under certain attribution and indirect ownership rules, if the
Company is a PFIC, U.S. Holders will generally be deemed to own
their proportionate shares of the Company’s direct or
indirect equity interest in any company that is also a PFIC (a
“Subsidiary PFIC”). At this time, however, the Company
does not own any direct or indirect equity interests in another
company.
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.
70
Tax Consequences if the Company is a PFIC
If the Company is a PFIC for any tax year during which a U.S.
Holder owns our common shares, special rules may increase such U.S.
Holder’s U.S. federal income tax liability with respect to
the ownership and disposition of such common shares. If the Company
meets the income test or the asset test for any tax year during
which a U.S. Holder owns our common shares, 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 makes a timely and
effective QEF Election or, if applicable, Mark-to-Market
Election.
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 (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 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.
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 is 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 our common shares but not with respect to a
Subsidiary PFIC. At this time, however, our common shares is not
listed or posted for trading on any securities exchange or stock
quotation system, and therefore is not considered to be
“regularly traded” for this purpose.
71
Should our common shares become “regularly traded,” a
U.S. Holder that makes a timely and effective Mark-to-Market
Election with respect to our common shares 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 common shares 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 common
shares 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 common shares generally will be decreased by the
amount of ordinary loss recognized with respect to such stock. Any
gain recognized upon a disposition of our common shares generally
will be treated as ordinary income, and any loss recognized upon a
disposition generally will be treated as ordinary loss to the
extent of the net mark-to-market income recognized for all prior
taxable years. Any loss recognized in excess thereof will be taxed
as a capital loss. Capital losses are subject to significant
limitations under the Code. Each U.S. Holder should consult its own
tax advisor regarding the availability and desirability of, and
procedure for, making a timely and effective Mark-to-Market
Election with respect to our common shares.
Foreign Tax Credit
A U.S. Holder that pays (whether directly or through withholding)
Canadian income tax in connection with the ownership or disposition
of our common shares may be entitled, at the election of such U.S.
Holder, to receive either a deduction or a credit for such Canadian
income tax paid. Generally, a credit will reduce a U.S.
Holder’s U.S. federal income tax liability on a
dollar-for-dollar basis, whereas a deduction will reduce a U.S.
Holder’s income subject to U.S. federal income tax. This
election is made on a year-by-year basis and applies to all
creditable foreign taxes paid (whether directly or through
withholding) by a U.S. Holder during a year.
Complex limitations apply to the foreign tax credit, including the
general limitation that the credit cannot exceed the proportionate
share of a U.S. Holder’s U.S. federal income tax liability
that such U.S. Holder’s “foreign source” taxable
income bears to such U.S. Holder’s worldwide taxable income.
In applying this limitation, a U.S. Holder’s various items of
income and deduction must be classified, under complex rules, as
either “foreign source” or “U.S. source.”
Generally, dividends paid by a non-U.S. corporation should be
treated as foreign source for this purpose, and gains recognized on
the sale of securities of a non-U.S. corporation by a U.S. Holder
should be treated as U.S. source for this purpose, except as
otherwise provided in an applicable income tax treaty, and if an
election is properly made under the Code. However, the amount of a
distribution with respect to our common shares that is treated as a
“dividend” may be lower for U.S. federal income tax
purposes than it is for Canadian federal income tax purposes,
resulting in a reduced foreign tax credit allowance to a U.S.
Holder. In addition, this limitation is calculated separately with
respect to specific categories of income. The foreign tax credit
rules are complex, and each U.S. Holder should consult its own U.S.
tax advisor regarding the foreign tax credit rules.
Special rules apply to the amount of foreign tax credit that a U.S.
Holder may claim on a distribution, including a constructive
distribution, from a PFIC. Subject to such special rules, non-U.S.
taxes paid with respect to any distribution in respect of stock in
a PFIC are generally eligible for the foreign tax
credit
.
The rules relating to distributions by a PFIC and
their eligibility for the foreign tax credit are complicated, and a
U.S. Holder should consult its own tax advisor regarding their
application to the U.S. Holder.
Receipt of Foreign Currency
The amount of any distribution or proceeds paid in Canadian dollars
to a U.S. Holder in connection with the ownership, sale or other
taxable disposition of our common shares, will be included in the
gross income of a U.S. Holder as translated into U.S. dollars
calculated by reference to the exchange rate prevailing on the date
of actual or constructive receipt of the payment, regardless of
whether the Canadian dollars are converted into U.S. dollars at
that time. If the Canadian dollars received are not converted into
U.S. dollars on the date of receipt, a U.S. Holder will have a
basis in the Canadian dollars equal to their U.S. dollar value on
the date of receipt. Any U.S. Holder who receives payment in
Canadian dollars and engages in a subsequent conversion or other
disposition of the Canadian dollars may have a foreign currency
exchange gain or loss that would be treated as ordinary income or
loss, and generally will be U.S. source income or loss for foreign
tax credit purposes. Different rules apply to U.S. Holders who use
the accrual method with respect to foreign currency. Each U.S.
Holder should consult its own U.S. tax advisor regarding the U.S.
federal income tax consequences of receiving, owning, and disposing
of Canadian dollars.
72
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 28%, 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.
THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS
OF ALL U.S. TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH
RESPECT TO THE ACQUISITION, OWNERSHIP OR DISPOSITION OF OUR COMMON
SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO
THE TAX CONSIDERATIONS APPLICABLE TO THEM IN THEIR PARTICULAR
CIRCUMSTANCES.
We intend to offer our securities described in this prospectus
through the underwriters named below. Subject to the terms and
conditions of the underwriting agreement, the underwriters, through
their representative,
, have (i)
severally agreed to purchase form us on a firm commitment basis the
following respective number of units at a public offering price
less the underwriting discounts and commissions set forth on the
cover page of this prospectus and (ii) have the option to purchase
up to
common
shares to cover over-allotments
:
|
Underwriter
|
|
Number of Common Shares in Offering
|
Number of Common Shares in Over-Allotment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
A copy of the underwriting agreement will be filed as an exhibit to
the registration statement of which this prospectus forms a
part.
The common shares should be ready for delivery on or about
, 2018,
against payment in immediately available funds. The underwriters
may reject all or part of any order.
Neither the underwriters nor any of their respective affiliates
have provided any services to us or our affiliates in the
past.
73
Pricing of this Offering
We have been advised by the representative that the underwriters
propose to offer the common shares to the public at the offering
price set forth on the cover page of this prospectus. They may
allow some dealers concessions not in excess of US$
per common share and the dealers may
reallow a concession not in excess of US$
per common share
to other dealers.
Prior
to this offering there has been a limited public market for our
securities. The public offering price of the units was negotiated
between us and the representative of the underwriters. Factors
considered in determining the prices and terms of the units
include:
●
the
trading history of our common shares on the OTCQB;
●
prior
offerings of those companies;
●
our
capital structure;
●
securities
exchange listing requirements;
●
market
demand;
●
expected
liquidity of our securities; and
●
general
conditions of the securities markets at the time of the
offering.
Commissions, Discounts, Fees and Expenses
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, the maximum underwriting discount to be paid by us to the
underwriters and the minimum proceeds, before expenses, to
us.
|
|
|
Per
Common Share
|
|
Without
Over-allotment
|
|
With
Over-allotment
|
|
Public offering price
|
US$
|
|
US$
|
|
US$
|
|
|
Discount
|
US$
|
|
US$
|
|
US$
|
|
|
Proceeds before expenses
(2)
|
US$
|
|
US$
|
|
US$
|
|
(1)
The offering
expenses are estimated at US$
.
In addition to the cash commission, we will also reimburse the
Underwriter for the full amount of its reasonable, non-accountable
expenses of up to 0.5% of the gross proceeds raised in the
offering, in addition to FINRA-related fees, the fees of the
underwriters’ legal counsel, certain diligence and other
fees, including reimbursement for background checks on our
directors, director nominees and executive officers, which such
fees and expenses are capped at an aggregate of US$ .
We have also agreed to issue to the underwriters warrants to
purchase up to a total
of
common shares (equal to 1.5% of the
common shares sold in this offering to investors introduced to the
underwriters by us and 5% of all other common shares sold in this
offering)
Over-allotment Option
We have granted the underwriters an over-allotment option. This
option, which is exercisable for up to
days after
the date of this prospectus, permits the underwriters to purchase a
maximum of
additional common shares from us to cover over-allotments. If the
underwriters exercise all or part of this option, they will
purchase the common shares covered by the option at the public
offering price that appears on the cover page of this prospectus,
less the underwriting discount. If this option is exercised in
full, the total price to the public will be
$ million and
the total proceeds to us will be
$ million,
based on the public offering price of
US$ per
common share and assuming the number of common shares issued in
this offering does not change. The underwriters have severally
agreed that, to the extent the over-allotment option is exercised,
they will each purchase a number of additional common shares
proportionate to the underwriters’ initial amount reflected
in the table above.
Price Stabilization
To facilitate this offering, persons participating in this offering
may engage in transactions that stabilize, maintain, or otherwise
affect the price of our common shares during and after this
offering. Specifically, the underwriters may engage in the
following activities in accordance with the rules of the
SEC.
Short sales
. Short sales
involve the sales by the underwriters of a greater number of shares
than they are required to purchase in the offering. Covered short
sales are short sales made in an amount not greater than the
underwriters’ over-allotment option to purchase additional
shares from us in this offering. The underwriters may close out any
covered short position by either exercising their over-allotment
option to purchase shares or purchasing shares or common shares in
the open market. In determining the source of shares to close out
the covered short position, the underwriters will consider, among
other things, the price of shares or common shares available for
purchase in the open market as compared to the price at which they
may purchase shares through the over-allotment option. Naked short
sales are any short sales in excess of such over-allotment option.
The underwriters must close out any naked short position by
purchasing shares or common shares 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 the
common shares in the open market after pricing that could adversely
affect investors who purchase in this offering.
74
Stabilizing transactions
. The
underwriters may make bids for or purchases of the shares or common
shares for the purpose of pegging, fixing, or maintaining the price
of the shares or common shares, so long as stabilizing bids do not
exceed a specified maximum.
Penalty bids
. If the
underwriters purchase shares or common shares in the open market in
a stabilizing transaction or syndicate covering transaction, they
may reclaim a selling concession from the underwriters and selling
group members who sold those shares or common shares as part of
this offering. Stabilization and syndicate covering transactions
may cause the price of the shares or common shares to be higher
than it would be in the absence of these transactions. The
imposition of a penalty bid might also have an effect on the price
of the shares or common shares if it discourages resale of the
shares or common shares.
The transactions above may occur on NASDAQ. Neither we nor the
underwriters make any representation or prediction as to the effect
that the transactions described above may have on the price of our
shares or common shares. If these transactions are commenced, they
may be discontinued without notice at any time.
Determination of Offering Price
The public offering price of the shares we are offering was
determined by us in consultation with the Underwriter based on
discussions with potential investors in light of the history and
prospects of our company, the stage of development of our business,
our business plans for the future and the extent to which they have
been implemented, an assessment of our management, the public stock
price for similar companies, general conditions of the securities
markets at the time of the Offering and such other factors as were
deemed relevant.
Electronic Offer, Sale and Distribution of Securities.
A prospectus in electronic format may be delivered to potential
investors by the Underwriter. The prospectus in electronic format
will be identical to the paper version of such prospectus. Other
than the prospectus in electronic format, the information on the
Underwriter’ website and any information contained in any
other website maintained by the Underwriter is not part of the
prospectus or the registration statement of which this prospectus
forms a part.
