| UNITED STATES |
| SECURITIES AND EXCHANGE COMMISSION |
| Washington, D.C. 20549 |
| FORM 6-K |
| | REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 |
| UNDER THE SECURITIES EXCHANGE ACT OF 1934 |
| | | For the month of November 2022 |
| | | Commission File No. 001-38612 |
| | | | ELECTRAMECCANICA VEHICLES CORP. |
| (Translation of registrant's name into English) |
| | | | 8057 North Fraser Way, Burnaby, British Columbia, Canada, V5J 5M8 |
| | | (Address of principal executive offices) |
| | | | | Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F |
| Form 20-F | | | | | | ☒ Form 40-F ☐ |
| | | | | Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1) | | ☐ |
| | | | | Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7) | | ☐ |
| Attached as Exhibit 99.1 to this Report of Foreign Private Issuer on Form 6-K is our Quarterly Report for the nine months ended September 30, 2022. The information inthis Quarterly Report on Form 6-K and the exhibits hereto are incorporated by reference into: (i) our registration statement on Form F-3 (333-229562), originally filed onFebruary 8, 2019, and the prospectus thereto filed on March 1, 2019; (ii) our registration statement on Form S-8 (333-249321), originally filed on October 5, 2020; and(iii) our registration statement on Form F-3 (333-257292), originally filed on June 22, 2021, the prospectus thereto filed on June 30, 2021, and the prospectus supplementthereto filed on September 30, 2021. |
| Exhibits |
| Exhibit No. | |
| | Exhibit |
| | |
| 99.1 | Quarterly Report for the nine months ended September 30, 2022 |
| 99.2 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934. |
| 99.3 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934. |
| 101.INS | XBRL Instance |
| 101.SCH | XBRL Taxonomy Extension Schema |
| 101.CAL | XBRL Taxonomy Extension Calculation |
| 101.DEF | XBRL Taxonomy Extension Definition |
| 101.LAB | XBRL Taxonomy Extension Labels |
| 101.PRE | XBRL Taxonomy Extension Presentation |
| 104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the inline XBRL document) |
| Table of Contents |
| | INTRODUCTION |
| Currency of Presentation and Certain Defined Terms |
| Unless the context otherwise requires, in this quarterly report (the “Quarterly Report”) the term(s) “we”, “us”, “our”, “Company”, “our company”, “ElectraMeccanica”and “our business” refer to Electrameccanica Vehicles Corp. |
| All references to “$” or “dollars” are expressed in United States dollars (“US”, “U.S.” or “USD”) unless otherwise indicated. |
| Our financial statements are prepared in US dollars and presented in accordance with International Financial Reporting Standards, or “IFRS”, as issued by InternationalAccounting Standards Board (“IASB”). In this Quarterly Report any discrepancies in any table between totals and the sums of the amounts listed are due to rounding. |
| Forward-Looking Statements |
| This Quarterly Report contains statements that constitute “forward-looking statements”. Any statements that are not statements of historical facts may be deemed to beforward-looking statements. These statements appear in a number of different places in this Quarterly Report and, in some cases, can be identified by words such as“anticipates”, “estimates”, “projects”, “expects”, “contemplates”, “intends”, “believes”, “plans”, “may”, “will” or their negatives or other comparable words, althoughnot all forward-looking statements contain these identifying words. Forward-looking statements in this Quarterly Report may include, but are not limited to, statementsand/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, eRoadster or Tofinos in the future; projected costs; expected production capacity; expectationsregarding demand and acceptance of our products; estimated costs of machinery to equip a new production facility; trends in the market in which we operate; and theplans 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 statementsare made, but which may prove to be incorrect. Management believes that the assumptions and expectations reflected in such forward-looking statements are reasonable.Assumptions have been made regarding, among other things: the Company’s ability to maintain production deliveries within certain timelines; the Company’s expectedproduction capacity; prices for machinery to equip a new production facility; labor costs and material costs remaining consistent with the Company’s currentexpectations; production of SOLOs, eRoadster and Tofinos meeting expectations and being consistent with estimates; equipment operating as anticipated; there being nomaterial variations in the current regulatory environment; and the Company’s ability to obtain financing as and when required and on reasonable terms. Readers arecautioned that the foregoing list is not exhaustive of all factors and assumptions which may have been used. |
| 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. The forward-looking statements might not prove to be accurate, as actualresults and future events could differ materially from those anticipated in such forward-looking statements. Accordingly, readers should not place undue reliance onforward-looking statements. These cautionary remarks expressly qualify, in their entirety, all forward-looking statements attributable to our Company or persons actingon our behalf. We do not undertake to update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting suchstatements, except as, and to the extent required by, applicable securities laws. You should carefully review the cautionary statements and risk factors contained in thisQuarterly Report and other documents that we may file from time to time with the securities regulators. |
| Loss of Foreign Private Issuer Status |
| We have determined that we have ceased to qualify as a “foreign private issuer”, as such term is defined in Rule 405 under the United States Securities Act of 1933, asamended (the “Securities Act”), and Rule 3b-4 under the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 30, 2022, beingthe last business day of our most recently completed second fiscal quarter. We no longer qualify as a foreign private issuer because, as of June 30, 2022, more than 50percent of our common shares were directly or indirectly owned of record by residents of the United States, and five of our nine directors were either citizens or residentsof the United States. Once an issuer fails to qualify for foreign private issuer status it will remain unqualified unless it meets the requirements for foreign private issuerstatus as of the last business day of its second fiscal quarter. Accordingly, our Company will not |
| 2 |
| Table of Contents |
| | PART I – FINANCIAL INFORMATION |
| Item 1. Condensed Consolidated Financial Statements |
| The selected historical consolidated financial information set forth below has been derived from our financial statements for the nine months ended September 30, 2022and for the fiscal years ended December 30, 2021, 2020, 2019 and 2018. |
| | | Consolidated Statements of Loss and Comprehensive Loss |
| | | | Nine months ended | Year ended | | | | Year ended | Year ended | Year ended |
| | | | September 30, | December 31, | | | | December 31, | December 31, | December 31, |
| | | | | 2022 | | 2021 | | | | | | | | 2020 | | | | | 2019 | | 2018 |
| | | | | | | | | | Revenues | $ | 4,025,507 | $ | 2,100,770 | | | | $ | 568,521 | $ | 585,584 | $ | 599,757 |
| | | | | | | | | | Gross Profit | $ | (4,742,449) | $ | (2,233,911) | | | | $ | (130,934) | $ | 98,041 | $ | 155,961 |
| | | | | | | | | | Net Loss | $ | 59,673,086 | $ | 41,326,835 | | | | $ | 63,046,905 | $ | 23,212,698 | $ | 7,745,313 |
| | | | | | | | | | Loss per Share – Basic andDiluted |
| | | | $ | 0.50 | $ | 0.37 | | | | $ | | | | 1.08 | $ | | | | | 0.64 | $ | | | | | 0.29 |
| Our interim condensed consolidated financial statements for the nine months ended September 30, 2022 and 2021 are attached at the end of this Quarterly Reportforming Exhibit 99.1. |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation |
| General |
| The following management’s discussion and analysis, prepared for our third quarter ended September 30, 2022, is a review of our operations, current financial positionand outlook and should be read in conjunction with our annual audited financial statements for the year ended December 31, 2021 and the notes thereto. Amounts arereported in USD based upon financial statements prepared in accordance with IFRS as issued by the IASB. |
| The preparation of financial statements in conformity with these accounting principles requires us to make estimates and assumptions that affect the reported amounts ofassets and liabilities, disclosure of contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On anon-going basis we review our estimates and assumptions. The estimates were based on our historical experience and other assumptions that we believe to be reasonableunder the circumstances. Actual results are likely to differ from those estimates or other forward-looking statements under different assumptions or conditions, but we donot believe such differences will materially affect our financial position or results of operations. Our actual results may differ materially. |
| This Quarterly Report contains forward-looking statements about our business, financial condition and prospects that reflect management’s assumptions and beliefs basedon information currently available. The expectations indicated by such forward-looking statements might not be realized. If any of our management’s assumptions shouldprove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, our actual results may differ materially from those indicated bythe forward-looking statements. |
| The key factors that are not within our control and that may have a direct bearing on operating results include, but are not limited to, the ability of our partners to produceour electric vehicles, tariffs and other trade matters, the acceptance of our electric vehicles, our ability to create and expand our customer base, management’s ability toraise capital in the future, the retention of key employees and changes in the regulation of our industry. |
| There may be other risks and circumstances that management may be unable to predict. When used in this Quarterly Report, words such as “believes”, “expects”,“intends”, “plans”, “anticipates”, “estimates” and similar expressions are intended to identify forward-looking statements, although there may be certain forward-lookingstatements not accompanied by such expressions. |
| 4 |
| Table of Contents |
| Our Company |
| Corporate Structure and Principal Executive Offices |
| We were incorporated on February 16, 2015, under the laws of the Province of British Columbia, Canada, and have a December 31st fiscal year end. Our principalactivity is the development and manufacturing of electric vehicles (“EV”s). |
| Our principal executive offices are located at 8057 North Fraser Way, Burnaby, British Columbia, Canada, V5J 5M8. Our telephone number is (888) 457-7656. Ourwebsite address is www.electrameccanica.com. Our registered and records office is located at Suite 1500, 1055 West Georgia Street, P.O. Box 11117, Vancouver, BritishColumbia, Canada, V6E 4N7. |
| We have five subsidiaries: Intermeccanica International Inc. (“InterMeccanica”), a British Columbia, Canada, corporation; EMV Automotive USA Inc., a Nevadacorporation; SOLO EV LLC, a Michigan limited liability company; ElectraMeccanica USA LLC, an Arizona limited liability company; and EMV AutomotiveTechnology (Chongqing) Ltd., a People’s Republic of China (“PRC”) corporation. |
| Additional information related to us is available on SEDAR at www.sedar.com, on EDGAR at www.sec.gov and at www.electrameccanica.com. We do not incorporatethe contents of our website or of sedar.com into this Quarterly Report. |
| Overview |
| We are a development-stage electric vehicle, or “EV” designer and manufacturer company located in Burnaby, British Columbia, Canada. Our initial product line targetsurban commuters, commercial fleets/deliveries and shared mobility seeking to commute in an efficient, cost-effective and environmentally friendly manner. |
| Our first flagship EV is the SOLO, a three wheel, single seat vehicle, which has been designed, prototyped and tested in Canada. The SOLO has been certified for sale inCalfornia and Arizona where we have dealer licenses to sell the vehicle. The SOLO is presently manufactured in China by Chongqing Zongshen Automobile IndustryCo., Ltd. (“Zongshen”). They are imported, pre-inspected and, where required, customised and delivered to our customers in the United States. |
| In October of 2017 we entered into a “Manufacturing Agreement” with Zongshen, acting through its wholly-owned subsidiary. Zongshen is an affiliate of ZongshenPower Machinery Co., Ltd., a large-scale scientific and technical enterprise which designs, develops, manufactures and sells a diverse range of motorcycles andmotorcycle engines in China. We amended the Manufacturing Agreement in June of 2021 to update certain manufacturing and delivery provisions of the same. Zongshenpurchased and beneficially owns approximately 2.4% of our common shares. |