Foreign Regulatory Restrictions on Purchase of our
Shares
We have not taken any action to permit a public offering of our
shares outside the United States or to permit the possession or
distribution of this prospectus outside the United States. People
outside the United States who come into possession of this
prospectus must inform themselves about and observe any
restrictions relating to this Offering of our shares and the
distribution of this prospectus outside the United
States.
Indemnification
We have agreed to indemnify the underwriter against liabilities
relating to the Offering arising under the Securities Act and the
Exchange Act and to contribute to payments that the underwriter may
be required to make for these liabilities.
Application for Nasdaq Market Listing
We have applied to have our common share approved for
listing/quotation on the Nasdaq Capital Market. We cannot assure
you that our application will be approved. We will not consummate
and close this offering without a listing approval letter from the
Nasdaq Capital Market.
If the application is approved, trading of our common share on the
Nasdaq Capital Market will begin within five days following the
closing of this offering. If our common shares are listed on the
Nasdaq Capital Market, we will be subject to continued listing
requirements and corporate governance standards. We expect these
new rules and regulations to significantly increase our legal,
accounting and financial compliance costs.
Foreign Regulatory Restrictions on Purchase of our
Shares
We have not taken any action to permit a public offering of our
shares outside the United States or to permit the possession or
distribution of this prospectus outside the United States. People
outside the United States who come into possession of this
prospectus must inform themselves about and observe any
restrictions relating to this offering of our shares and the
distribution of this prospectus outside the United
States.
75
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 listing fee,
all amounts are estimates.
|
Securities
and Exchange Commission Registration Fee
|
|
US$
|
3,424
|
|
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$
|
237,674
|
Under the Underwriting Agreement, we will pay our underwriter 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 Underwriter for the
full amount of its reasonable, non-accountable expenses of up to
0.5% 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 $
.
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, 14
th
Floor,
New York, NY 10022. McMillan LLP
is acting as
Canadian counsel to the Underwriter.
The current address of
McMillan LLP
is
Royal Centre, 1055 W.
Georgia Street, Suite 1500, PO Box 11117, Vancouver, British
Columbia V6E 4N7.
is
acting as counsel to the Underwriter.
The current address of
is
.
Our management is not aware of any legal proceedings contemplated
by any governmental authority or any other party involving us. 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.
The financial statements of Electrameccanica Vehicles Corp. as of
December 31, 2016 and December 31, 2015 and for the year and period
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.
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.
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.
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.
76
|
Annual
Financial Statements for the Year Ended December 31,
2016
|
|
|
Report of the
Company’s Registered Independent Accounting Firm
|
F-2
|
|
Statements of
Financial Position as at December 31, 2016 and 2015
|
F-3
|
|
Statements of
Comprehensive Loss for the Years Ended December 31, 2016 and
2015
|
F-4
|
|
Statement of
Changes in Shareholders’ Equity for the Years Ended December
31, 2016 and 2015
|
F-5
|
|
Statements of Cash
Flows for the Years Ended December 31, 2016 and 2015
|
F-6
|
|
Notes to the
Financial Statements for the Years Ended December 31, 2016 and
2015
|
F-7
|
|
Statements of
Financial Position as at September 30, 2017
|
F-24
|
|
Statements of
Comprehensive Loss for the Nine Months Ended September 30,
2017
|
F-25
|
|
Statement of
Changes in Shareholders’ Equity for the Nine Months Ended
September 30, 2017
|
F-26
|
|
Statements of Cash
Flows for the Nine Months Ended September 30, 2017
|
F-27
|
|
Notes to the
Financial Statements for the Nine Months Ended September 30,
2017
|
F-28
|
Electrameccanica Vehicles Corp.
Financial Statements
Year Ended December 31, 2016
Expressed in Canadian Dollars
F-1
INDEPENDENT AUDITOR’S REPORT
To the Directors of Electrameccanica Vehicles Corp.
We have audited the accompanying financial statements of
Electrameccanica Vehicles Corp. which comprise the statement of
financial position as at December 31, 2016 and December 31, 2015,
and the statements of comprehensive loss, shareholders’
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 Consolidated Financial
Statements
Management is responsible for the preparation and fair presentation
of these financial statements in accordance with International
Financial Reporting Standards as issued by the International
Accounting Standards Board, and for such internal control as
management determines is necessary to enable the preparation of
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 audit. We conducted our audit in accordance
with Canadian generally accepted auditing standards, and the
standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable
assurance about whether the 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 Electrameccanica
Vehicles Corp. as at December 31, 2016 and 2015, and its financial
performance and its cash flows for the year then ended in
accordance with International Financial Reporting Standards as
issued by the International Accounting Standards
Board.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 1 in the
financial statements which describes certain conditions that
indicate the existence of a material uncertainty that casts
substantial doubt about Electrameccanica Vehicles Corp’s
ability to continue as a going concern. The financial statements do
not include any adjustments that might result from this
uncertainty.
|
|
|
DALE
MATHESON CARR-HILTON LABONTE LLP
|
|
CHARTERED
PROFESSIONAL ACCOUNTANTS
|
|
Vancouver,
Canada
|
|
April
13, 2017
|
F-2
|
Electrameccanica
Vehicles Corp.
|
|
Statements
of Financial Position
|
|
(Expressed
in Canadian dollars)
|
Commitments (Notes 8)
Subsequent events (Note 18)
On behalf of the Board of Directors.
|
/s/
Jerry Kroll_______________
|
/s/
Robert Tarzwell___________
|
|
Director
|
Director
|
|
The
accompanying notes are an integral part of these financial
statements
|
F-3
|
Electrameccanica
Vehicles Corp.
|
|
Statements
of Comprehensive Loss
|
|
(Expressed
in Canadian dollars)
|
|
The
accompanying notes are an integral part of these financial
statements
|
F-4
|
Electrameccanica
Vehicles Corp.
|
|
Statements
of Changes in Equity
|
|
(Expressed
in Canadian dollars)
|
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 11 for further
details.
|
The
accompanying notes are an integral part of these financial
statements
|
F-5
|
Electrameccanica
Vehicles Corp.
|
|
Statements
of Cash Flows
|
|
(Expressed
in Canadian dollars)
|
|
The
accompanying notes are an integral part of these financial
statements
|
F-6
|
Electrameccanica
Vehicles Corp.
|
|
Notes
to the Financial Statements
|
|
(Expressed
in Canadian dollars)
|
|
For the
years ended December 31, 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 manufacturing of single occupancy electric
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 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, 2016 the Company had not
commenced commercial production and is not able to finance day to
day activities through operations. The Company’s continuation
as a going concern is dependent upon the successful results from
its electric vehicles 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. 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 13, 2017 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.
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 property, 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 Financial Statements
|
|
(Expressed
in Canadian dollars)
|
|
For the
years ended December 31, 2016 and 2015
|
2.
Significant accounting policies and
basis of preparation
(cont'd)
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.
F-8
|
Electrameccanica
Vehicles Corp.
|
|
Notes
to the Financial Statements
|
|
(Expressed
in Canadian dollars)
|
|
For the
years ended December 31, 2016 and 2015
|
2.
Significant accounting policies and
basis of preparation
(cont'd)
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 loan and shareholder
loan.
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
equipment and deferred development costs) 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.
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.
F-9
|
Electrameccanica
Vehicles Corp.
|
|
Notes
to the Financial Statements
|
|
(Expressed
in Canadian dollars)
|
|
For the
years ended December 31, 2016 and 2015
|
2.
Significant accounting policies and
basis of preparation
(cont'd)
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.
Property, Plant and Equipment
Property, 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 property, plant and equipment
|
Amortization
rate
|
|
Office furniture
and equipment
|
20
%
|
|
Shop
equipment
|
20
%
|
|
Computer
equipment
|
33
%
|
|
Vehicles
|
33
%
|
|
Leasehold
improvement
|
over
term of lease
|
Trademarks and Patents
The Company capitalizes legal fees and filing costs associated with
the development of its trademarks and patents. Patents are
depreciated over an estimated useful life of 5 years using the
straight-line method, however patents with indefinite useful lives
are not amortized. Depreciation expense for the year ended December
31, 2016 was $nil (2015 - $nil).
Research and Development Costs
Research costs are expensed when incurred and are stated net of
government grants. Development costs including direct material,
direct labor and contract service costs are capitalized as
intangible assets when the Company can demonstrate that the
technical feasibility of the project has been established; the
Company intends to complete the asset for use or sale and has the
ability to do so; the asset can generate probable future economic
benefits; the technical and financial resources are available to
complete the development; and the Company can reliably measure the
expenditure attributable to the intangible asset during its
development. 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, 2016, or in
the prior fiscal period.
F-10
|
Electrameccanica
Vehicles Corp.
|
|
Notes
to the Financial Statements
|
|
(Expressed
in Canadian dollars)
|
|
For the
years ended December 31, 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.
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.
F-11
|
Electrameccanica
Vehicles Corp.
|
|
Notes
to the Financial Statements
|
|
(Expressed
in Canadian dollars)
|
|
For the
years ended December 31, 2016 and 2015
|
4.
Receivables
|
|
December
31,
|
December
31,
|
|
|
2016
|
2015
|
|
GST
receivable
|
$
155,498
|
$
15,864
|
|
IRAP contribution
receivable
|
108,535
|
12,775
|
|
GIC interest
receivable
|
6,000
|
-
|
|
Other
|
1,251
|
-
|
|
|
$
271,284
|
$
28,639
|
5. Plant and equipment
6.
Investment
On
July 15, 2015, the Company entered into a Joint Operating Agreement
(the “Agreement”) with Intermeccanica International
Inc. and Henry Reisner, as amended September 19, 2016. The Joint
Operating Agreement includes an operating lease agreement, a
product assembly agreement and buy-out or merger
agreement.
Under
the buy-out agreement following a qualifying public listing the
Company has the right to acquire all the issued and outstanding
shares of Intermeccanica (the Call Option”) for a period of
24 months from public listing at a minimum purchase price of
$5,000,000, which amount may be increased, dependent on future
events, as set out the Agreement. The purchase price shall be paid
in a combination of cash and shares of the Company. The Call Option
is subject to an initial payment of $100,000 that was made during
the year and two subsequent annual payments of $100,000 if the Call
Option has not yet been exercised.
F-12
|
Electrameccanica
Vehicles Corp.
|
|
Notes
to the Financial Statements
|
|
(Expressed
in Canadian dollars)
|
|
For the
years ended December 31, 2016 and 2015
|
7.
Trade payables and accrued liabilities
|
|
December
31,
|
December
31,
|
|
|
2016
|
2015
|
|
Trade
payables
|
$
70,401
|
$
105,378
|
|
Due to related
parties (Note 15)
|
79,904
|
12,340
|
|
Accrued
liabilities
|
317,695
|
15,192
|
|
|
$
468,000
|
$
132,910
|
8.