| We launched commercial production of our SOLO on August 26, 2020. We currently have retail stores located in California and Arizona and kiosks for marketingpurposes setup in Oregon. The Company commenced deliveries on October 4, 2021, to initial customers and commercial fleets. |
| On September 16, 2020, we announced plans to produce an alternative “cargo and fleet” version of our flagship SOLO EV and debuted the SOLO alternative version (the“SOLO Cargo EV”) at the ACT Expo in Long Beach, California, on August 31, 2021. The Company announced its plan to start delivering the SOLO Cargo EV in thefourth quarter of 2022. The Company is currently on track to meet this target. The starting suggested retail price of the SOLO Cargo EV is $24,500 (“MSRP”) with 11.8cubic feet of storage. |
| On March 16, 2021, we announced that we had selected Mesa, Arizona, as the site for the establishment of our U.S.-based assembly facility and engineering technicalcenter. On May 12, 2021, we celebrated the official groundbreaking of the assembly facility and engineering technical center. The 235,000 square foot facility is locatedon 18 acres of land adjacent to the Phoenix-Mesa Gateway airport. The building includes an assembly and manufacturing plant, a research center, 22,000 square feet ofoffice space and 19,000 square feet of lab space. We received our occupancy certificate on May 12, 2022 from the City of Mesa and did a phased move in during themonth of July 2022. When the facility is fully operational it is expected to have a production capacity of up to 20,000 vehicles per year and employ up to 500 people.The building is leased from the land owner and developer for a period of approximately 11 years. |
| In addition to the SOLO and SOLO Cargo EV, we have other potential EV vehicles, like the “eRoadster” and the “Tofino”, an all-electric, two-seater roadster, in the earlydesign development stage. |
| 5 |
| Table of Contents |
| Industry Overview |
| Investment in clean technology has been trending upwards for several years as nations, governments and societies overall become more aware of the damaging effectsthat pollution and greenhouse gas emissions have on the environment. EVs are a growing segment of this clean technology movement. Within this alternative vehiclegroup there are sub-categories of alternative vehicles that utilize different innovative technologies, including battery electric vehicles (“BEV”) and plug-in hybrid electricvehicles (“PHEV”). Our products are BEVs. |
| Over the past two years, as a result of COVID-19 and other macro-economic factors, some EV automotive parts and components have been in limited supply resulting inmany companies failing to meet production targets. Furthermore, the capital markets that we rely on to provide financing have been challenging which has placed furtherdownward pressure on the BEV industry. |
| Competitive Factors |
| The EV market is evolving and companies within it must be able to adapt without jeopardizing the timing, quality or quantity of their products. Other manufacturers haveentered 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 experiencesignificant competition. With respect to the SOLO, we face strong competition from well-established automobile and three-wheel motorcycle manufacturers. |
| Most of our current and potential competitors have significantly greater financial, technical, manufacturing, marketing and other resources than we do, and may be ableto devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. Virtually all of our competitors havemore extensive customer bases and broader customer and industry relationships than we do. In addition, almost all of these companies have longer operating histories andgreater name recognition than we do. |
| 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 currently offer limited direct loan financing options on our vehicles through 3rdparties that put us at a competitive disadvantage to some of our competitors. |
| We expect competition in our industry to intensify in the future in light of increased demand for alternative fuel vehicles, continuing globalization and consolidation inthe 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. Increased competition could result in price reductions and revenue shortfalls, and loss of customers and lossof market share, which could harm our business, prospects, financial condition and operating results. |
| Government Regulation |
| As a vehicle manufacturer we are required to ensure that all vehicle production meets applicable safety and environmental standards. Issuance of the National SafetyMark (the “NSM”) by the Minister of Transport for Canada will be our authorization to manufacture vehicles in Canada for the Canadian market. Receipt of the NSM iscontingent 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 is under the three-wheeled vehicle category and is subject to the safetystandards listed in Schedule III of the Canadian Motor Vehicle Safety Regulations (“CMVSR”), which can be found at (https://laws-lois.justice.gc.ca/eng/regulations/C.R.C.,_c._1038/section- |
| | sched479060.html? |
| txthl=regulations+regulation+vehicle%E2%80%99s+vehicles+schedule+canadian+vehicle+safety+motors+motor+iii). |
| For sale into the United States, we and our vehicles must meet the applicable provisions of the U.S. CFR Title 49 —Transportation. Since the U.S. regulations do nothave a specific class for three-wheeled “autocycles”, the SOLO falls under the definition of a motorcycle pursuant to Sec. 571.3 of 49 CFR Part 571. However, currentlya motorcycle license is not required to drive them in all but the States of Indiana, Massachusetts, Minnesota, Nebraska, Nevada, New Mexico and North Carolina.Motorcycle helmets must be worn while operating in the States of Alaska (when operating without a motorcycle license or endorsement), Nebraska and North Carolina.Helmets are also required if the driver is under 18 years old in the States of Alaska, Colorado, Indiana, Minnesota, Montana, New Hampshire and New Mexico. |
| 6 |
| Table of Contents |
| We certified the SOLO for compliance with the applicable U.S. requirements in the first quarter of 2018. Results from third party vehicle testing at a facility in Quebec,Canada, were used for this certification. We continue to use third party facilities for certification testing to ensure that any changes to the SOLO’s design continue to meetsafety requirements. Compliance certification of the SOLO for Canada began in 2018. |
| Within the three-wheel vehicle classification in Canada, CMVSR Standard 305 sets out the regulation for prevention of injury to the occupant during and after a crash asrelated 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 inthe course of a frontal barrier crash test in accordance with Technical Standard Document No. 305. The equivalent U.S standard, FMVSS No. 305, is not applicable to themotorcycle category under the U.S. regulations. |
| Sales and Marketing Strategy |
| Our near-term goal is to increase sales of the SOLO and develop the market for SOLO Cargo EV with fleet customers. We achieve sales through an online and directselling model (“Dealerships”). We have Dealerships that provide for the sales, service and distribution of our vehicles in Huntington Beach, California, and Mesa,Arizona. |
| The establishment of future Dealerships will depend on regional demand, available candidates and local regulations. |
| Key aspects of our current marketing strategy include: |
| ● | | Digital marketing: Organic engagement and paid digital marketing media with engaging posts aimed to develop interest in our vehicles; |
| ● | | Earned media: Press coverage from traditional media sources and we expect these features and news stories to continue; |
| ● | | Industry shows and events: Promotional merchandise giveaways are expected to enhance and further solidify our branding in consumer minds; and |
| ● | | First-hand experience: Test-drives and/or public viewings are available at our existing locations in Arizona, California, and Oregon. |
| We have a partnership with BMO Harris Bank and Freedom Road Financial for the SOLO loan financing program for consumers and small businesses. The programprovides a financing solution to support SOLO sales. |
| Employee Overview |
| As of September 30, 2022, we employed a total of 223 full-time and three part-time people. None of our employees are covered by a collective bargaining agreement. |
| | | Activity | | | | Number of FT Employees |
| | | Engineering / R&D | | | | | 141 |
| | | Sales & Marketing | | | | | 45 |
| | | General & Administration | | | | | 31 |
| | | Executives | | | | | 6 |
| 7 |
| Table of Contents |
| Change in Management |
| We have made several key changes to our management team in the past three months. These changes reflect our continued operational focus on building our skill setwithin the company. |
| ● | | Board of Directors Changes: |
| | - | Michael Richardson appointed Vice Chair of the Company’s Board of Directors (the “Board”) effective on July 28, 2022; and |
| | - | Appointment/reappointment of Board members to the following Board Committees, effective on July 28 2022; |
| | | ◾ Audit Committee – Luisa Ingargiola (Chairperson), Steven Sanders, Dietmar Ostermann, Dave Shemmans, and William Quigley; |
| | | ◾ Compensation Committee – Dave Shemmans (Chairperson), Michael Richardson, Joanne Yan, Dietmar Ostermann and Luisa Ingargiola; |
| | | ◾ Nominating and Corporate Governance Committee – Steven Sanders (Chair), Michael Richardson, William Quigley and Dave Shemmans; |
| | | ◾ Corporate Disclosure Committee – Steven Sanders (Chair), Michael Richardson, William Quigley and Luisa Ingargiola; and |
| | | ◾ Finance Committee – Dave Shemmans (Chair), Joanne Yan, Luisa Ingargiola and William Quigley. |
| ● | | Executive Leadership Changes: |
| | - | Bal Bhullar resigned as Chief Financial Officer (“CFO”) on August 22 2022 and was appointed Chief Compliance Officer on August 22 2022; |
| | - | Mark Orsmond appointed CFO on August 22 2022; |
| | - | Tony Dent hired as General Counsel on August 15 2022; |
| | - | Isaac Moss resigned as Chief Administrative Officer and Corporate Secretary on September 22 2022; and |
| | - | Tony Dent appointed Corporate Secretary on September 22 2022. |
| Potential Impact of the COVID-19 Pandemic |
| In December 2019, a strain of novel coronavirus (now commonly known as COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spreadrapidly throughout many countries, and, on March 11, 2020, the World Health Organization declared COVID-19 to be a pandemic. In an effort to contain and mitigate thespread of COVID-19, many countries, including the United States, Canada and China, have imposed unprecedented restrictions on travel, and there have been businessclosures and a substantial reduction in economic activity in countries that have had significant outbreaks of COVID-19. |
| With our partner Zongshen we had begun producing the SOLO for targeted deliveries to customers during the last quarter of 2021. However, significant uncertaintyremains as to the potential impact of the COVID-19 pandemic on our and Zongshen’s operations, and on the global economy as a whole. Government-imposedrestrictions on travel and other “social-distancing” measures, such as restrictions on assemblies of groups of persons, have potential to disrupt supply chains for parts andsales channels for our products, and may result in labor shortages. |
| 8 |
| Table of Contents |
| During March 2022, some of our suppliers had suspended production due to COVID-19 outbreaks and lockdowns in Shanghai, China, however, the Company wasinformed that the suppliers resumed normal production capacity as of July 2022. At this time, Zongshen is currently able to meet production requests from the Company. |
| It is currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to prior levels. We will continue tomonitor the COVID-19 situation closely, and intend to follow health and safety guidelines as they evolve. |
| Impact of Tariffs |
| In June 2018, the previous U.S. administration imposed tariffs on $34 billion of Chinese exports, including a 25% duty on cars built in China and shipped to the UnitedStates. Consequently, U.S. Customs and Border Protection ruled that our SOLO has a classification under the Harmonized Tariff Schedule of the United States thatapplies to passenger vehicles for less than 10 people with only electric motors. The total applicable duty for this classification was recently raised to 27.5% (2.5% is a“most-favored-nation” tariff for this classification and 25% derives from this classification being on the China 301 List 1). This resulted in us increasing the basepurchase price of the Solo from $15,500 to $18,500, and is having a negative affect our sales volume. We are continuously monitoring the landscape for tariffs involvingimports to the United States from the PRC that has been changing over the past year and could change again in future and is beyond our control. |