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 December 31, 2016, future payments required under
non-cancellable operating leases contracted for but not capitalized
in the financial statements are as
follows:
|
|
December
31,
|
December
31,
|
|
|
2016
|
2015
|
|
Payable not later
than one year
|
$
221,071
|
$
104,497
|
|
Payable later than
one year and not later than five years
|
601,542
|
400,574
|
|
Payable later than
five years
|
-
|
-
|
|
|
$
882,613
|
$
505,071
|
9. Income tax expense and deferred tax assets and
liabilities
|
|
December
31,
|
December
31,
|
|
|
2016
|
2015
|
|
Net
loss
|
$
(8,973,347
)
|
$
(995,833
)
|
|
|
|
|
|
Statutory tax
rate
|
26
%
|
26
%
|
|
Expected income tax
recovery at the statutory tax rate
|
$
(2,333,070
)
|
$
(258,917
)
|
|
Stock-based
compensation
|
1,228,726
|
92,044
|
|
Share issue costs
and other
|
(231,643
)
|
-
|
|
Temporary
differences not recognized
|
1,335,987
|
166,873
|
|
Income tax
recovery
|
$
-
|
$
-
|
The
Company has the following deductible temporary differences for
which no deferred tax asset has been recognized:
|
|
December
31,
|
December
31,
|
|
|
2016
|
2015
|
|
Non-capital loss
carry-forwards
|
$
5,019,398
|
$
641,189
|
|
Property, plant and
equipment
|
23,197
|
630
|
|
Share issue
costs
|
737,637
|
-
|
|
|
$
5,780,231
|
$
641,819
|
F-13
|
Electrameccanica
Vehicles Corp.
|
|
Notes
to the Financial Statements
|
|
(Expressed
in Canadian dollars)
|
|
For the
years ended December 31, 2016 and 2015
|
10. Convertible Loan
On
September 7, 2016, the Company issued an unsecured convertible loan
for $300,000. The loan, which is non-interest bearing, matures on
September 7, 2017. The loan is convertible, at the holder’s
option at any time before maturity into units of the Company at a
price of $1.00 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 has filed an approved registration statement with the US
Securities and Exchange Commission and are listed for trading on
the OTCQB. 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 $2 per warrant share for a period of five years from date of
issue. On October 5, 2016, the Company issued 26,250 units at a
price of $1.00 per unit with a fair value of $43,102 for third
party finder’s fees (Note 11) regarding the convertible
loan.
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, is included in
shareholders equity as the equity component of the convertible
loan. The implicit interest rate for the convertible loan is 15%
per annum. The carrying value of the liability component is being
accreted to the face value of the convertible loan over the period
from issuance to the maturity date.
|
|
December
31,
|
December
31,
|
|
|
2016
|
2015
|
|
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
|
25,908
|
-
|
|
|
$
243,676
|
$
-
|
11. 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, 2016 the Company had 41,783,587 issued and outstanding
common shares (2015 – 26,783,625).
Private placements
On
February 16, 2015, the Company completed a placement of 24,850,000
common shares at a price of $0.0002 for gross proceeds of $4,970.
On February 16, 2015, the Company completed a private placement of
500,000 units at a price of $0.0002 for gross proceeds of $100.
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 $0.40 per
warrant share until February 16, 2020.
F-14
|
Electrameccanica
Vehicles Corp.
|
|
Notes
to the Financial Statements
|
|
(Expressed
in Canadian dollars)
|
|
For the
years ended December 31, 2016 and 2015
|
11. Share
Capital
(cont'd)
On
June 12, 2015, the Company completed a private placement of 50,000
units, at a price of $0.20 per unit, for gross proceeds of $10,000.
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 $0.40 per
warrant share until June 12, 2020.
On June 15, 2015, the Company completed a private placement of
50,000 units, at a price of $0.20 per unit, for gross proceeds of
$10,000. 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 $0.40 per warrant share until June 15,
2020.
On June 26, 2015, the Company completed a private placement of
375,000 units, at a price of $0.20 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 $0.40 per warrant share until June 26,
2020.
On
July 7, 2015, the Company completed a private placement of 125,000
units, at a price of $0.20 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 $0.40 per
warrant share until July 7, 2020.
On August 19, 2015, the Company completed a private placement of
62,500 units, at a price of $0.40 per unit, for gross proceeds of
$25,000. Each unit consists of one common share and one non-
transferable share purchase warrant with each warrant entitling the
subscriber to acquire one additional share at a price of $1 per
warrant share until August 19,
2020.
On
December 1, 2015, the Company completed a private placement of
340,500 units, at a price of $0.40 per unit, for gross proceeds of
$136,200. Each unit consists of one share and one non- transferable
share purchase warrant with each warrant entitling the subscriber
to acquire one additional share at a price of $1 per warrant share
until December 1, 2020.
On
December 31, 2015, the Company completed a private placement of
430,625 units, at a price of $0.40 per unit, for gross proceeds of
$172,250. Each unit consists of one share and one non- transferable
share purchase warrant with each warrant entitling the subscriber
to acquire one additional share at a price of $1 per warrant share
until December 31, 2020.
On
January 22, 2016, the Company completed a private placement of
3,037,500 units at a price of $0.40 per unit for gross cash
proceeds of $1,215,000. On this date, the Company also issued
125,000 shares as partial settlement of a shareholder loan in the
amount of $50,000 (note 15). 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 $1 per warrant share until January 22, 2021. On March 7,
2016, the Company issued 750,000 units at a price of $0.40 per unit
for third party finder’s fees relating to this private
placement. 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 $1 per warrant share until March 7, 2021. The fair value of
these units was calculated as $482,330.
On
February 29, 2016, the Company completed a private placement of
187,500 units at a price of $0.40 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 $1 per warrant share until February 29, 2021.
F-15
|
Electrameccanica
Vehicles Corp.
|
|
Notes
to the Financial Statements
|
|
(Expressed
in Canadian dollars)
|
|
For the
years ended December 31, 2016 and 2015
|
11.
Share capital
(cont’d)
On May 16, 2016, the Company completed a private placement of
730,200 units at a price of $1.00 per unit for gross proceeds of
$730,200. 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 $2 per warrant share until May 16, 2021. On October 5, 2016, the
Company issued 58,010 units at a price of $1.00 per unit with a
fair value of $95,252 for third party finder’s fees relating
to this private placement. The Company incurred share issue costs
of $20,662 relating to this private placement.
On June
21, 2016, the Company completed a private placement of 475,000
units at a price of $1.00 per unit for gross proceeds of $475,000.
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 $2 per
warrant share until June 21, 2021. On October 5, 2016, the Company
issued 45,000 units at a price of $1.00 per unit with a fair value
of $73,890 for third party finder’s fees relating to this
private placement. The Company incurred share issue costs of $5,391
relating to this private placement.
On
August 21, 2016, the Company completed a private placement of
25,000 units at a price of $1.00 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 $2 per warrant share until August 21, 2021. The Company incurred
share issue costs of $8,669 relating to this private
placement.
On
September 7, 2016, the Company completed a private placement of
115,000 units at a price of $1.00 per unit for gross proceeds of
$115,000. 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 $2 per warrant share until September 7, 2021. On October 5,
2016, the Company issued 10,502 units at a price of $1.00 per unit
with a fair value of $17,244 for third party finder’s fees
relating to this private placement. The Company incurred share
issue costs of $10,652 relating to this private
placement.
On
October 5, 2016, the Company completed a private placement of
105,000 units at a price of $1.00 per unit for gross proceeds of
$105,000. 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 $2 per warrant share until October 5, 2021. On October 5, 2016,
the Company issued 10,000 units at a price of $1.00 per unit with a
fair value of $16,420 for third party finder’s fees relating
to this private placement.
On
October 28, 2016, the Company completed a private placement of
2,000,000 units at a price of $1.00 per unit for gross proceeds of
$2,000,000. 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 $2 per warrant share until October 28, 2021. On November 21,
2016, the Company issued 200,000 units at a price of $1.00 per unit
with a fair value of $328,732 for third party finder’s fees
relating to this private placement. The Company incurred share
issue costs of $11,125 relating to this private
placement.
F-16
|
Electrameccanica
Vehicles Corp.
|
|
Notes
to the Financial Statements
|
|
(Expressed
in Canadian dollars)
|
|
For the
years ended December 31, 2016 and 2015
|
11. Share capital
(cont'd)
On
October 28, 2016, the Company completed a private placement of
2,400,000 units at a price of $0.833333 per unit for gross proceeds
of $2,000,000. Each unit consists of one common share and 1.66667
non-transferable common share purchase warrants with each warrant
entitling the subscriber to acquire one additional share at a price
of $2 per warrant share until October 28, 2021. The fair value of
these units was calculated as $2,400,000, and a share-based payment
expense of $400,000 was recorded relating to this private
placement. On November 21, 2016, the Company issued 200,000 units
at a price of $1.00 per unit with a fair value of $328,732 for
third party finder’s fees relating to this private placement.
The Company incurred share issue costs of $11,125 relating to this
private placement.
On
November 21, 2016, the Company completed a private placement of
4,500,000 units at a price of $0.3634 per unit for gross cash
proceeds of $1,635,318. 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 $2 per warrant share until November 21, 2021. The fair
value of these units was calculated as $4,500,000, and a share-
based payment expense of $2,864,681 was recorded relating to this
private placement. The Company paid cash third party finder’s
fees of $163,532 relating to this private placement. The Company
incurred share issue costs of $15,815 relating to this private
placement.
Basic and fully diluted loss per share
The
calculation of basic and fully diluted loss per share for the year
ended December 31, 2016 was based on the loss attributable to
common shareholders of $8,973,347 and the weighted average number
of common shares outstanding of 32,684,868. 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 (36)
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.
F-17
|
Electrameccanica
Vehicles Corp.
|
|
Notes
to the Financial Statements
|
|
(Expressed
in Canadian dollars)
|
|
For the
years ended December 31, 2016 and 2015
|
11. Share
capital
(cont'd)
Stock options
(cont’d)
The
changes in options during the years ended December 31, 2016 and
2015 are as follows:
|
|
December
31, 2016
|
December
31, 2015
|
||
|
|
|
Weighted
|
|
Weighted
|
|
|
Number
of
|
average
|
Number
of
|
average
|
|
|
options
|
exercise
price
|
options
|
exercise
price
|
|
Options
outstanding, beginning
|
56,150,000
|
$
0.19
|
-
|
$
-
|
|
Options
granted
|
100,000
|
0.85
|
56,215,000
|
0.19
|
|
Options expired and
forfeited
|
(75,000
)
|
0.40
|
(65,000
)
|
0.25
|
|
Options
outstanding, ending
|
56,175,000
|
$
0.19
|
56,150,000
|
$
0.19
|
Details
of options outstanding as at December 31, 2015 are as
follows:
|
Exercise
price
|
|
Number
of options
outstanding
|
|
$
0.15
|
6.45
years
|
45,000,000
|
|
$
0.15
|
6.62
years
|
2,675,000
|
|
$
0.40
|
6.95
years
|
8,475,000
|
|
|
6.54
years
|
56,150,000
|
Details
of options outstanding as at December 31, 2016 are as
follows:
|
Exercise
price
|
Weighted average
contractual life
|
Number of options
outstanding
|
Number of options
exercisable
|
|
5.45
years
|
45,000,00
|
16,875,000
|
|
|
5.62
years
|
2,675,00
|
891,667
|
|
|
5.94
years
|
8,400,00
|
2,100,000
|
|
|
6.18
years
|
25,00
|
|
|
|
6.47
years
|
75,00
|
|
|
|
5.75
years
|
56,175,00
|
19,866,667
|
|
The
weighted average grant date fair value of options granted during
the year ended December 31, 2016 was $0.63 (2015 $0.05) . The fair
value was determined using the Black-Scholes option pricing model
using the following weighted average assumptions:
|
|
|
|
Year ended December 31, 2016
|
|
|
|
Expected
life of options
|
|
5
years
|
|
|
|
Annualized
volatility
|
|
100%
|
|
|
|
Risk-free
interest rate
|
|
0.62% -
0.68%
|
|
|
|
Dividend
rate
|
|
0%
|
|
Volatility
was determined based on the historical volatility of a similar
Company’s share price over a period of time equivalent to the
expected life of the option granted. During the year ended December
31, 2016, the Company recognized stock-based compensation expense
of $962,458 (2015 - $354,015).
F-18
|
Electrameccanica
Vehicles Corp.
|
|
Notes
to the Financial Statements
|
|
(Expressed
in Canadian dollars)
|
|
For the
years ended December 31, 2016 and 2015
|
11. Share capital
(cont'd)
Warrants
On
exercise, each warrant allows the holder to purchase one common
share of the Company. The fair value of the warrants issued as part
of the third party finder’s fee at issue date on March 7,
2016 was $182,330, on October 5, 2016 was $96,146, and on November
21, 2016 was $257,464 as calculated using the Black-Scholes option
pricing model with the same assumptions used for stock
options.
The
changes in warrants during the years ended December 31, 2016 and
2015 are as follows:
|
|
December
31, 2016
|
December
31, 2015
|
||
|
|
|
Weighted
|
|
Weighted
|
|
|
Number
of
|
average
|
Number
of
|
average
|
|
|
warrants
|
exercise
price
|
warrants
|
exercise
price
|
|
Warrants
outstanding, beginning
|
1,933,625
|
$
0.66
|
-
|
$
-
|
|
Warrants
issued
|
16,599,962
|
1.75
|
1,933,625
|
0.66
|
|
Warrants
outstanding, ending
|
18,533,587
|
$
1.64
|
1,933,625
|
$
0.66
|
The
changes in warrants outstanding during the year ended December 31,
2016 is as follows:
At
December 31, 2016, all warrants outstanding were exercisable.
Details of warrants outstanding as at December 31, 2016 are as
follows:
|
|
|
|
|
Exercise
price
|
Weighted average
contractual life
|
Number
of warrants outstanding
|
|
$
0.40-$2.00
|
4.53
years
|
18,533,587
|
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
F-19
|
Electrameccanica
Vehicles Corp.
|
|
Notes
to the Financial Statements
|
|
(Expressed
in Canadian dollars)
|
|
For the
years ended December 31, 2016 and 2015
|
14. Research and development
expenses
|
|
Year
ended
|
|
|
|
December
31,
|
December
31,
|
|
|
2016
|
2015
|
|
Labour
|
$
1,715,562
|
$
382,047
|
|
Materials
|
1,266,730
|
117,537
|
|
Government
grants
|
(203,997
)
|
(12,775
)
|
|
|
$
2,778,295
|
$
486,809
|
15.
Related party transactions
Related party balances
The following amounts are due to related parties
|
|
December
31,
|
December
31,
|
|
|
2016
|
2015
|
|
Shareholder
loan
|
$
-
|
$
185,000
|
|
Due to related
parties (Note 7)
|
79,904
|
12,340
|
|
|
$
79,904
|
$
197,340
|
These
amounts are unsecured, non-interest bearing and have no fixed terms
of repayment.
On
January 22, 2016, the Company issued 125,000 units at a price of
$0.40 per unit for $50,000 as partial settlement of the shareholder
loan payable to the CEO (Note 11).
Key management personnel compensation
|
|
Year
ended
|
|
|
|
December
31,
|
December
31,
|
|
|
2016
|
2015
|
|
Consulting
fees
|
$
136,500
|
$
-
|
|
Salary
|
45,000
|
-
|
|
Deferred salary for
CEO
|
30,000
|
-
|
|
Stock-based
compensation
|
1,238,043
|
338,883
|
|
|
$
1,449,513
|
$
338,883
|
16. 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-20
|
Electrameccanica
Vehicles Corp.
|
|
Notes
to the Financial Statements
|
|
(Expressed
in Canadian dollars)
|
|
For the
years ended December 31, 2016 and 2015
|
16. Financial instruments and
financial risk management
(cont'd)
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 other 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, 2016 and 2015:
|
At December 31,
2016
|
Within
one
|
Between
one
|
|
|
|
year
|
and
five
|
More
than
|
|
|
|
years
|
five
years
|
|
Trade
payables
|
$
150,305
|
$
-
|
$
-
|
|
Customer
deposits
|
169,500
|
-
|
-
|
|
Convertible
loan
|
243,676
|
|
|
|
|
$
563,481
|
$
-
|
$
-
|
|
At December 31,
2015
|
Within
one
|
Between
one
|
|
|
|
year
|
and
five
|
More
than
|
|
|
|
years
|
five
years
|
|
Trade
payables
|
$
117,718
|
$
-
|
$
-
|
|
Customer
deposits
|
28,506
|
-
|
-
|
|
Shareholder
loan
|
185,000
|
-
|
-
|
|
|
$
331,224
|
$
-
|
$
-
|
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 Financial Statements
|
|
(Expressed
in Canadian dollars)
|
|
For the
years ended December 31, 2016 and 2015
|
16. Financial instruments and financial risk
management
(cont’d)
The
following is an analysis of Canadian dollar equivalent of financial
assets and liabilities that are denominated in US
dollars:
|
|
December
31,
|
December
31,
|
|
|
2016
|
2015
|
|
Cash and cash
equivalents
|
$
98,762
|
$
43,638
|
|
Trade
payables
|
(4,804
)
|
(18,084
)
|
|
|
$
93,958
|
$
25,554
|
Based
on the above net exposures, as at December 31, 2016, a 10% change
in the US dollars to Canadian dollar exchange rate would impact the
Company’s net loss by $6,992 (December 31, 2015 -
$2,000).
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 $39,163 for the year ended December 31, 2016 (December 31, 2015
- $1,064)
Classification of financial instruments
Financial assets included in the statement of financial position
are as follows:
|
|
December
31,
|
December
31,
|
|
|
2016
|
2015
|
|
Loans and
receivables:
|
|
|
|
Cash and cash
equivalents
|
$
3,916,283
|
$
106,357
|
|
Other
receivables
|
271,284
|
28,639
|
|
|
$
4,187,567
|
$
134,996
|
Financial
liabilities included in the statement of financial position are as
follows:
F-22
|
Electrameccanica
Vehicles Corp.
|
|
Notes
to the Financial Statements
|
|
(Expressed
in Canadian dollars)
|
|
For the
years ended December 31, 2016 and 2015
|
16. Financial
instruments and financial risk
management
(cont’d)
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.
|
17.
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.
18. Subsequent events
On
February 8, 2017, the Company completed a private placement of
320,000 units at a price of $1.00 per unit for gross proceeds of
$320,000. 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 $2 per warrant share until February 8, 2022. The Company has
agreed to pay third party finder’s fees of $22,000 relating
to this private placement.
On
February 17, 2017 the Company granted stock options to acquire
1,020,000 common shares of the Company at an exercise price of
$1.00 per share for a period of 7 years. The majority of the
options vest over a 48 month period while an option for 250,000
shares vests over a 41 month period and an option for 225,000
shares vests over a 45 month period.
On
March 29, 2017, the Company completed a private placement of
108,000 units at a price of $1.00 per unit for gross proceeds of
$108,000. 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 $2 per warrant share until March 29, 2022. On March 29, 2017,
the Company issued 5,000 units at a price of $1.00 per unit for
third party finder’s fees relating to this private
placement.
On
March 30, 2017, the Company completed a private placement of
100,000 units at a price of $1.00 per unit for gross proceeds of
$100,000. 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 $2 per warrant share until March 30, 2022. The Company has
agreed to pay cash third party finder’s fees of $10,000
relating to this private placement.
F-23
Electrameccanica Vehicles Corp.
Interim Financial Statements
September 30, 2017
Unaudited - Expressed in Canadian Dollars
Electrameccanica
Vehicles Corp.
Statements
of Financial Position
(Expressed
in Canadian dollars)
Commitments (Notes 5, 9 & 18)
Subsequent events (Note 18)
On behalf of the Board of Directors.
|
“Jerry Kroll”
|
|
“Robert Tarzwell”
|
|
Director
|
|
Director
|
F-24
F-25
Electrameccanica Vehicles Corp.
Statements of Changes in Equity
(Expressed in Canadian dollars)
|
|
|
Share
capital
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
component
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
|
|
of
|
|
|
|
|
|
Number
of
|
|
|
Share
|
|
Share
|
payment
|
|
convertible
|
|
|
|
|
|
shares
|
Amount
|
|
subscription
|
|
Issue
cost
|
reserve
|
|
loan
|
Deficit
|
Total
|
|
Balance
at December 31, 2015
|
|
26,783,625
|
$
458,520
|
|
$
50,000
|
$
|
|
$
354,015
|
$
|
|
$
(995,833
)
|
$
(133,298
)
|
|
Shares issued for
cash
|
|
13,575,200
|
8,375,519
|
|
-
|
|
(1,604,486
)
|
-
|
|
-
|
-
|
6,771,033
|
|
Shares issued for
finders fees
|
|
1,273,512
|
823,512
|
|
-
|
|
-
|
519,088
|
|
-
|
-
|
1,342,600
|
|
Shares issued for
convertible debt issue cost
|
|
26,250
|
26,250
|
|
-
|
|
-
|
16,852
|
|
-
|
-
|
43,102
|
|
Share issued to
settle debt
|
|
125,000
|
50,000
|
|
-
|
|
-
|
-
|
|
-
|
-
|
50,000
|
|
Share-based
payment
|
|
-
|
3,264,681
|
|
-
|
|
-
|
-
|
|
-
|
-
|
3,264,681
|
|
Stock-based
compensation
|
|
-
|
-
|
|
-
|
|
-
|
1,461,189
|
|
-
|
-
|
1,461,189
|
|
Share
subscription
|
|
-
|
-
|
|
51,500
|
|
(10,000
)
|
-
|
|
-
|
-
|
41,500
|
|
Equity component of
convertible loan
|
|
-
|
-
|
|
-
|
|
-
|
-
|
|
39,130
|
-
|
39,130
|
|
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
|
11
|
1,964,970
|
2,497,415
|
|
-
|
|
(268,138
)
|
-
|
|
-
|
-
|
2,229,277
|
|
Shares issued for
finders fees
|
11
|
105,001
|
680,007
|
|
-
|
|
-
|
3,223
|
|
-
|
-
|
683,230
|
|
Share issued for
convertible loan
|
11
|
1,300,034
|
1,469,604
|
|
|
|
|
|
|
(169,570
)
|
|
1,300,034
|
|
Share issued for
services
|
11
|
50,000
|
50,000
|
|
|
|
|
288,432
|
|
|
|
338,432
|
|
Share
subscription
|
11
|
-
|
-
|
|
(101,500
)
|
|
10,000
|
-
|
|
-
|
-
|
(91,500
)
|
|
Stock-based
compensation
|
11
|
-
|
-
|
|
-
|
|
-
|
819,546
|
|
-
|
-
|
819,546
|
|
Equity component of
convertible loan
|
11
|
|
|
|
|
|
|
|
|
130,440
|
|
130,440
|
|
Comprehensive loss
for the period
|
|
-
|
-
|
|
-
|
|
-
|
-
|
|
-
|
(6,749,268
)
|
(6,749,268
)
|
|
Balance at September 30,
2017
(Unaudited)
|
|
45,203,592
|
$
17,695,508
|
|
$
-
|
|
$
(1,872,624
)
|
$
3,462,345
|
|
$
-
|
$
(16,718,448
)
|
$
2,566,781
|
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 11 for further
details.