| Financing |
| We incurred net losses of $59,673,086 in the nine months ended September 30, 2022, and $41,326,835 in the year ended December 31, 2021, and anticipate incurringlosses in our current fiscal year. We had negative operating cash flows of $65,050,467 for the nine months ended September 30, 2022, and $60,418,163 for the yearended December 31, 2021, and we anticipate negative operating cash flows during our current fiscal year. Although we had working capital of $173,138,932, includingcash and cash equivalents of $ $153,883,279, as at September 30, 2022, and anticipate deriving revenue this fiscal year from the sale of EVs, we believe that we will needadditional financing to continue operations. If we are unable to continue to access private and public capital on terms that are acceptable to us, we may be forced tocurtail or cease operations. |
| Market conditions, trends or events |
| Our ability to continue operations also depends on market conditions outside of our control. Significant developments in alternative technologies, such as advanceddiesel, ethanol, fuel cells or compressed natural gas, or improvements in the fuel economy of the internal combustion engine, may materially and adversely affect ourbusiness and prospects. Failure to keep up with advances in electric vehicle technology would result in a decline in the Company’s competitive position which maymaterially and adversely affect our business, prospects, operating results and financial condition. |
| On August 16, 2022 the Inflation Reduction Act (IRA) was enacted into law in the United States of America and is effective for taxable years beginning after December31, 2022. The IRA aims to curb inflation by, among other things, reducing the deficit, lowering prescription drug prices and promoting and funding clean energyinitiatives. Presently, the IRA provides government funded tax incentives for certain 4-wheel passenger vehicles. Although the SOLO and SOLO CARGO EV presentlydo not qualify for these incentives, the Company is working with government affairs representatives to propose changes to the IRA to include 3-wheel vehicles. Althoughsuch efforts may ultimately not be successful, the IRA promotes and provides further support for the general adoption of EVs and infrastructure that could positivelyimpact the market demand for our vehicles in the future. |
| Commodities |
| Prices for commodities remain volatile, and we expect to experience price increases for base metals and raw materials that are used in batteries for electric vehicles (e.g.,lithium, cobalt and nickel) as well as steel, aluminum and other material inputs. Global demand and differences in output across sectors as a result of the COVID-19pandemic have generated divergence in price movements across different commodities. We expect the net impact on us overall will be higher material costs. In order toassist in ensuring a supply of raw materials for critical components (such as batteries), we plan to enter into multi-year sourcing agreements. |
| Inflation |
| 9 |
| Table of Contents |
| Inflation has significantly risen during the first three quarters of 2022, resulting from both demand / supply imbalances as economies continued to recover from theCOVID-19 pandemic as well as the impact on the availability and cost of energy and other commodities resulting from Russia’s invasion of Ukraine in February 2022which is on-going. We are seeing a near-term impact on our business due to inflationary pressure (including increased personnel costs associated with scaling ourbusiness, etc.). In an effort to dampen inflationary pressures, central banks have begun to raise interest rates which likely will increase the cost of any financing theCompany may undertake in the future. |
| Selected Financial Information |
| Nine Months Ended Nine Months Ended | Year Ended | | Year Ended |
| | | | 30-Sep-22 | 30-Sep-21 | 31-Dec-21 | | | | 31-Dec-20 |
| | | | $ | | | | $ | | $ | | | | $ |
| Revenue | | | | 4,025,507 | 592,524 | 2,100,770 | | | | 568,521 |
| Gross profit / (loss) | | | | (4,742,449) | | | | 12,561 | (2,233,911) | | | | (130,934) |
| Operations: | | | | | | | | | | | | | | | |
| General and administration expenses | | | | 29,650,515 | 22,113,287 | 31,057,633 | | | | 15,778,172 |
| Research and development expenses | | | | 16,827,395 | 12,318,938 | 17,090,282 | | | | 8,666,247 |
| Sales and marketing expenses | | | | 9,096,055 | 7,002,352 | 10,413,748 | | | | 2,635,134 |
| Subtotal | | | | 55,573,965 | 41,434,577 | 58,561,663 | | | | 27,079,553 |
| Changes in fair value of derivative liability | | | | (312,142) | (16,436,023) | (19,033,560) | | | | 31,923,727 |
| Foreign exchange loss (gain) | | | | | | | | | | 25,374 | (97,239) | | | | | | 9,758 | 4,447,387 |
| Net loss for the period | | | | (59,673,086) | (24,475,447) | 41,326,835 | | | | 63,046,905 |
| Basic & diluted loss per Share | | | | | | | 0.50 | 0.22 | 0.37 | | | | | | 1.08 |
| Balance sheet | | | | | | | | | | | | | | | |
| Working capital | | | | 173,138,932 | 244,211,291 | 232,454,617 | 130,755,823 |
| Total assets | | | | 211,343,329 | 258,670,378 | 252,850,698 | 145,754,382 |
| Total long-term liabilities | | | | 16,865,173 | 5,246,896 | 1,858,810 | | | | 18,518,649 |
| Summary of Quarterly Results |
| The following table sets forth selected certain of our financial information for each of our last eight quarters: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Basic and diluted |
| | | loss |
| | | | | | | | Net Loss | (earnings) |
| QuarterRevenue | Cost of | Expenses | | | | (Income) | per share |
| Ending | | | | | | | | | | | | | | | $ | | revenue | | | | | | | | | | $ | | | | $ | | | | | $ |
| | | | | | | | | | | | | | | | 30-Sep-22 | 1,440,149 | 2,395,217 | 20,988,235 | 21,544,803 | 0.18 |
| | | | | | | | | | | | | | | | 30-Jun-22 | 1,546,715 | 3,430,603 | 18,385,175 | 20,296,746 | 0.17 |
| | | | | | | | | | | | | | | | 31-Mar-22 | 1,038,643 | 2,942,136 | 16,200,555 | 17,831,537 | 0.15 |
| | | | | | | | | | | | | | | | 31-Dec-21 | | | | 1,508,246 | 3,754,718 | 17,127,086 | 16,851,388 | 0.15 |
| | | | | | | | | | | | | | | | 30-Sep-21 | | | | 110,139 | 110,653 | 17,165,392 | 12,847,398 | 0.11 |
| | | | | | | | | | | | | | | | 30-Jun-21 | | | | 298,796 | 253,704 | 15,366,841 | 11,447,385 | 0.10 |
| | | | | | | | | | | | | | | | 31-Mar-21 | | | | 183,589 | 215,606 | 8,902,344 | 180,664 | | | | | | | — |
| | | | | | | | | | | | | | | | 31-Dec-20 | | | | 223,936 | 309,155 | 10,979,952 | 41,110,547 | 0.51 |
| Results of Operations for the Three Months Ended September 30, 2022 |
| We had revenues of $1,440,149 and $110,139 for the three months ended September 30, 2022 and 2021, respectively. The cost of revenue for the three months endedSeptember 30, 2022 was $2,395,217 (2021: $110,653) providing a gross loss of $955,068 (2021: gross loss $514) or –66.32% (2021: -0.5%). Revenue for the SOLO andcustom build vehicles is recognized when the Company has transferred control to the customer which generally occurs upon delivery. The increase in cost of revenue andnegative margin is mainly |
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| due to the launch of SOLO sales from October 2021. Inventoriable cost for the SOLO includes 25% duty as SOLO is classified on the China 301 List 1 by U.S. Customsand Boarder Protection. |
| The following table indicates the number of vehicles produced for either delivery to customers, testing or marketing purposes |
| | | Production | | Unit Sales |
| | | | | | Vehicle Type | | Three Months Ended | | Three Months Ended |
| | September 30 | September 30 | September 30 | September 30 |
| | | 2022 | | | | 2021 | 2022 | | | 2021 |
| | | | | | SOLO – production, made by Zongshen | 103 | 104 | 64 | | | 0 |
| | | | | | Roadster/Speedster - InterMeccanica | 2 | 2 | 2 | | | 2 |
| During the three months ended September 30, 2022, we incurred a comprehensive loss of $21,509,788, compared to a comprehensive loss of $12,829,710 for thecorresponding period in 2021. The largest expense items that resulted in the comprehensive loss for the three months ended September 30, 2022 were: |
| - | | | | | | | | | General and administrative expenses for the three months ended September 30, 2022 were $11,274,408 compared to $9,051,062 for the three months endedSeptember 30, 2021. The following items are included in general and administrative expenses: |
| | | | | | | | | ● | Office expenses increased to $970,156 for the three months ended September 30, 2022, compared to $603,821 for the corresponding quarter endedSeptember 30, 2021. The increase was caused by increases in software subscriptions, travel, office supplies and bank charge and payroll service fees; |
| | | | | | | | | ● | Professional fees increased to $2,184,676 for the three months ended September 30, 2022, compared to $1,608,623 for the corresponding quarter endedSeptember 30, 2021. The increase in legal and professional expenses was caused by the increase in the professional services received for our US GAAPconversion project and related legal activities; |
| | | | | | | | | ● | Investor relations expenses, not including the consulting fees above, were $828,685 for the three months ended September 30, 2022, compared to $370,926for the corresponding quarter ended September 30, 2021. The increase was related to the increased consulting services related to our investor relationsoutreach activities; |
| | | | | | | | | ● | Salaries and employee related expenses decreased to $2,728,199 for the three months ended September 30, 2022, compared to $3,223,394 for thecorresponding quarter ended September 30, 2021. The decrease was related to the decrease in severance payments incurred in the prior year; |
| | | | | | | | | ● | Amortization expenses were $1,612,421 for the three months ended September 30, 2022, compared to $1,102,638 for the corresponding quarter endedSeptember 30, 2021. The increase was due to the increase in property, plant and equipment and the right-of-use assets balances to $28,606,326 (September30, 2021 - $9,734,879); and |
| | | | | | | | | ● | Insurance expenses were $752,483 the three months ended September 30, 2022, compared to $510,089 for the corresponding quarter ended September 30,2021. The increase is related to overall rate increases for insurance coverage. |
| - | | | | | | | | | Research and development expenses increased to $6,542,030 for the three months ended September 30, 2022, compared to $5,435,294 for the correspondingquarter ended September 30, 2021. Research and development costs relate to the EV segment as the Company continues product development of the SOLO,SOLO Cargo EV and e-Roadster. All costs related to the development of vehicles are being expensed to research and development. |
| - | | | | | | | | | Sales and marketing expenses increased to $3,171,797 for the three months ended September 30, 2022, compared to $2,679,036 for the corresponding quarterended September 30, 2021. The Company has begun delivery of commercially-produced SOLOs, and the Company increased its sales and marketing efforts bydeveloping brand assets, increasing presence in social media, attending marketing events and rapidly growing its sales team. |
| - | | | | | | | | | Stock-based compensation charges, included in general and administrative expenses, research and development expenses and sales and marketing expenses, forthe three months ended September 30, 2022 were $1,334,360 (2021: $833,973). As of September 30, 2022, we have 12,616,414 (September 30, 2021 –10,252,227) stock options outstanding. We issued 500,000 |
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| | stock options to employees at an exercise price $1.50 per share during the three months ended September 30, 2022 (three months ended September 30, 2021 –90,604). The stock-based compensation charges related to stock options issued during current and previous quarters where charges are recognized over theirvesting periods. We use the Black-Scholes Option Pricing Model of calculating the stock-based compensation expense under the graded vesting method. Thedecrease was caused by the decrease of the fair value of the awards vested. |
| Our operating loss for the three months ended September 30, 2022 increased to $21,943,303 (2021: $17,165,906). The increase in operating loss was caused by theaforementioned expenses for the quarter. |
| We recognized a gain related to changes in the fair values of derivative liabilities of $41,396 during the quarter (2021: $4,178,638) mainly caused by the decrease of ourshare price from $1.35 at June 30, 2022 to $1.22 at September 30, 2022 (from $4.27 at June 30, 2021 to $3.56 at September 30, 2021). |
| We had interest income of $764,083 for the three months ended September 31, 2022 (2021: $68,702) as a result of an increase in the prime rate. |
| Net loss and comprehensive loss for the three months ended September 30, 2022 was $21,544,803 and $21,509,788, respectively (2021: $12,847,398 and $12,829,710). |
| Results of Operations for the Nine Months Ended September 30, 2022 |
| We had revenues of $ $4,025,507 and $ $592,524 for the nine months ended September 30, 2022 and 2021, respectively. The cost of revenue was $8,767,956 (2021:$579,963), providing a gross loss of $4,742,449 (2021: gross profit $12,561) or -117.8% (2021: 2.1%). Revenue for the SOLO and custom build vehicles is recognizedwhen the Company has transferred control to the customer which generally occurs upon delivery. The increase in cost of revenue and negative margin is mainly due tolaunch of SOLO sales from October 2021. Inventoriable cost for the SOLO includes 25% duty as SOLO is classified on the China 301 List 1 by U.S. Customs andBorder Protection. |
| The following table indicates the number of vehicles produced for either delivery to customers, testing or marketing purposes |
| | | Production | Unit Sales |
| | | | | Vehicle Type | Nine Months Ended | Nine Months Ended |
| | | | | | September 30 | September 30 | September 30 | September 30 |
| | | 2022 | | | | | 2021 | | 2022 | | | | | | 2021 |
| | | | | SOLO – production, made by Zongshen | | | 466 | | | | | | | 152 | 177 | | | | | | | 0 |
| | | | | Roadster/Speedster - InterMeccanica | | | 7 | | | | | | | 8 | 7 | | | | | | | 9 |
| During the nine months ended September 30, 2022, we incurred a comprehensive loss of $59,631,726, compared to a comprehensive loss of $24,472,092 for thecorresponding period in 2021. The largest expense items that resulted in comprehensive loss for the nine months ended September 30, 2022 were: |
| - | | General and administrative expenses for the nine months ended September 30, 2022 were $29,650,515, compared to $22,113,287 for the nine months endedSeptember 30, 2021. The following items are included in general and administrative expenses: |
| | ● | Office expenses increased to $2,970,362 for the nine months ended September 30, 2022, compared to $1,397,269 for the corresponding nine months endedSeptember 30, 2021. The increase was caused by increases in software subscriptions, travel, office supplies and bank charge and payroll service fees; |
| | ● | Professional fees increased to $5,181,742 for the nine months ended September 30, 2022, compared to $4,170,581 for the corresponding nine months endedSeptember 30, 2021. The increase in legal and professional expenses was caused by the professional services received for our SAP system implementationand US GAAP conversion and the increase in related legal expenses and audit fees; |
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| | ● | Investor relations expenses were $1,563,714 for the nine months ended September 30, 2022, compared to $789,568 for the corresponding nine monthsended September 30, 2021. The increase was related to the increased consulting services related to our investor relations [outreach activities or program]; |
| | ● | Salaries and employee related expenses increased to $7,027,747 for the nine months ended September 30, 2022, compared to $5,238,224 for thecorresponding nine months ended September 30, 2021. The increase was related to the addition of new employees due to the growth of the Company andincrease in the directors fees, offset by the decrease in severance expense incurred in the prior year; |
| | ● | Amortization expenses were $4,268,914 for the nine months ended September 30, 2022, compared to $3,005,004 for the corresponding nine month endedSeptember 30, 2021. The increase was due to the increase in property, plant and equipment and right-of-use assets balances to $28,606,326 (September 30,2021 - $9,734,879); and |
| | ● | Insurance expenses were $2,258,610 for the nine months ended September 30, 2022, compared to $1,464,799 for the corresponding nine month endedSeptember 30, 2021. The increase is related to overall rate increases in insurance coverage. |
| - | | Research and development expenses increased to $16,827,395 for the nine months ended September 30, 2022, compared to $12,318,938 for the correspondingnine months ended September 30, 2021. Research and development costs relate to the EV segment as the Company continues product development of theSOLO and e-Roadster. All costs related to the development of vehicles are being expensed to research. |
| - | | Sales and marketing expenses increased to $9,096,055 for the nine months ended September 30, 2022, compared to $7,002,352 for the corresponding ninemonths ended September 30, 2021. The Company has begun delivery of commercially-produced SOLOs, and the Company increased its sales and marketingefforts by developing brand assets, increasing presence in social media, attending marketing events and rapidly growing its sales team. |
| - | | Stock-based compensation charges, included in general and administrative expenses, research and development expenses and sales and marketing expenses, forthe nine months ended September 30, 2022 were $4,174,820 (2021: $4,017,322). We issued 2,908,849 (nine months ended September 30, 2021 – 1,300,604)stock options to employees at exercise prices between $1.5 and $2.13 per share during the nine months ended September 30, 2022. The stock-basedcompensation charges related to stock options issued during current and previous quarters where charges are recognized over their vesting periods. We use theBlack-Scholes Option Pricing Model of calculating the stock-based compensation expense under the graded vesting method. The decrease was caused by thedecrease of the fair value of the awards vested. |
| Our operating loss for the nine months ended September 30, 2022 increased to $60,316,414 (2021: $41,422,016). The increase in operating loss was caused by theaforementioned expenses for the quarter. |
| We recognized a gain related to changes in the fair values of derivative liabilities of $312,142 (2021: $16,436,023) during the nine months period mainly caused by thedecrease of our share price from $2.28 at December 31, 2021 to $1.22 at September 30, 2022 (from $6.19 at December 31, 2020 to $3.56 at September 30, 2021), as wellas the decrease in the number of outstanding warrants priced in Canadian dollars. Warrants priced in Canadian dollars are classified as derivative liabilities because theCompany’s functional currency is U.S. dollars. As a result of this difference in currencies, the proceeds that are received by the Company are not fixed and will varybased on foreign exchange rates; hence the warrants are a derivative under IFRS and are required to be recognized and measured at fair value at each reporting period.Any changes in fair value from period to period are recorded as a non-cash gain or loss in our consolidated statements of loss and comprehensive loss. |
| We had interest income of $1,090,016 for the nine months ended September 31, 2022 (2021: $273,833) as a result of an increase in the prime rate. |
| Net loss and comprehensive loss for the nine months ended September 30, 2022 was $59,673,086 and $59,631,726, respectively (2021: $24,475,447 and $24,472,092,respectively). |
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| Liquidity and Capital Resources |
| Liquidity |
| Our Company’s operations consist of the designing, developing and manufacturing of electric vehicles. Our financial success depends upon our ability to market and sellour electric vehicles and to raise sufficient working capital to enable us to execute our business plan. Our Company’s historical capital needs have been met by the sale ofour stock. Equity funding might not be possible at the times required by the Company. If no funds can be raised and sales of its electric vehicles do not produce sufficientnet cash flow, then we may require a significant curtailing of operations to ensure our survival or we may be required to cease operations. |
| Our financial statements have been prepared on a basis which assumes that our Company will be able to realize its assets and discharge its liabilities in the normal courseof business for the foreseeable future. We incurred a net loss of $59,673,086 during the nine months ended September 30, 2022 and had cash and cash equivalents and aworking capital surplus of $153,883,279 and $173,138,932 respectively. Our ability to meet our obligations as they fall due and to continue to operate depends on thecontinued 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 fromthis 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 commerciallyreasonable 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. |
| As of September 30, 2022, we had 118,888,108 issued and outstanding shares and 138,143,776 shares on a fully-diluted basis. Our common shares and certain of ourwarrants began trading on the Nasdaq Capital Market on August 9, 2018. |
| We had $173,138,932 of working capital surplus as at September 30, 2022, compared to $232,454,617 of working capital surplus as at December 31, 2021. The decreasein working capital resulted from cash generated from financing activities of $574,970 (2021: $149,566,751, offset by working capital used in operations of $65,050,467(2021: $47,330,999) and investing activities of $3,525,274 (2021: $2,876,497) related to our additions to property, plant and equipment. |
| Capital Resources |
| As at September 30, 2022, we had cash and cash equivalents of $153,883,279 (December 31, 2021: $221,928,008). |
| Financings |
| On September 30, 2021, the Company contracted with Stifel, Nicolaus & Company, Incorporated and Roth Capital Partners, LLC (each, an “Agent”, and collectively, the“Agents”) to sell common shares having an aggregate offering price of up to $200,000,000 through the Agents (the “September Sales Agreement”). |
| In accordance with the terms of the September Sales Agreement, the Company may offer and sell common shares from time to time through the Agent selected by theCompany (the “Designated Agent”), acting as sales agent or, with consent of the Company, as principal. The common shares may be offered and sold by any methodpermitted by law deemed to be an “at the market” offering (the “ATM Offering”) as defined in Rule 415 promulgated under the Securities Act, including sales madedirectly on or through the Nasdaq Capital Market on any other existing trading market for the common shares and, if expressly authorized by the Company, in negotiatedtransactions. |
| No common shares were issued during the nine months ended September 30, 2022 pursuant to the ATM Offering under the September Sales Agreement. |
| Statement of Cash Flows |
| During the nine-month period ended September 30, 2022, our net cash decreased by $68,000,771 (2021: increase $99,359,255), which included net cash provided byfinancing activities of $574,970 (2021: $149,566,751), offset by cash used in operating activities of $65,050,467 (2021: $47,330,999), net cash used in investingactivities of $3,525,274 (2021: $2,876,497) and the negative effect of the exchange rate on cash and cash equivalents of $43,958 (2021: -$3,355). |
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| Cash Flow used in Operating Activities |
| Cash flow used in operating activities totaled $65,050,467 and $47,330,999 during the nine months ended September 30, 2022 and 2021, respectively. Cash used inoperating activities increased in 2022 as a result of a decrease in accounts receivable of $266,850, an increase in pre-paid expenses of $5,233,291, an increase ininventory of $9,079,654, a decrease in trade payables and accrued liabilities of $1,936,111, a decrease in customer deposits and construction contract liability of $341,078and a net loss during the period of $59,673,086. |
| Cash Flow used in Investing Activities |
| During the nine-month period ended September 30, 2022, investing activities used cash of $3,296,400 for expenditures on plant and equipment and $228,874 forinvestment in restricted cash, as compared to investing activities using cash of $2,876,497 for the same period last year from the net result of expenditures on plant andequipment and investment in restricted cash. |
| Cash flow provided by Financing Activities |
| During the nine month period ended September 30, 2022, financing activities provided cash of $574,970 from the issuance of common shares for stock options exercisedand interest received, which was offset by cash used for payment of withholding taxes for restricted stock units (“RSU”s) issued and exercised and interest paid andrepayment of leases, as compared to $149,566,751 for the same period last year from proceeds on issuance of common shares, proceeds from the issuance of commonshares for warrants and stock options exercised, and interest received and lease payments received for net investment in sublease, which was offset by cash used forinterest paid and repayment of leases. |