F-26
Electrameccanica
Vehicles Corp.
Statements
of Cash Flows
(Unaudited
- Expressed in Canadian dollars)
|
|
Three
months ended
|
Nine
months ended
|
||
|
|
|
|||
|
|
September
30,
2017
|
September
30,
2016
|
September
30,
2017
|
September
30,
2016
|
|
Operating
activities
|
|
|
|
|
|
Loss for the
period
|
$
(2,984,732
)
|
$
(1,453,885
)
|
$
(6,749,268
)
|
$
(3,536,039
)
|
|
Adjustments
for:
|
|
|
|
|
|
Amortization
|
29,997
|
4,608
|
85,201
|
8,257
|
|
Stock-based
compensation expense
|
282,167
|
175,180
|
819,546
|
659,802
|
|
Stock-based payment
expense
|
338,432
|
-
|
338,432
|
-
|
|
Interest accretion
expense
|
145,985
|
5,181
|
186,764
|
5,181
|
|
Finder’s fees
re convertible loan
|
675,007
|
-
|
675,007
|
-
|
|
Changes in non-cash
working capital items:
|
|
|
|
|
|
Receivables
|
40,353
|
(98,533
)
|
127,567
|
(179,925
)
|
|
Prepaid
expenses
|
(365,151
)
|
23,924
|
(347,671
)
|
(143,371
)
|
|
Inventory
|
-
|
-
|
(3,475
)
|
14,966
|
|
Trades payable and
accrued liabilities
|
299,683
|
428,001
|
427,076
|
489,453
|
|
Advance
payable
|
-
|
-
|
-
|
(50,000
)
|
|
Customer
deposits
|
2,750
|
79,750
|
35,500
|
79,994
|
|
Net
cash flows used in operating activities
|
(1,535,509
)
|
(835,774
)
|
(4,405,321
)
|
(2,651,682
)
|
|
Investing
activities
|
|
|
|
|
|
Expenditures on
plant and equipment
|
(834
)
|
(27,103
)
|
(138,344
)
|
(58,935
)
|
|
Investment
|
(100,000
)
|
-
|
(200,000
)
|
-
|
|
Expenditures on
intellectual property
|
(28,552
)
|
(8,326
)
|
(63,805
)
|
(18,227
)
|
|
Net
cash flows used in investing activities
|
(129,386
)
|
(35,429
)
|
(402,149
)
|
(77,162
)
|
|
Financing
activities
|
|
|
|
|
|
Proceeds from
convertible loans
|
2,209,295
|
300,000
|
2,209,295
|
300,000
|
|
Repayment of
shareholder loan
|
-
|
-
|
-
|
(135,000
)
|
|
Proceeds from share
subscription
|
-
|
106,500
|
-
|
106,500
|
|
Proceeds on
issuance of common shares – net of share issue
costs
|
1,330,936
|
140,000
|
2,146,000
|
2,585,200
|
|
Net
cash flows from financing activities
|
3,540,231
|
546,500
|
4,355,295
|
2,856,700
|
|
(Decrease) increase
in cash and cash equivalents
|
1,875,336
|
(324,703
)
|
(452,175
)
|
127,856
|
|
|
|
|
|
|
|
Cash and cash
equivalents, beginning
|
1,588,772
|
558,916
|
3,916,283
|
106,357
|
|
Cash
and cash equivalents, ending
|
$
3,464,108
|
$
234,213
|
$
3,464,108
|
$
234,213
|
|
Cash
|
$
2,209,108
|
$
234,213
|
$
2,209,108
|
$
234,213
|
|
Cash
equivalents
|
1,255,000
|
-
|
1,255,000
|
-
|
|
Cash
and cash equivalents, ending
|
$
3,464,108
|
$
234,213
|
$
3,464,108
|
$
234,213
|
F-27
Electrameccanica
Vehicles Corp.
Notes
to the Financial Statements
(Unaudited
- Expressed in Canadian dollars)
For the
nine months ended September 30, 2017
1. Nature and continuance of
operations
Electrameccanica
Vehicles Corp (the “Company”) was incorporated on
February 16, 2015, under the laws of the province of British
Columbia, Canada, and its principal activity is the development and
manufacturing of single occupancy electric 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
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 September 30, 2017 the Company had not commenced
commercial production and is not able to finance day to day
activities through operations. The Company’s continuation as
a going concern is dependent upon the successful results from its
electric vehicles 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. 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 convertible debt and 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
2. Significant
accounting policies and basis of
preparation
The
financial statements were authorized for issue on November 19, 2017
by the directors of the Company.
Statement of compliance with International Financial Reporting
Standards
These
unaudited interim condensed financial statements have been prepared
in accordance with International Financial Reporting Standards
(“IFRS”) applicable to the preparation of interim
financial statements, including International Accounting Standards
(“IAS”) 34, Interim Financial Reporting, as issued by
the International Accounting Standards Board (“IASB”).
These unaudited interim condensed financial statements follow the
same accounting policies and methods of application as the most
recent annual financial statements of the Company. These unaudited
interim condensed financial statements do not include all the
information and disclosures required by IFRS for annual financial
statements and should be read in conjunction with the annual
audited financial statements for the year ended December 31, 2016,
which have been prepared in accordance with IFRS as issued by the
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.
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.
F-28
Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the nine months ended September 30, 2017
2. Significant accounting
policies and basis of
preparation
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, fair value measurements for
financial instruments and share-based payments, and the
recoverability and measurement of deferred tax assets.
Significant judgments
The
preparation of financial statements in accordance with IFRS
requires the Company to make judgments, apart from those involving
estimates, in applying accounting policies. The most significant
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.
F-29
Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the nine months ended September 30, 2017
2. Significant accounting
policies and basis of
preparation
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 loan and shareholder
loan.
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 long-lived 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.
Assets
that have an indefinite useful life are not subject to amortization
and are tested annually for impairment.
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.
F-30
Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the nine months ended September 30, 2017
2.
Significant accounting policies and basis of
preparation
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 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 and plant and
equipment
|
Amortization
rate
|
|
Office furniture and
equipment
|
20
%
|
|
Shop
equipment
|
20
%
|
|
Computer
equipment
|
33
%
|
|
Computer
software
|
50
%
|
|
Vehicles
|
33
%
|
|
Leasehold
improvements
|
over term of lease
|
Trademarks and Patents
The
Company capitalizes legal fees and filing costs associated with the
development of its trademarks and patents. Trademarks and patents
are depreciated over an estimated useful life of 5 years using the
straight-line method, however trademarks or patents with indefinite
useful lives are not amortized.
F-31
Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the nine months ended September 30, 2017
2. Significant accounting
policies and basis of
preparation
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 period ended
September 30, 2017, or in the prior fiscal year
.
3. Accounting standard 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-32
Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the nine 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. Receivables
|
|
September
30,
2017
|
December
31,
2016
|
|
Trade
receivable
|
$
22,393
|
$
-
|
|
GST
receivable
|
55,343
|
155,498
|
|
IRAP contribution
receivable
|
30,607
|
108,535
|
|
GIC interest
receivable
|
17,374
|
6,000
|
|
Other
|
18,000
|
1,251
|
|
|
$
143,717
|
$
271,284
|
5.
Plant and equipment
On
September 29, 2017 the Company entered into a manufacturing
agreement (“agreement”) with Chongqing Zongshen
Automobile Co., Ltd. (“Zongshen”). Under the agreement
the Company agrees to reimburse Zongshen for the cost of the
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 the 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.
F-33
Electrameccanica
Vehicles Corp.
Notes
to the Financial Statements
(Unaudited
- Expressed in Canadian dollars)
For
the nine months ended September 30, 2017
5. Plant and
equipment
(cont'd)
Under
the agreement the Company agrees the minimum purchase commitments
for the Solo vehicle are in calendar 2018: 5,000, in 2019: 20,000,
and in 2020: 50,000, which shall be payable based on the
Company’s purchase orders: 30% after Zongshen schedules
production, and 70% after accepted vehicle
delivery.
6. Investment
On July
15, 2015, the Company entered into a Joint Operating Agreement with
Intermeccanica International Inc. (“Intermeccanica”)
and Henry Reisner, as amended September 19, 2016. The Joint
Operating Agreement includes an operating lease agreement, a
product assembly agreement and buy-out or merger
agreement.
On
October 18, 2017 the Company entered into a Share Purchase
Agreement (the “SPA”) to acquire Intermeccanica, which
replaced the Joint Operating Agreement. Under the SPA the Company
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 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 is 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 will be secured over the assets of
Intermeccanica.
7. Trademarks and patents
F-34
Electrameccanica
Vehicles Corp.
Notes
to the Financial Statements
(Unaudited
- Expressed in Canadian dollars)
For
the nine months ended September 30, 2017
8. Trade payables and accrued
liabilities
|
|
September
30,
2017
|
December
31,
2016
|
|
Trade
payables
|
$
267,068
|
$
70,401
|
|
Due to related
parties (Note 15)
|
50,986
|
79,904
|
|
Accrued
liabilities
|
577,022
|
317,695
|
|
|
$
895,076
|
$
468,000
|
9. 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
|
December
31,
2016
|
|
Payable not later
than one year
|
$
235,342
|
$
221,071
|
|
Payable later than
one year and not later than five years
|
434,485
|
601,542
|
|
Payable later than
five years
|
-
|
-
|
|
|
$
669,827
|
$
882,613
|
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 $1.00 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 $2 per warrant share for a period of
five years from September 7, 2016. On October 5, 2016,
the Company issued 26,250 units
at a price
of $1.00 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. Upon conversion the loan was accreted to
face value.
|
|
September
30,
|
December
31,
|
|
Unsecured
Convertible Loan issued September 7, 2016
|
2017
|
2016
|
|
Proceeds from issue
of convertible loan
|
$
300,000
|
$
300,000
|
|
Amount allocated to
equity on issue of convertible loan
|
(39,130
)
|
(39,130
)
|
|
Finder’s fees
re convertible loan
|
(43,102
)
|
(43,102
)
|
|
Interest accretion
expense
|
82,232
|
25,908
|
|
Conversion to
common shares
|
(300,000
)
|
-
|
|
|
$
-
|
$
243,676
|
F-35
Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the nine months ended September 30, 2017
10. Convertible
loans
On
September 29, 2017 the unsecured convertible loan for $1,000,034,
which was issued on July 31, 2017, was converted by the holder into
units of the Company at a price of $1.00 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 $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 $1.00 per share with a fair value of
$675,007 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. Upon conversion the loan was
accreted to face value.
|
Unsecured
Convertible Loan issued July 31, 2017
|
September
30,
2017
|
|
Proceeds from issue
of convertible loan
|
$
1,000,034
|
|
Amount allocated to
equity on issue of convertible loan
|
(130,439
)
|
|
Finder’s fees
re convertible loan
|
(675,007
)
|
|
Interest accretion
expense
|
805,446
|
|
Conversion to
common shares
|
1,000,034
|
|
|
$
-
|
On
September 29, 2017 the Company received USD $970,000 (CAD
$1,209,261) as a deposit on a financing of USD $1,152,289 (CAD
$1,437,277). Subsequent to September 30, 2017 the Company received
the balance of the financing totaling USD $182,289 (CAD $227,966)
(note 18).
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
September 30, 2017 the Company had 45,203,592 issued and
outstanding common shares (December 31, 2016 –
41,783,587).
F-36
Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the nine months ended September 30, 2017
11. Share Captial
(cont'd)
Pri
vate
placements
On
February 8, 2017, the Company completed a private placement of
320,000 units at a price of $1.00 per unit for gross proceeds of
$320,000. 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 $2 per warrant share until February 8, 2022. The Company
incurred share issue costs of $42,655 relating to this private
placement.
On March 29, 2017, the Company completed a private
placement of 108,000 units at a price of $1.00 per unit for gross
proceeds of $108,000. 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 $2 per warrant share until March 29, 2022.
On
March 29, 2017, the Company issued 5,000 units at a price of $1.00
per unit with a fair value of $8,223 for third party finder’s
fees relating to this private placement.
The Company incurred share issue costs of $10,417
relating to this private placement.
On
March 30, 2017, the Company completed a private placement of
100,000 units at a price of $1.00 per unit for gross proceeds of
$100,000. 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 $2 per warrant share until March 30, 2022. The Company incurred
share issue costs of $12,194 relating to this private
placement.
On
April 17, 2017, the Company completed a private placement of
200,000 units at a price of $1.00 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 $2 per warrant share until April 17, 2022.
The Company incurred share issue costs of $24,820
relating to this private placement.
On
April 26, 2017, the Company completed a private placement of
200,000 units at a price of $1.00 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 $2 per warrant share until April 26, 2022.
The Company incurred share issue costs of $24,820
relating to this private placement.
On May
30, 2017, the Company completed a private placement of 75,000 units
at a price of $1.00 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 $2 per warrant share
until May 30, 2022.
The Company
incurred share issue costs of $13,159 relating to this private
placement.
On June
29, 2017, the Company completed a private placement of 25,000 units
at a price of $1.00 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 $2 per warrant share
until June 29, 2022.
The Company
incurred share issue costs of $3,095 relating to this private
placement.
On July
13, 2017, the Company completed a private placement of 300,000
units at a price of $1.00 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 $2 per
warrant share until July 13, 2022.
The
Company incurred share issue costs of $34,934 relating to this
private placement.
F-37
Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the nine months ended September 30, 2017
11. Share Captial
(cont'd)
On July
27, 2017, the Company completed a private placement of 1,500 units
at a price of $1.00 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 $2 per warrant share
until July 27, 2022.
On
August 9, 2017, the Company completed a private placement of
200,000 units at a price of $1.00 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 $2 per warrant share until August 9, 2022.
The Company incurred share issue costs of $24,934
relating to this private placement.
On
August 30, 2017, the Company completed a private placement of
350,000 units at a price of $1.00 per unit for gross proceeds of
$350,000. 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 $2 per warrant share until August 30, 2022.
The Company incurred share issue costs of $13,535
relating to this private placement.
On
September 29, 2017, the Company completed a private placement of
85,470 units at a price of USD $5.85 per unit for gross proceeds of
USD $500,000 (CAD $617,915). 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 $11.70 per warrant share until September 29, 2022.
The Company incurred share issue costs
of $63,575 relating to this private placement.
Shares issued on conversion of convertible loans
On July
31, 2017 the unsecured convertible loan for $300,000 (note 10) was
converted by the holder into units of the Company at a price of
$1.00 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 $2 per warrant share until September 7, 2021.
On
September 29, 2017 the unsecured convertible loan for $1,000,034
(note 10) was converted by the holder into units of the Company at
a price of $1.00 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 $2 per warrant share until July 31, 2022.
Consulting Contracts
On July 31, 2017 the Company entered into a
consulting agreement with a consultant to provide cross-marketing
services and activities for an initial period of two years from
September 30, 2017. The Company agreed to compensate the consultant
by the issuance of 45,045 fully vested non-transferrable share
purchase warrants of the Company on September 30, 2017. E
ach
warrant entitling the consultant to acquire one common share at a
price of USD $1 per warrant share until September 30, 2019. The
fair value of the warrants issued was $288,432 (note
11).
F-38
Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the nine months ended September 30, 2017
11. Share Captial
(cont'd)
On
August 28, 2017 the Company entered into a consulting agreement
with a consultant to provide corporate governance and assistance
with complying with securities and exchange regulations and
requirements. Upon entering into the consulting agreement the
Company issued 50,000 common shares at $1 per share to the
consultant. Additionally, the Company agreed to issue to the
consultant 100,000 common shares at $1 per share upon completion of
an acceptable governance manual, and completion of a filed and
accepted NASDAQ submission and issue a further 100,000 common
shares at $1 per share upon the Company receiving approval for
uplisting to either the NASDAQ or NYSE.
Basic and fully diluted loss per share
The
calculation of basic and fully diluted loss per share for the nine
months ended September 30, 2017 was based on the loss attributable
to common shareholders of $6,749,268 and the weighted average
number of common shares outstanding of 42,733,909. 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 typically vest one-quarter on the first anniversary
subsequent to the grant date and the remaining three-quarters vest
in thirty-six (36) equal monthly instalments commencing on the
first vesting date.
On
exercise, each option allows the holder to purchase one common
share of the Company.
The
changes in options during period ended September 30, 2017 are as
follows:
F-39
Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the nine months ended September 30, 2017
11. Share Captial
(cont'd)
Details
of options outstanding as at September 30, 2017 are as
follows:
|
|
Weighted
average
|
Number
of options
|
Number
of options
|
|
Exercise
price
|
contractual
life
|
outstanding
|
exercisable
|
|
$
0.15
|
4.70
years
|
45,000,000
|
26,250,000
|
|
$
0.15
|
4.87
years
|
2,675,000
|
1,448,958
|
|
$
0.40
|
5.19
years
|
8,400,000
|
3,850,000
|
|
$
0.40
|
5.44
years
|
25,000
|
9,896
|
|
$
1.00
|
5.73
years
|
50,000
|
16,667
|
|
$
1.00
|
6.39
years
|
960,000
|
78,125
|
|
$
1.00
|
6.86
years
|
100,000
|
|
|
|
4.82
years
|
57,210,000
|
31,653,646
|
The
weighted average grant date fair value of options granted during
the period ended September 30, 2017 was $0.74. The fair value was
determined using the Black-Scholes option pricing model using the
following weighted average assumptions:
|
|
Period
ended September 30, 2017
|
|
Expected life of
options
|
5
years
|
|
Annualized
volatility
|
100
%
|
|
Risk-free interest
rate
|
1.06
%
|
|
Dividend
rate
|
0
%
|
Volatility was
determined based on the historical volatility of a similar
Company’s share price over a period of time equivalent to the
expected life of the option granted. During the period ended
September 30, 2017, the Company recognized stock-based compensation
expense of $819,546.
Warrants
On
exercise, each warrant allows the holder to purchase one common
share of the Company.
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 $288,432 as calculated using the
Black-Scholes option pricing model using the following weighted
average assumptions:
|
|
Period
ended September 30, 2017
|
|
Expected life of
warrants
|
2
years
|
|
Annualized
volatility
|
200
%
|
|
Risk-free interest
rate
|
1.52
%
|
|
Dividend
rate
|
0
%
|
Volatility was
determined based on the historical volatility of the
Company’s share price over a period of time equivalent to the
expected life of the option granted.
F-40
Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the nine months ended September 30, 2017
11. Share Captial
(cont'd)
The
changes in warrants during the period ended September 30, 2017 are
as follows:
|
|
September
30, 2017
|
|
|
|
Number
of warrants
|
Weighted
average exercise price
|
|
Warrants
outstanding, beginning
|
18,533,587
|
$
1.64
|
|
Warrants
issued
|
3,315,049
|
2.31
|
|
Warrants
outstanding, ending
|
21,848,636
|
$
1.74
|
At
September 30, 2017, all warrants outstanding were
exercisable.
Details
of warrants outstanding as at September 30, 2017 are as
follows:
|
|
Period
ended September 30, 2017
|
|
Expected life of
options
|
5
years
|
|
Annualized
volatility
|
100
%
|
|
Risk-free interest
rate
|
1.06
%
|
|
Dividend
rate
|
0
%
|
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.
|
|
Three months ended
|
Nine months ended
|
|||
|
|
September 30,
2017
|
September 30,
2016
|
September 30,
2017
|
September 30,
2016
|
|
|
Rent
|
$ 65,698
|
$ 36,794
|
$
186,392
|
$ 94,129
|
|
|
Office
Expenses
|
29,637
|
19,440
|
90,335
|
53,747
|
|
|
Legal
& Professional
|
269,296
|
196,001
|
622,700
|
375,332
|
|
|
Consulting
Fees
|
67,148
|
67,484
|
254,056
|
127,187
|
|
|
Investor
Relations
|
76,004
|
-
|
116,580
|
-
|
|
|
Salaries
|
81,924
|
43,626
|
247,599
|
100,821
|
|
|
|
$ 589,707
|
$ 363,345
|
$
1,517,662
|
$ 751,216
|
|
F-41
Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the nine months ended September 30, 2017
14.
Research
and development expenses
15.
Related
party transactions
Related party balances
The
following amounts are due to related parties
|
|
September
30,
2017
|
December
31,
2016
|
|
Due to related
parties (Note 8)
|
$
50,986
|
$
79,904
|
|
|
$
50,986
|
$
79,904
|
These
amounts are unsecured, non-interest bearing and have no fixed terms
of repayment.
Key management personnel compensation
16.
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 comprising cash and short-term
deposits held in bank accounts. The majority of cash and short-term
deposits are deposited in bank accounts held with major financial
institutions in Canada. As most of the Company’s cash and
short-term deposits are 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 other receivables. This risk
is minimal as receivables consist primarily of government grant and
refundable government goods and services taxes.
F-42
Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the nine months ended September 30, 2017
16.
Financial instruments and financial risk
management
(cont’d)
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 convertible debt and 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 debt and equity
funding.
The
following is an analysis of the contractual maturities of the
Company’s non-derivative financial liabilities as at
September 30, 2017:
|
At September 30,
2017
|
Within
one year
|
Between
one and five years
|
More
than
five
years
|
|
Trade
payables
|
$
318,054
|
$
-
|
$
-
|
|
Customer
deposits
|
205,000
|
-
|
-
|
|
Deposit on
financing
|
1,209,261
|
|
|
|
|
$
1,732,315
|
$
-
|
$
-
|
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:
|
|
September
30,
2017
|
December
31,
2016
|
|
Cash and cash
equivalents
|
$
1,874,044
|
$
98,762
|
|
Trade
payables
|
(124,479
)
|
(4,804
)
|
|
|
$
1,749,565
|
$
93,958
|
F-43
Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the nine months ended September 30, 2017
16.
Financial instruments and financial risk
management
(cont’d)
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 $140,339 (December 31, 2016 -
$6,992).
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 $9,338 for the
period ended September 30, 2017 (December 31, 2016 -
$39,163)
Classification of financial instruments
Financial assets
included in the statement of financial position are as
follows:
|
|
September
30,
2017
|
December
31,
2016
|
|
Loans and
receivables:
|
|
|
|
Cash
and cash equivalents
|
$
3,464,108
|
$
3,916,283
|
|
Other
receivables
|
143,717
|
271,284
|
|
|
$
3,607,825
|
$
4,187,567
|
Financial
liabilities included in the statement of financial position are as
follows:
|
|
September
30,
2017
|
December
31,
2016
|
|
Non-derivative
financial liabilities:
|
|
|
|
Trade
payable
|
$
318,054
|
$
150,305
|
|
Customer
deposits
|
205,000
|
169,500
|
|
Convertible
loan
|
1,209,261
|
243,676
|
|
|
$
1,732,315
|
$
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.