| Trends and Uncertainties |
| 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, changesin financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. |
| Off-Balance Sheet Arrangements |
| We have no off-balance sheet arrangements that would require disclosure. |
| Transactions with Related Parties |
| In addition to the amounts or arrangements disclosed herein, the following transactions with related parties have occurred. |
| Related party balances |
| The following amounts are due to related parties: |
| | September 30 December 31, |
| | | 2022 | | 2021 |
| | | | | | Due to related party | $ | — | $ | 743,100 |
| These amounts are unsecured, non-interest bearing and have no fixed terms of repayment. |
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| Statement of compliance with International Financial Reporting Standards |
| Our interim condensed consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB. |
| Basis of preparation |
| Our interim condensed consolidated financial statements have been prepared on an accrual basis and are based on historical costs except for derivative liabilities whichare measured at fair value and vehicles inventory which are measured at net realizable value. The Company’s functional and presentation currency is USD. |
| Consolidation |
| Our interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: EMV Automotive USA Inc., from the date ofincorporation of January 22, 2018; InterMeccanica, from the date of its acquisition on October 18, 2017; EMV Automotive Technology (Chongqing) Inc., from the dateof its incorporation on October 15, 2019; SOLO EV, LLC, from the date of its formation on November 22, 2019; and ElectraMeccanica USA LLC, from the date of itsformation on March 19, 2021. Inter-company balances and transactions, including unrealized income and expenses arising from inter-company transactions, areeliminated on consolidation. |
| Significant estimates and assumptions |
| The preparation of financial statements in accordance with IFRS requires the Company to make estimates and assumptions concerning the future. The Company’smanagement reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events thatare believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised. |
| Estimates and assumptions where there is significant risk of material adjustments to assets and liabilities in future accounting periods include the estimated fair valuemeasurements for financial instruments and share-based payments. |
| The COVID-19 outbreak brings significant uncertainty as to the potential impact on our operations, supply chains for parts and sales channels for our products, and onthe global economy as a whole. It is currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to priorlevels. Therefore, the Company has not changed any estimates and assumptions in the preparation of the financial statements. |
| Significant judgments |
| The preparation of financial statements in accordance with IFRS requires the Company to make judgments, apart from those involving estimates, in applying accountingpolicies. The most significant areas that require judgment from the Company in completing its consolidated financial statements include: |
| | ● | the assessment of the Company’s ability to continue operations and whether there are events or conditions that may give rise to significant uncertainty; |
| Revenue from contracts with customers |
| Sales of electric vehicles |
| Revenues from selling SOLO EVs is recognized when the Company has transferred control to the customer which generally occurs upon delivery and transfer ofownership. Revenue is measured based on consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The totalconsideration in the contract is allocated to all products and services based on their stand-alone selling prices. The stand-alone selling prices are determined withreference to the selling prices of similar products or services and other reasonably available information. |
| Customers usually pay consideration prior to the transfer of control over the products to customers. |
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| In addition, product sales contracts with customers include warranty clauses to guarantee that the products comply with agreed-upon specifications. The Companyrecognizes costs for general estimated warranties costs on SOLO EVs at the time products are sold to customers. These provisions are estimated based on historicalwarranty claim experience with consideration given to the expected level of future warranty costs as well as current information on repair costs. Provision for productwarranties are utilized for expenditures based on the demand from customers. Given the low volume of our sale of SOLO EVs to third parties to date and the lack ofwarranty claims experience, as of each of September 30, 2022, and December 31, 2021, $nil warranty provision is recognized based on management’s estimate |
| Item 3. Quantitative and Qualitative Disclosure About Market Risk |
| We are exposed in varying degrees to a variety of financial instrument related risks. Our Board approves and monitors the risk management processes, inclusive ofcontrolling 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’sprimary 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 financialinstitutions 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 majorfinancial institutions that are high credit quality financial institutions as determined by rating agencies. The Company’s secondary exposure to risk is on its receivables.This risk is minimal as receivables consist primarily of refundable government goods and services taxes and interest receivable from major financial institutions withhigh credit ratings. |
| 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 placeto help determine the funds required to support the Company’s normal operating requirements on an ongoing basis. The Company ensures that there are sufficient fundsto 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 the issuance of equity securities for cash, primarily through private placements and public offerings. TheCompany’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 September 30, 2022: |
| | | | Between one | | More than five |
| | | | | At September 30, 2022 | Within one year | and five years | | | Years |
| | | | | Trade payables | $ | | | | | 1,090,554 | $ | — | $ | | | | — |
| | | | | Accrued liabilities | | 4,090,722 | — | | | | — |
| | | | | Lease liabilities | | 1,283,443 | | 5,625,988 | 10,964,402 |
| | | | | DSU liabilities | | — | | | | | | 155,501 | — |
| | $ | | | | | 6,464,719 | $ | | | | | | 5,781,489 | $ | | 10,964,402 |
| | | | | | | | | Between one | More than five |
| | | | | At December 31, 2021 | | Within one year and five years | | | | Years |
| | | | | Trade payables | $ | | | | | 1,249,861 | $ | — | $ | | | | — |
| | | | | Accrued liabilities | | 4,817,820 | — | | | | — |
| | | | | Due to related parties | | 743,100 | — | | | | — |
| | | | | Lease liabilities | | 392,279 | | 867,757 | 627,235 |
| | | | | DSU liabilities | | — | | | | | | 53,362 | — |
| | $ | | | | | 7,203,060 | $ | | | | | | 921,119 | $ | | 627,235 |
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| 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 differfrom the respective functional currency. The Company is exposed to currency risk as it incurs expenditures that are denominated in Canadian dollars while its functionalcurrency is the USD. The Company does not hedge its exposure to fluctuations in foreign exchange rates. |
| The following is an analysis of the USD equivalent of financial assets and liabilities that are denominated in Canadian dollars: |
| | September 30 | September 30 |
| | | | 2022 | | 2021 |
| | | | | Cash and cash equivalents | $ | | 590,760 | $ | 889,739 |
| | | | | Restricted cash | 74,968 | 80,697 |
| | | | | Receivables | 100,802 | 180,632 |
| | | | | Lease liabilities | (905,243) | (1,511,194) |
| | | | | Trade payables and accrued liabilities | | (195,211) | (912,401) |
| | $ | (333,924) $ | (1,272,527) |
| Based on the above net exposures, as at September 30, 2022, a 10% change in the Canadian dollar to the USD exchange rate would impact the Company’s net loss by$33,392 (September 30, 2021: $127,253). |
| 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 isexposed to interest rate risk on its cash equivalents as these instruments have original maturities of 12 months or less and are therefore exposed to interest ratefluctuations on renewal. A 0.1% increase in market interest rates would decrease the Company’s net loss of $111,943 for the nine months ended September 30, 2022(September 30, 2021 - minimal). |
| Classification of financial instruments |
| Financial assets included in our consolidated statements of financial position are as follows: |
| | | September 30, | | | | | December 31, |
| | | 2022 | | | | | 2021 |
| | | | | Amortized cost: | | |
| | | | | Cash and cash equivalents | $ | 153,883,279 | $ | 221,928,008 |
| | | | | Restricted cash | 513,527 | 291,676 |
| | | | | Receivables | 4,370 | 129,068 |
| | $ | 154,401,176 | $ | 222,348,752 |
| Financial liabilities included in our consolidated statements of financial position are as follows: |
| | | September 30, | | December 31, |
| | | | 2022 | | 2021 |
| | | | | Non-derivative financial liabilities at amortized cost: | | | | |
| | | | | Trade payable and accrued liabilities | $ | | 5,181,276 | $ | 6,810,781 |
| | | | | Lease liabilities | 17,873,833 | 1,887,271 |
| | | | | Derivative financial liabilities at fair value through profit or loss: | | |
| | | | | Derivative liability | | | 155,530 | 244,565 |
| | $ | 23,210,639 | $ | 8,942,617 |
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| Fair value |
| The fair value of the Company’s financial assets and liabilities, other than the derivative liability, which is measured at fair value, approximates their 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 toestimate the fair values. The three levels of the fair value hierarchy are: |
| ● | | level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; |
| ● | | level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and |
| ● | | level 3 – Inputs that are not based on observable market data. |
| Financial liabilities measured at fair value at September 30, 2022 consisted of derivative liabilities, which include non-transferrable warrants and deferred stock units(“DSU”s). The fair value of DSUs is classified as level 1, and the fair value of the non-transferrable warrants are classified as level 2 in the fair value hierarchy. |
| The fair value of the derivative liabilities relating to non-transferrable warrants was calculated using the Black-Scholes Option Pricing Model using the historicalvolatility of comparable companies as an estimate of future volatility. As at September 30, 2022, if the volatility used was increased by 10% the impact would be anincrease to the derivative liabilities of $89 (September 30, 2021 - $227,681) with a corresponding increase in loss and comprehensive loss. |
| Item 4. Controls and Procedures |
| Evaluation of Disclosure Controls and Procedures |
| Disclosure controls and procedures are defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act to mean controls and other procedures of an issuer that aredesigned to ensure that information required to be disclosed by the issuer in the reports that we file or submit under the Exchange Act is recorded, processed, summarizedand reported, within the time periods specified in the SEC’s rules and forms and includes, without limitation, controls and procedures designed to ensure that suchinformation is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performingsimilar functions, as appropriate to allow timely decisions regarding required disclosure. |
| As required by Rule 13a-15 or 15d-15 under the Exchange Act, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of theend of the period covered by this Quarterly Report, being September 30, 2022. This evaluation was carried out by our Chief Executive Officer and Chief FinancialOfficer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as ofSeptember 30, 2022. |
| Changes in Internal Control Over Financial Reporting |
| There has been no change in the Company’s internal control over financial reporting in the nine months ended September 30, 2022 that has materially affected, or isreasonably likely to materially affect, the Company’s internal control over financial reporting. |
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| | PART II – OTHER INFORMATION |
| Item 1. Legal Proceedings |
| Other than as set forth below, we are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers,directors, affiliates or any beneficial holders of 5% or more of our voting securities are averse to us or have a material interest adverse to us. |
| On April 25, 2022, we filed a civil complaint against Solo Advanced Vehicle Technologies, Inc. (the “Defendant”) in the Federal District Court for the Eastern District ofMichigan alleging trademark infringement in violation of Section 43(a) of the Federal Trademark Act, as well as violation of the Michigan Consumer Protection Act, as aresult of the Defendant’s knowing and willful violation of our rights in the distinctive trademark, SOLO (the “Mark”), caused by Defendant’s use in commerce of atrademark confusingly similar to our distinctive Mark (the “Complaint”). |
| On August 1, 2022, the dispute between us and the Defendant has been resolved to the parties’ satisfaction and the civil Complaint and any counterclaims have been orare in the process of being dismissed. |
| Item 1A. Risk Factors |
| 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 inthis Quarterly Report, including our financial statements and related notes, before you make an investment decision concerning our shares. Any one of these risks anduncertainties has the potential to cause material adverse effects on our business, prospects, financial condition and operating results which could cause actual results todiffer materially from any forward-looking statements expressed by us and a significant decrease in the value of our common shares. Refer to “Forward-LookingStatements” herein. |
| We have not been successful in preventing the material adverse effects that any of the following risks and uncertainties may cause. These potential risks and uncertaintiesmay 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 considerimmaterial, 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 ofthese risks and uncertainties. |
| Risks Related to our Business and Industry |
| We will require a significant amount of capital to carry out our proposed business plan to develop, manufacture, sell and service electric vehicles; As at September30, 2022, although the Company has commenced commercial production of the SOLO EV, it is not able to finance day-to-day activities through operations; andthere is no assurance that any amount raised will be sufficient to continue to fund operations of our Company. |
| We incurred a net loss and comprehensive loss of $59,673,086 and $ $59,631,726, respectively, during the nine months ended September 30, 2022, and a net loss andcomprehensive loss of $41,326,835 and $41,326,248, respectively, during the year ended December 31, 2021. Although we had cash and cash equivalents and a workingcapital surplus of $153,883,279 and $173,138,932, respectively, as at September 30, 2022, and of $221,928,008 and $232,454,617, respectively, as at December 31,2021, we believe that we will need significant additional equity financing to continue operations, among other things: |
| | | | we are in commercial production of our flagship vehicle, the SOLO, and we continue to incur significant costs and expenses as we continue with the sales of thevehicle; |
| | | | we began deliveries to customers of the SOLO October 2021; |
| | | | we anticipate that the gross profit generated from the sale of the SOLOs will not be sufficient to cover our operating expenses, and our achieving profitabilitywill depend, in part, on our ability to materially reduce the bill of materials and per unit manufacturing cost of our products; and |
| | | | we do not anticipate that we will be eligible to obtain bank loans, or other forms of debt financing, on terms that would be acceptable to us. |
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| We anticipate generating a significant loss for the next fiscal year. |
| We have minimal revenue and expect significant increases in costs and expenses to forestall profits for the foreseeable future, even if we generate revenues in the nearterm. Even though we have recently launched the SOLO into commercial production and deliveries, and even if we launch the Tofino, e-Roadster or other intended EVs,they might not become commercially successful. If we are to ever achieve profitability we must have a successful commercial introduction and acceptance of ourvehicles, which may not occur. We expect that our operating losses will increase substantially in 2022, and thereafter, and we also expect to continue to incur operatinglosses and to experience negative cash flows for the next several years. |
| We have a limited operating history and have generated minimal revenues. |
| Our limited operating history makes evaluating our business and future prospects difficult. We were formed in February 2015, and we are in production and have madedeliveries of our electric vehicle, the SOLO. We intend to derive revenues from the sales of our SOLO vehicle, our Tofino vehicle, our e-Roadster and other intendedEVs. The Tofino is still in the early design development stage, and the first commercially-produced SOLOs were delivered to certain of our initial customerscommencing in October, 2021, and have continued to deliver to customers and fleets since the October date. Our vehicles require significant investment prior tocommercial introduction and may never be successfully developed or commercially successful. |
| We have a history of operating losses and we expect our operating losses to accelerate and materially increase for the foreseeable future. |
| We generated a net loss of $59,673,086 for the nine months ended September 30, 2022, bringing our accumulated deficit to $211,327,081. Our loss before income taxesfor the nine months ended September 30, 2022 increased to $59,672,239, as compared to $24,474,597 for the corresponding period in 2021. We anticipate generating asignificant loss for the current fiscal year. |
| We have minimal revenue and expect significant increases in costs and expenses to forestall profits for the foreseeable future. We are in commercial production anddelivery of our flagship vehicle, the SOLO, and we expect to incur significant additional costs and expenses through the launch of the vehicle in North America. Evenwith the launch of the SOLO into commercial production, and even if we are able to launch the Tofino or other intended EVs, they might not become commerciallysuccessful. If we are to ever achieve profitability, we must have a successful commercial introduction and acceptance of our vehicles, which may not occur. We expectthat our operating losses will increase substantially in 2022 and thereafter, and we also expect to continue to incur operating losses and to experience negative cash flowsfor the next several years. |
| We expect the rate at which we will incur losses to increase significantly in future periods from current levels as we: |
| | | design, develop and manufacture our vehicles and their components; |
| | | develop and equip our manufacturing facility; |
| | | build up inventories of parts and components for the SOLO, the Tofino, the e-Roadster and other intended EVs; |
| | | open ElectraMeccanica experiential centers; |
| | | 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 significantlygreater 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 currentlyanticipate or that these efforts may not result in profits or even revenues, which would further increase our losses. |
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| Our ability to achieve profitability will depend, in part, on our ability to materially reduce the bill of materials and per unit manufacturing cost of our products. |
| We anticipate that the gross profit generated from the sale of the SOLO will not be sufficient to cover our operating expenses for the foreseeable future. To achieve ouroperating and strategic goals while remaining competitive, we will, among other things, need to reduce the bill of materials and the per-unit manufacturing cost of theSOLO. We expect the primary factors to contribute to a reduced bill of materials and per unit manufacturing cost to include: |
| | | continued product development to make the SOLO easier and cheaper to mass produce commercially; |
| | | our ability to utilize less expensive suppliers and components that meet the requirements for the SOLO; |
| | | increasing the volume of components that we purchase in order to take advantage of volume-based pricing discounts; |
| | | improving assembly efficiency; |
| | | enhancing the automation of our strategic manufacturing partner’s facility to increase volume and reduce labor costs; and |
| | | increasing our volume to leverage manufacturing overhead costs. |
| Continued product development is subject to feasibility and engineering risks. Any increase in manufacturing volumes is dependent upon a corresponding increase insales. The occurrence of one or more factors that negatively impact the manufacturing or sales of the SOLO, or reduce our manufacturing efficiency, may prevent us fromachieving our desired reduction in manufacturing costs, which would negatively affect our operating results and may prevent us from attaining profitability. |
| We currently have negative operating cash flows, and if we are unable to generate positive operating cash flows in the future our viability as an operating businesswill 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 expandour business. We are currently incurring expenditures related to our operations that have generated a negative operating cash flow. Operating cash flow may decline incertain circumstances, many of which are beyond our control. We might not generate sufficient revenues in the near future. Because we continue to incur such significantfuture expenditures for research and development, sales and marketing and general and administrative expenses, we may continue to experience negative cash flow untilwe 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 ofsales with positive gross margins to cover operating expenses or raise additional capital on reasonable terms will adversely affect our viability as an operating business. |
| We may require additional capital to carry out our proposed business plan for the next 12 months if our cash on hand and revenues from the sale of our vehicles arenot sufficient to cover our cash requirements. |
| If our cash on hand, revenue from the sale of our vehicles, if any, and cash received upon the exercise of outstanding warrants, if any are exercised, are not sufficient tocover our cash requirements, we will need to raise additional funds through the sale of our equity securities, in either private placements or registered offerings and/ordebt instruments. 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, may not be available on terms that are 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 acceptanceof 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 raisesufficient funds, we will have to significantly reduce our spending, delay or cancel our planned activities or substantially change our current corporate structure. Wemight 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 beforced to curtail or discontinue our operations. |
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| Terms of future financings may adversely impact your investment. |
| We may have to engage in common equity, debt or preferred stock financing in the future. Your rights and the value of your investment in our securities could bereduced. Interest on debt securities could increase costs and negatively impacts operating results. Preferred stock could be issued in series from time to time with suchdesignation, rights, preferences and limitations as needed to raise capital. The terms of preferred stock could be more advantageous to those investors than to the holdersof common shares. In addition, if we need to raise equity capital from the sale of common shares, institutional or other investors may negotiate terms at least as, andpossibly more, favorable than the terms of your investment. Common shares which we sell could be sold into any market which develops, which could adversely affectthe market price. |
| Our future growth depends upon consumers’ willingness to adopt three-wheeled single-seat electric vehicles. |
| Our growth highly depends upon the adoption by consumers of, and we are subject to an elevated risk of, any reduced demand for alternative fuel vehicles in general andelectric vehicles in particular. If the market for three-wheeled, single seat electric vehicles does not develop as we expect, or develops more slowly than we expect, ourbusiness, 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 vehicleannouncements and changing consumer demands and behaviors. Factors that may influence the adoption of alternative fuel vehicles, and specifically electric vehicles,include: |
| | | perceptions about electric vehicle quality, safety (in particular with respect to lithium-ion battery packs), design, performance and cost, especially if adverseevents or accidents occur that are linked to the quality or safety of electric vehicles; |
| | | perceptions about vehicle safety in general and, in particular, safety issues that may be attributed to the use of advanced technology, including vehicle electronicsand braking systems; |