17.
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.
F-44
Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the nine months ended September 30, 2017
18.
Subsequent
events
On
October 13, 2017 the Company issued 12,500 common shares pursuant
the exercise of stock options of $0.15 per share for proceeds of
$1,875.
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 (note 5)
through the pledge of 800,000 common shares of the Company at a
deemed price of USD $2.00. 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 at a
deemed issue price of CAD $2.00 per common share.
On
October 16, 2017, the Company completed a private placement of
50,000 units at a price of USD $6.00 per unit for gross proceeds of
USD $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 USD $12.00 per warrant share until October 16, 2019. On
October 16, 2017, the Company issued 2,000 common shares at a price
of USD $6.00 per share with a fair value of USD $12,000 (CAD
$14,934) for third party finder’s fees relating to this
private placement. Additionally, the Company has agreed to pay cash
third party finder’s fees of USD $18,000 (CAD $23,642)
relating to this private placement.
On
October 17, 2017, the Company issued an unsecured convertible loan
for USD $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 of the Company at a price of USD $3.60 per unit
or will automatically convert into units of the Company at a price
of USD $3.60 per unit, if prior to maturity the Company’s
common shares trade 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 USD $8.00 or
greater per common share for a period of 10 consecutive trading
days. 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 warrant share for a period of five years from date
of issue. The Company has agreed to pay cash third party
finder’s fees of USD $115,229 (CAD $143,728 relating to the
convertible loan upon conversion of the loan to common shares (note
10).
On
October 18, 2017 the Company entered into a Share Purchase
Agreement (the “SPA”) to acquire Intermeccanica. Under
the SPA the Company 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 (note 6). 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 is 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 will
be secured over the assets of Intermeccanica.
On
October 23, 2017, the Company completed a private placement of
45,045 common shares at a price of USD $5.55 per share for gross
proceeds of USD $250,000 (CAD $315,790).
F-45
Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the nine months ended September 30, 2017
18.
Subsequent events
(cont.)
On
October 31, 2017, the Company completed a private placement of
250,000 units at a price of USD $3.75 per unit for gross proceeds
of USD $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 USD $7.50 per warrant share until October 31,
2024. On October 31, 2017, the Company issued 12,500 common shares
at a price of USD $3.75 per share with a fair value of USD $46,875
(CAD $59,625) for third party finder’s fees relating to this
private placement. Additionally, the Company has agreed to pay cash
third party finder’s fees of USD $65,625 (CAD $83,475)
relating to this private placement.
On
November 6, 2017, the Company completed a private placement and
option subscription agreement. Pursuant to the private placement
the Company issued 352,941 shares at a price of $0.85 for gross
proceeds of $300,000. The agreement entitles the subscriber to
acquire up to an aggregate of 1,000,000 shares at a price of $0.85
per share until May 6, 2018. The Company has agreed to pay cash
third party finder’s fees of $30,000 relating to this private
placement.
On
November 9, 2017, the Company completed a private placement of
250,000 units at a price of USD $3.75 per unit for gross proceeds
of USD $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 USD $7.50 per warrant share until November 9,
2019. On November 9, 2017, the Company issued 12,500 common shares
at a price of USD $3.75 per share with a fair value of USD $46,875
(CAD $59,395) for third party finder’s fees relating to this
private placement. Additionally, the Company has agreed to pay cash
third party finder’s fees of USD $65,625 (CAD $83,153)
relating to this private placement.
F-46
ELECTRAMECCANICA VEHICLES CORP.
Common
Shares
____________________________
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.
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.
101
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.
On February 16, 2015, we issued an aggregate of 24,850,000
post-subdivision shares of our common share at a price of $0.0002
per share to seven individuals/entities pursuant to private
placement subscription agreements.
On February 16, 2015, we issued 500,000 post-subdivision units
(each, a “Unit”) at a price of $0.0002 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, a “Warrant”). Each
Warrant entitles the holder to acquire one additional share of our
common share at a price of $0.40 per share (each, a “Warrant
Share”) until five years from the date of
issuance.
On June 11, 2015, we issued 45,000,000 post-subdivision options
(each, an “Option”) to one individual to purchase a
share of common share (each, an “Option Share”) at a
price of $0.15 per Option Share until June 11, 2022.
102
On June 12, 2015, we issued 50,000 post-subdivision units (each, a
“Unit”) at a price of $0.20 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, a “Warrant”). Each Warrant
entitles the holder to acquire one additional share of our common
share at a price of $0.40 per share (each, a “Warrant
Share”) until five years from the date of
issuance.
On June 15, 2015, we issued 50,000 post-consolidation units (each,
a “Unit”) at a price of $0.20 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, a “Warrant”). Each
Warrant entitles the holder to acquire one additional share of our
common share at a price of $0.40 per share (each, a “Warrant
Share”) until five years from the date of
issuance.
On June 26, 2015, we issued an aggregate of 375,000
post-subdivision units (each, a “Unit”) at a price of
$0.20 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, a “Warrant”). Each Warrant entitles the holder
to acquire one additional share of our common share at a price of
$0.40 per share (each, a “Warrant Share”) until five
years from the date of issuance.
On July 7, 2015, we issued 125,000 post-subdivision units (each, a
“Unit”) at a price of $0.20 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, a “Warrant”). Each Warrant
entitles the holder to acquire one additional share of our common
share at a price of $0.40 per share (each, a “Warrant
Share”) until five years from the date of
issuance.
On August 13, 2015, we issued 2,740,000 post-subdivision options
(each, an “Option”) to 14 individuals to purchase a
share of common share (each, an “Option Share”) at a
price of $0.15 per Option Share until August 13, 2022.
On August 19, 2015, we issued 62,500 post-subdivision units (each,
a “Unit”) 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, a “Warrant”). Each
Warrant entitles the holder to acquire one additional share of our
common share at a price of $1.00 per share (each, a “Warrant
Share”) until five years from the date of
issuance.
On December 1, 2015, we issued an aggregate of 340,500
post-subdivision units (each, a “Unit”) at a price of
$0.40 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, a
“Warrant”). Each Warrant entitles the holder to acquire
one additional share of our common share at a price of $1.00 per
share (each, a “Warrant Share”) until five years from
the date of issuance.
On December 9, 2015, we issued 8,475,000 post-subdivision options
(each, an “Option”) to 21 individuals to purchase a
share of common share (each, an “Option Share”) at a
price of $0.40 per Option Share until December 9, 2022.On December
31, 2015, we issued an aggregate of 430,625 post-subdivision units
(each, a “Unit”) at a price of $0.40 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, a “Warrant”). Each
Warrant entitles the holder to acquire one additional share of our
common share at a price of $1.00 per share (each, a “Warrant
Share”) until five years from the date of
issuance.
On January 22, 2016, we issued an aggregate of 3,162,500
post-subdivision units (each, a “Unit”) at a price of
$0.40 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, a “Warrant”). Each Warrant entitles the holder
to acquire one additional share of our common share at a price of
$1.00 per share (each, a “Warrant Share”) until five
years from the date of issuance.
On February 29, 2016, we issued an aggregate of 187,500
post-subdivision units (each, a “Unit”) at a price of
$0.40 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, a
“Warrant”). Each Warrant entitles the holder to acquire
one additional share of our common share at a price of $1.00 per
share (each, a “Warrant Share”) until five years from
the date of issuance.
On March 7, 2016, we issued an aggregate of 750,000
post-subdivision units (each, a “Unit”) at a price of
$0.40 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, a “Warrant”). Each Warrant entitles the holder
to acquire one additional share of our common share at a price of
$1.00 per share (each, a “Warrant Share”) until five
years from the date of issuance.
On March 7, 2016, we issued 25,000 post-subdivision options (each,
an “Option”) to one individual to purchase a share of
common share (each, an “Option Share”) at a price of
$0.40 per Option Share until March 7, 2023.
On May 16, 2016, we issued an aggregate of 730,200 post-subdivision
units (each, a “Unit”) at a price of $1.00 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, a
“Warrant”). Each Warrant entitles the holder to acquire
one additional share of our common share at a price of $2.00 per
share (each, a “Warrant Share”) until five years from
the date of issuance.
103
On June 21, 2016, we issued 75,000 post-subdivision options (each,
an “Option”) to three individuals to purchase a share
of common share (each, an “Option Share”) at a price of
$1.00 per Option Share until June 21, 2023.
On June 21, 2016, we issued and aggregate of 475,000
post-subdivision units ((each, a “Unit”) at a price of
$1.00 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, a
“Warrant”). Each Warrant entitles the holder to acquire
one additional share of our common share at a price of $2.00 per
share (each, a “Warrant Share”) until five years from
the date of issuance.
On August 15, 2016, we issued 25,000 units (each, a
“Unit”) at a price of $1.00 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, a “Warrant”). Each
Warrant entitles the holder to acquire one additional share of our
common share at a price of $2.00 per share (each, a “Warrant
Share”) until five years from the date of
issuance.
On September 7, 2016, we issued an aggregate of 115,000 units
(each, a “Unit”) at a price of $1.00 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, a “Warrant”). Each
Warrant entitles the holder to acquire one additional share of our
common share at a price of $2.00 per share (each, a “Warrant
Share”) until five years from the date of
issuance.
On September 7, 2016, we issued a $300,000 unsecured convertible
note (the “Note”) that is convertible into units (each,
a “Unit”) at a price of $1.00 per Unit. Each Unit
consists of one share of our common share and one common share
purchase warrant (each, a “Warrant”). Each Warrant
entitles the holder to acquire one additional share of our common
share at a price of $2.00 per share (each, a “Warrant
Share”) until September 7, 2021.
On October 5, 2016, we issued an aggregate of 105,000 units (each,
a “Unit”) at a price of $1.00 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, a “Warrant”). Each
Warrant entitles the holder to acquire one additional share of our
common share at a price of $2.00 per share (each, a “Warrant
Share”) until five years from the date of
issuance.
On October 5, 2016, we issued an aggregate of 149,762 units (each,
a “Unit”) at a price of $1.00 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, a “Warrant”). Each
Warrant entitles the holder to acquire one additional share of our
common share at a price of $2.00 per share (each, a “Warrant
Share”) until five years from the date of
issuance.
On October 28, 2016, we issued 2,000,000 units (each a
“Unit”) at a price of $1.00 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, a “Warrant”). Each Warrant
entitles the holder to acquire one additional share of our common
share at a price of $2.00 per share (each, a “Warrant
Share”) until five years from the date of
issuance.
On October 28, 2016 we issued 2,400,000 units (each a
“Unit”) at a price of $0.8333333333 per Unit to one
entity pursuant to a private placement subscription agreement. Each
Unit was comprised of one share of our common share and
1.6666666667 common share purchase warrants (each whole warrant, a
“Warrant”). Each whole Warrant entitles the holder to
acquire one additional share of our common share at a price of
$2.00 per share (each, a “Warrant Share”) until five
years from the date of issuance.
On November 21, 2016, we issued 4,500,000 units (each a
“Unit”) at a price of $0.36340426 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, a
“Warrant”). Each Warrant entitles the holder to acquire
one additional share of our common share at a price of $2.00 per
share (each, a “Warrant Share”) until five years from
the date of issuance.