| | | the limited range over which electric vehicles may be driven on a single battery charge; |
| | | the decline of an electric vehicle’s range resulting from deterioration over time in the battery’s ability to hold a charge; |
| | | concerns about electric grid capacity and reliability, which could derail our efforts to promote electric vehicles as a practical solution to vehicles which requiregasoline; |
| | | the availability of alternative fuel vehicles, including plug-in hybrid electric vehicles; |
| | | improvements in the fuel economy of the internal combustion engine; |
| | | the availability of service for electric vehicles; |
| | | the environmental consciousness of consumers; |
| | | volatility in the cost of oil and gasoline; |
| | | government regulations and economic incentives promoting fuel efficiency and alternate forms of energy; |
| | | access to charging stations, standardization of electric vehicle charging systems and consumers’ perceptions about convenience and cost to charge an electricvehicle; |
| | | the availability of tax and other governmental incentives to purchase and operate electric vehicles or future regulation requiring increased use of nonpollutingvehicles; and |
| | | perceptions about and the actual cost of alternative fuel. |
| The influence of any of the factors described above may cause current or potential customers not to purchase our electric vehicles, which would materially adverselyaffect our business, operating results, financial condition and prospects. |
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| The range of our electric vehicles on a single charge declines over time which may negatively influence potential customers’ decisions whether to purchase ourvehicles. |
| 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 vehicleas 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 currentlyexpect our battery pack will retain approximately 70% of its ability to hold its initial charge after five years or 45,000 miles, whichever comes first. Such batterydeterioration and the related decrease in range may negatively influence potential customer decisions whether to purchase our vehicles, which may harm our ability tomarket 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 theinternal combustion engine, may materially and adversely affect our business and prospects in ways we do not currently anticipate. For example, fuel which is abundantand relatively inexpensive in North America, such as compressed natural gas, may emerge as consumers’ preferred alternative to petroleum-based propulsion. Anyfailure by us to develop new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay our development andintroduction 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 tocompetitors. |
| 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 withadvances 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 technologieschange, we plan to upgrade or adapt our vehicles and introduce new models to continue to provide vehicles with the latest technology and, in particular, battery celltechnology. 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 andoperating results will suffer. |
| We may not be able to successfully develop new electric vehicles and services, address new market segments or develop a significantly broader customer base. To date,we have focused our business on the sale of the SOLO, a three-wheeled, single seat electric vehicle, and have targeted mainly urban residents of modest means and fleets.We will need to address additional markets and expand our customer demographic to further grow our business. Our failure to address additional market opportunitieswould 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 whichwe 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 fewerfinancial resources than more established vehicle manufacturers to withstand changes in the market and disruptions in demand. |
| We depend on a third-party for our near-term manufacturing needs. |
| In October 2017, we entered into a Manufacturing Agreement with Zongshen, a wholly-owned subsidiary of Zongshen Industrial Group Co. Ltd., an affiliate ofZongshen Power Machinery Co., Ltd., located in Chongqing, China, which has now been amended on June 23, 2021. The delivery of SOLO vehicles to our futurecustomers and the revenue derived therefrom depends on Zongshen’s ability to fulfil its obligations under that Manufacturing Agreement. Zongshen’s ability to fulfil itsobligations is outside of our control and depends on |
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| a variety of factors, including Zongshen’s operations, Zongshen’s financial condition and geopolitical and economic risks that could affect China. Our ManufacturingAgreement with Zongshen provides that non-performance by either us or Zongshen shall be excused to the extent that such performance is rendered impossible by strike,fire, flood, earthquake or governmental acts, orders or restrictions; provided that either we or Zongshen, as applicable, use commercially reasonable efforts to mitigate theimpact of such non-performance. Notwithstanding any such efforts, any such non-performance by either us or Zongshen shall be cause for termination of theManufacturing Agreement by the other party if the non-performance continues for more than six months. The novel coronavirus (COVID-19) pandemic or measurestaken by the Chinese government relating thereto may result in non-performance by Zongshen under our Manufacturing Agreement. If Zongshen is unable to fulfil itsobligations or is only able to partially fulfil its obligations under our existing Manufacturing Agreement with them, or if Zongshen either voluntarily or is forced toterminate our agreement with them, either as a result of the coronavirus outbreak, the Chinese government’s measures relating thereto or otherwise, we will not be able toproduce or sell our SOLO vehicle in the volumes anticipated and on the timetable that we anticipate, if at all. |
| The Chinese government exerts substantial influence over the manner in which Chinese companies conduct their business activities. China is experiencing substantialproblems with environmental pollution and energy consumption. Efforts by the Chinese government to control pollution and energy consumption are making it harder forChinese factories to operate. Our Chinese manufacturers are subject to multiple laws governing environmental protection, as well as standards set by the relevantgovernmental authorities. It is possible that Chinese national, provincial and local governmental agencies will adopt stricter environmental and consumption controls.There can be no assurance that future changes in Chinese laws and regulations will not impose costly compliance requirements on our Chinese manufacturers orotherwise adversely affect their business activities, which in turn could increase the costs associated with operating our business or otherwise adversely affect ourfinancial condition and operating results. |
| The impact of the novel coronavirus (COVID-19) pandemic on the global economy and our operations remains uncertain, which could have a material adverseimpact on our business, results of operations and financial condition and on the market price of our common shares. |
| In December 2019, a strain of novel coronavirus (now commonly known as COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spreadrapidly throughout many countries and, on March 11, 2020, the World Health Organization declared COVID-19 to be a pandemic. In an effort to contain and mitigate thespread of COVID-19, many countries, including the United States, Canada and China, have imposed unprecedented restrictions on travel, and there have been businessclosures and a substantial reduction in economic activity in countries that have had significant outbreaks of COVID-19. Significant uncertainty remains as to the potentialimpact of the COVID-19 pandemic on our and Zongshen’s operations (including, without limitation, staffing levels), supply chains for parts and sales channels for ourproducts, and on the global economy as a whole. |
| During March 2022, some of our suppliers had suspended production due to COVID-19 outbreaks and lockdowns in Shanghai, China, however, the Company wasinformed that the suppliers resumed normal production capacity as of July 2022. At this time, Zongshen is currently able to meet production requests of the Company. |
| It is currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to prior levels. The COVID-19 pandemichas resulted in significant financial market volatility and uncertainty in recent months. A continuation or worsening of the levels of market disruption and volatility seenin the recent past could have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price ofour common shares. |
| We do not currently have all arrangements in place that are required to allow us to fully execute our business plan. |
| To sell our vehicles across the United States, each State has its own set of rules and regulations that we will need to comply with. This means that we will need to enterinto additional agreements and arrangements that are not currently in place. These include obtaining dealership licenses, lease financing, implementing a nation wideservicing arrangement, etc. 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 carryout 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 our executive leadership team: Kevin Pavlov, our Chief Executive Officer, Mark Orsmond, ourChief Financial Officer, Joseph Mitchell, our Chief Operating Officer, Kim Brink, our Chief Revenue Officer and Tony Dent, our General Counsel and CorporateSecretary. A number of these key employees and consultants have significant |
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| experience in the automobile manufacturing and technology industries. A loss of service from any one of these individuals may adversely affect our operations, and wemay have difficulty or may not be able to locate and hire suitable replacements. We have obtained “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-producingvehicles 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 andcompetitive market. If we are unable to implement our business plans in the timeframe estimated by management and successfully transition into a mass-producingelectric vehicle manufacturing business, then our business, prospects, operating results and financial condition will be negatively impacted and our ability to grow ourbusiness 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 andoperating results. |
| We are subject to numerous environmental and health and safety laws, including statutes, regulations, bylaws and other legal requirements. These laws relate to thegeneration, use, handling, storage, transportation and disposal of regulated substances, including hazardous substances (such as batteries), dangerous goods and waste,emissions or discharges into soil, water and air, including noise and odors (which could result in remediation obligations), and occupational health and safety matters,including indoor air quality. These legal requirements vary by location and can arise under federal, provincial, state or municipal laws. Any breach of such laws and/orrequirements 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 businessand 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 allfederally mandated safety standards are certified under the federal regulations. In this regard, Canadian and U.S. motor vehicle safety standards are substantially thesame. 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 e-Roadster, the Tofino or any future model EV satisfy motor vehicle standards would have a material adverse effect on our business and operating results. |
| If we are unable to reduce and adequately control the costs associated with operating our business, including costs associated with manufacturing, sales, materials,transportation and logistics, 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, transporting, distributing and servicing ourelectric vehicles relative to their selling prices, or if we experience significant increases in these costs and are unable to raise our prices to offset such increases, ouroperating results, gross margins, business and prospects could be materially and adversely impacted. Further, since our preorder vehicles are at fixed sales prices, if weexperience significant increases in costs associated with operating our business, our profitability from these pre-order vehicles may be negatively impacted absent theflexibility to increase such sales prices. |