On November 21, 2016, we issued 400,000 units (each a
“Unit”) at a price of $1.00 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, a “Warrant”). Each Warrant
entitles the holder to acquire one additional share of our common
share at a price of $2.00 per share (each, a “Warrant
Share”) until five years from the date of
issuance.
On February 8, 2017, we issued 320,000 units (each a
“Unit”) at a price of $1.00 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, a “Warrant”). Each
Warrant entitles the holder to acquire one additional share of our
common share at a price of $2.00 per share (each, a “Warrant
Share”) until five years from the date of
issuance.
On February 17, 2017, we issued 1,020,000 options (each, an
“Option”) to thirty-two individuals to purchase a share
of common share (each, an “Option Share”) at a price of
$1.00 per Option Share until February 17, 2024.
104
On March 29, 2017, we issued 108,000 units (each a
“Unit”) at a price of $1.00 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, a “Warrant”). Each
Warrant entitles the holder to acquire one additional share of our
common share at a price of $2.00 per share (each, a “Warrant
Share”) until five years from the date of
issuance.
On March 29, 2017, we issued 5,000 units (each a
“Unit”) at a price of $1.00 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, a “Warrant”). Each Warrant
entitles the holder to acquire one additional share of our common
share at a price of $2.00 per share (each, a “Warrant
Share”) until five years from the date of
issuance.
On March 30, 2017, we issued 100,000 units (each a
“Unit”) at a price of $1.00 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, a “Warrant”). Each Warrant
entitles the holder to acquire one additional share of our common
share at a price of $2.00 per share (each, a “Warrant
Share”) until five years from the date of
issuance.
On April 17, 2017, we completed a private placement of 200,000
units at a price of $1.00 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 $2 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 200,000
units at a price of $1.00 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 $2 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 75,000 units
at a price of $1.00 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 $2 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 25,000 units
at a price of $1.00 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 $2 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 300,000 units
at a price of $1.00 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 $2 per warrant share
until July 13, 2022. We has agreed to pay cash third party
finder’s fees of $30,000 relating to this private
placement.
On July 27, 2017, we completed a private placement of 1,500 units
at a price of $1.00 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 $2 per warrant share
until July 27, 2022.
On July 31, 2017 the unsecured convertible loan for $300,000 (note
10) was converted by the holder into units at a price of $1.00 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 $2 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 is convertible, at the holder’s
option at any time before maturity into units at a price of $1.00
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 $2.00 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 $2 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 200,000
units at a price of $1.00 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 $2 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 12,500 common shares pursuant the
exercise of stock options of $0.15 per share for proceeds of
$1,875.
105
On
October 16, 2017, we completed a private placement of 50,000 units
at a price of USD $6.00 per unit for gross proceeds of USD $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 USD $12.00 per warrant share until October 16, 2019. On October
16, 2017, we issued 2,000 common shares at a price of USD $6.00 per
share with a fair value of USD $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
USD $18,000 (CAD $23,642) cash relating to this private
placement.
On
October 17, 2017, we issued an unsecured convertible loan for USD
$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 USD $3.60 per unit or will automatically convert into
units at a price of USD $3.60 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 USD $8.00 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 USD 7.20 per warrant share for a period of five years from date
of issue. We agreed to pay a third party finder’s fee of USD
$115,229 (CAD $143,728) cash relating to the convertible loan upon
conversion of the loan to common shares (note 10).
On
October 23, 2017, we completed a private placement of 45,045 common
shares at a price of USD $5.55 per share for gross proceeds of USD
$250,000 (CAD $315,790).
On
October 31, 2017, we completed a private placement of 250,000 units
at a price of USD $3.75 per unit for gross proceeds of USD $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 USD $7.50 per warrant share until October 31, 2024. On October
31, 2017, we issued 12,500 common shares at a price of USD $3.75
per share with a fair value of USD $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
USD $65,625 (CAD $83,475) cash relating to this private
placement.
On
November 6, 2017, we entered into a private placement and option
subscription agreement. Pursuant to the agreement, we issued
352,941 shares at a price of $0.85 for gross proceeds of $300,000.
The agreement entitles the subscriber to acquire up to an aggregate
of 1,000,000 shares at a price of $0.85 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.
On
November 9, 2017, we completed a private placement of 250,000 units
at a price of USD $3.75 per unit for gross proceeds of USD $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 USD $7.50 per warrant share until November 9, 2019. On November
9, 2017, we issued 12,500 common shares at a price of USD $3.75 per
share with a fair value of USD $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
USD $65,625 (CAD $83,153) cash relating to this private
placement.
On
November 22, 2017, the Company completed a private placement of
580,000 units at a price of USD $3.75 per unit for gross proceeds
of USD $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 USD $7.50 per warrant share until
November 22, 2019. On November 22, 2017, the Company issued 29,000
common shares at a price of USD $3.75 per share with a fair value
of USD $108,750 (CAD $138,960) for third party finder’s fees
relating to this private placement. Additionally, the Company has
agreed to pay cash third party finder’s fees of USD $152,250
(CAD $194,536) relating to this private placement.
On
November 22, 2017, the Company completed a private placement of
50,083 common shares at a price of USD $5.99 per share for gross
proceeds of USD $300,000 (CAD $383,322).
On
November 22, 2017 the Company issued 100,000 common shares at $1
per share with a fair value of $100,000 to a consultant pursuant to
a consulting agreement the Company entered into on August 28,
2017.
On
November 23, 2017, the Company completed a private placement of
420,000 units at a price of USD $3.75 per unit for gross proceeds
of USD $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 USD $7.50 per warrant share until
November 23, 2019. On November 23, 2017, the Company issued 21,000
common shares at a price of USD $3.75 per share with a fair value
of USD $78,750 (CAD $100,622) for third party finder’s fees
relating to this private placement. Additionally, the Company has
agreed to pay cash third party finder’s fees of USD $110,250
(CAD $140,871) relating to this private placement.
On
November 27, 2017 the unsecured convertible loan for USD $1,152,289
(CAD $1,437,052), which was issued on October 17, 2017, was
converted by the holder into 320,080 units of the Company at a
price of USD $3.60 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 warrant share for a period of five years
from November 27, 2017. On November 27, 2017, the Company issued
32,008 shares at a price of USD $3.60 per share with a fair value
of USD $115,229 (CAD $143,705) for third party finder’s fees
regarding the convertible loan.
On
December 1, 2017 the Company issued 5,000 common shares pursuant
the exercise of warrants at $2.00 per share for proceeds of
$10,000.
On
December 7, 2017, the Company completed a private placement of
192,901 common shares at a price of USD $5.18 per share for gross
proceeds of USD $1,000,000 (CAD $1,268,450).
On
December 29, 2017, the Company issued 529,412 common shares at
$0.85 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. The Company has agreed to pay
cash third party finder’s fees of $45,000 relating to this
share subscription.
On
January 22, 2018, we 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$2,083,200). 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 USD$8.40 per warrant share until January 22,
2021.
106
ITEM 8. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed with this registration
statement
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3.1
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Notice of
Articles
(1)
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3.2
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Articles
(1)
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4.1
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Share Certificate
– Common Shares
(1)
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4.2
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Form of Warrant
Certificate
(1)
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4.3
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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
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5.1
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Opinion of McMillan
LLP**
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10.1
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Share Purchase
Agreement
(3)
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10.2
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Executive Services
Agreement between the Company and Jerry Kroll, dated July 1,
2016
(1)
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10.3
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Executive Services
Agreement between the Company and Ed Theobald, dated July 1,
2016
(1)
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10.4
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Executive Services
Agreement between the Company and Iain Ball, dated July 1,
2016
(1)
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10.5
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Executive Services
Agreement between the Company and Hurricane Corporate Services
Ltd., dated July 1, 2016
(1)
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10.6
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Executive Services
Agreement between the Company and Henry Reisner, dated July 1,
2016
(1)
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10.7
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Executive Services
Agreement between the Company and Mark West, dated November 1,
2016
(2)
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10.8
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Manufacturing
Agreement between Chongqing Zongshen Automobile Co., Ltd. and the
Company, dated September 29, 2017*+
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10.9
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Share Pledge
Agreement between the Company and Jerry Kroll, dated October 16,
2017*
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14.1
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Code of
Ethics
(1)
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21.1
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Electrameccanica
Vehicles Corp. has one subsidiary:
Intermeccanica International Inc., a corporation
subsisting under the laws of the Province of British Columbia,
Canada.
Electrameccanica Vehicles Corp. has 100% of the
voting and dispositive control over the subsidiary
.
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23.1
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Consent of Dale
Matheson Carr-Hilton Labonte LLP, Chartered
Accountants*
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23.2
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Consent of McMillan
LLP (contained in exhibit 5.1)**
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99.1
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2015 Stock Option
Plan
(1)
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99.2
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Audit Committee
Charter
(1)
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99.3
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Nominating and
Corporate Governance Committee Charter
(1)
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99.4
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Compensation
Committee Charter
(1)
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Notes:
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*
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Filed
herewith.
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**
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To be
filed by amendment
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+
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Portions of this exhibit have been omitted pursuant to a request
for confidential treatment. Confidential information has been
omitted from the exhibit in places marked “****”and has
been filed separately with the SEC.
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(1)
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Filed
as an exhibit to our registration statement on Form F-1 as filed
with the SEC on October 12, 2016 and incorporated herein by
reference.
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(2)
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Filed
as an exhibit to our registration statement on Form F-1/A as filed
with the SEC on December 20, 2016 and incorporated herein by
reference.
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(3)
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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.
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107
ITEM 9. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
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(1)
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To
file, during any period in which offers or sales of securities are
being made, a post-effective amendment to this registration
statement to:
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(i)
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Include
any prospectus required by Section 10(a)(3) of the Securities Act
of 1933;
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(ii)
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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
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(iii)
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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.
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(2)
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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.
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(3)
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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.
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(4)
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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.
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(5)
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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.
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(6)
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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.
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108
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
1st
day of February
2018.
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ELECTRAMECCANICA
VEHICLES CORP.
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(Registrant)
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By:
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/s/
Jerry Kroll
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Jerry
Kroll, President, Chief Executive Officer
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and
Director (Principal Executive Officer)
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By:
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/s/
Kulwant Sandher
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|
Kulwant
Sandher, Chief Financial Officer and Secretary (Principal Financial
Officer and Principal Accounting Officer)
|
KNOW ALL BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jerry Kroll as his true and
lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this
registration statement, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or their
substitutes, may lawfully do or cause to be done by virtue
hereof.
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
|
President,
Chief Executive Officer (Principal
Executive Officer)
and a director
|
February
1, 2018
|
|
Jerry
Kroll
|
|
|
|
|
|
|
|
/s/
Kulwant Sandher
|
Chief
Financial Officer and Secretary (Principal
Financial Officer
and Principal Accounting Officer)
|
February
1, 2018
|
|
Kulwant
Sandher
|
|
|
|
|
|
|
|
/s/
Shaun Greffard
|
Director
|
January
31, 2018
|
|
Shaun
Greffard
|
|
|
|
|
|
|
|
/s/
Robert Tarzwell
|
Director
|
February
1, 2018
|
|
Robert
Tarzwell
|
|
|
109
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 February 1
, 2018.
|
Ortoli Rosenstadt LLP
|
|
|
|
By: /s/
William S. Rosenstadt
|
|
Name:
William S. Rosenstadt
|
|
Title:
Managing Partner
|
110