| 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 asubstantial amount of software code to operate. Software products are inherently complex and often contain defects and errors when first introduced. While we haveperformed 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 ourcustomers and currently have no frame of reference by which to evaluate the performance of our vehicles after several years of customer driving. With the e-Roadster, weare in the prototype phase, and with the Tofino, we are still in early design development phase, whereby the similar evaluations are further behind. |
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| We have very limited experience servicing our vehicles. If we are unable to address the service and warranty requirements of our future customers our business willbe 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. Inaddition, 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 unableto satisfactorily service our customers, our ability to generate customer loyalty, grow our business and sell additional vehicles could be impaired. |
| We have very limited experience servicing our vehicles. We are in production of the SOLO vehicle and began deliveries during the last quarter of 2021. The total numberof production SOLOs that we have produced as at September 30, 2022 is 757. The total number of SOLOs that we have produced as pre-production as of September 30,2022 is 124 (64 from Canada and 60 from Zongshen). Throughout its history, our subsidiary, InterMeccanica, has produced approximately 2,500 cars, which includeproviding after sales support and servicing. We only have limited experience servicing the SOLO as a limited number of SOLOs have been produced and delivered tothird party customers. Servicing electric vehicles on a mass scale is different than servicing vehicles with internal combustion engines and requires specialized skills,including high voltage training and servicing techniques on a mass scale. Additionaly, we offer a limited warranty for three years or 36,000 miles for the SOLO and alimited warranty up to five years or 45,000 miles for the battery. For additional information on the warranty information please visithttps://www.electrameccanica.com/warranty/. |
| We may not succeed in establishing, maintaining and strengthening the ElectraMeccanica brand, which would materially and adversely affect customer acceptanceof 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 andstrengthen 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 ourbrand, 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 providehigh 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 marketingactivities 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 maybe required to change our marketing practices, which could result in substantially increased advertising expenses, including the need to use traditional media such astelevision, radio and print. The automobile industry is intensely competitive, and we may not be successful in building, maintaining and strengthening our brand. Manyof 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 materiallyand negatively impact our business, prospects, financial condition and operating results. We use various raw materials in our business including aluminum, steel, carbonfiber and non-ferrous metals such as copper and cobalt. The prices for these raw materials fluctuate depending on market conditions and global demand for thesematerials and could adversely affect our business and operating results. For instance, we are exposed to multiple risks relating to price fluctuations for lithium-ion cells.These risks include: |
| | | the inability or unwillingness of current battery manufacturers to build or operate battery cell manufacturing plants to supply the numbers of lithium-ion cellsrequired to support the growth of the electric or plug-in hybrid vehicle industry as demand for such cells increases; |
| | | disruption in the supply of lithium-ion cells due to quality issues or recalls by the battery cell manufacturers; and |
| | | an increase in the cost of raw materials, such as cobalt, used in lithium-ion cells. |
| Our business depends on the continued supply of battery cells for our vehicles. We do not currently have any agreements for the supply of batteries and depend upon theopen market for their procurement. Any disruption in the supply of battery cells from our supplier could temporarily disrupt the planned production of our vehicles untilsuch time as a different supplier is fully qualified. Moreover, |
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| 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 rawmaterial costs. Substantial increases in the prices for our raw materials would increase our operating costs and could reduce our margins if we cannot recoup theincreased costs through increased electric vehicle prices. We might not be able to recoup increasing costs of raw materials by increasing vehicle prices. We have alsoalready announced an estimated price for the base model of our SOLO, SOLO Cargo EV, e-Roadster and Tofino. However, any attempts to increase the announced orexpected prices in response to increased raw material costs could be viewed negatively by our potential customers, result in cancellations of SOLO, SOLO Cargo EV, e-Roadster and Tofino reservations and could materially adversely affect our brand, image, business, prospects and operating results. |
| We rely upon independent third-party transportation providers for our vehicle shipments and are subject to increased shipping costs as well as the potential inabilityof our third-party transportation providers to deliver on a timely basis. |
| We currently rely upon independent third-party transportation providers for our vehicle shipments from Zongshen (China) to North America. Our utilization of thesedelivery services for shipments is subject to risks which may impact a shipping company’s ability to provide delivery services that adequately meet our shipping needs,including risks related to employee strikes, labor and capacity constraints, and inclement weather. In addition, we are subject to increased shipping costs when fuel pricesincrease and due to other economic factors affecting supply and demand within the transportation industry. If we change the shipping companies we use, we could facelogistical difficulties that could adversely affect deliveries, and we would incur costs and expend resources in connection with such change. Moreover, we may not beable to obtain terms as favorable as those received from our current independent third-party transportation providers which, in turn, would increase our costs and mayimpact our overall profitability. |
| The unavailability, reduction or elimination of government and economic incentives could have a material adverse effect on our business, financial condition,operating results and prospects. |
| Any reduction, elimination or discriminatory application of government subsidies and economic incentives that are offered to purchasers of EVs or persons installinghome charging stations, the reduced need for such subsidies and incentives due to the perceived success of the electric vehicle, fiscal tightening or other reasons mayresult in the diminished competitiveness of the alternative fuel vehicle industry generally or our electric vehicles in particular. This could materially and adversely affectthe 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 expandour 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 managethis expansion and growth successfully. Risks that we face in undertaking this expansion include: |
| | | training new personnel; |
| | | forecasting production and revenue; |
| | | controlling expenses and investments in anticipation of expanded operations; |
| | | establishing or expanding design, manufacturing, sales and service facilities; |
| | | implementing and enhancing administrative infrastructure, systems and processes; |
| | | addressing new markets; and |
| | | establishing international operations. |
| We intend to continue to hire a number of additional personnel, including design and manufacturing personnel and service technicians, for our electric vehicles.Competition for individuals with experience in designing, manufacturing and servicing electric vehicles is |
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| 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 andretain 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 atautomobile companies to belong to a union, which can result in higher employee costs and increased risk of work stoppages. We have a Manufacturing Agreement withZongshen to produce SOLO vehicles. Zongshen’s workforce is not currently unionized, though they may become so in the future or industrial stoppages could occur inthe absence of a union. We also directly and indirectly depend upon other companies with unionized work forces, such as parts suppliers and trucking and freightcompanies, and work stoppages or strikes organized by such unions could have a material adverse impact on our business, financial condition or operating results. If awork stoppage occurs within our business, or that of Zongshen or our key suppliers, it could delay the manufacture and sale of our electric vehicles and have a materialadverse effect on our business, prospects, operating results or financial condition. Additionally, if we expand our business to include full in-house manufacturing of ourvehicles, 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 againstsuch claims. |
| We may become subject to product liability claims, which could harm our business, prospects, operating results and financial condition. The automobile industryexperiences significant product liability claims and we face inherent risk of exposure to claims in the event our vehicles do not perform as expected or malfunctionresulting in personal injury or death. Our risks in this area are particularly pronounced given we have limited field experience of our vehicles. A successful productliability claim against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about ourvehicles and business and inhibit or prevent commercialization of other future vehicle candidates which would have a material adverse effect on our brand, business,prospects and operating results. We plan to maintain product liability insurance for all our vehicles on a claims-made basis, but any such insurance might not be sufficientto 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 amaterial adverse effect on our reputation, business and financial condition. We may not be able to secure additional product liability insurance coverage on commerciallyacceptable terms or at reasonable costs when needed, particularly if we do face liability for our products and are forced to make a claim under our policy. |
| Our patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent others from interfering with ourcommercialization of our products. |
| The registration and enforcement of patents involves complex legal and factual questions and the breadth and effectiveness of patented claims is uncertain. We cannot becertain that we are the first to file patent applications on these inventions, nor can we be certain that our pending patent applications will result in issued patents or thatany of our issued patents will afford sufficient protection against someone creating competing products, or as a defensive portfolio against a competitor who claims thatwe 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 effectivelyenforced, even if they relate to patents issued in the United States. |
| We may need to defend ourselves against patent or trademark infringement claims, which may be time-consuming and would cause us to incur substantial costs. |
| Companies, organizations or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit orinterfere 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 timeto time, we may receive communications from third parties that allege our products are covered by their patents or trademarks or other intellectual property rights.Companies holding patents or other intellectual property rights may bring suits alleging infringement of such rights or otherwise assert their rights. If we are determinedto have infringed upon a third party’s intellectual property rights, we may be required to do things that include one or more of the following: |
| | | cease making, using, selling or offering to sell processes, goods or services that incorporate or use the third-party intellectual property; |
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| | | pay substantial damages; |
| | | seek a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all; |
| | | redesign our vehicles or other goods or services to avoid infringing the third-party intellectual property; or |
| | | establish and maintain alternative branding for our products and services. |
| In the event of a successful claim of infringement against us and our failure or inability to obtain a license to the infringed technology or other intellectual property right,our business, prospects, operating results and financial condition could be materially adversely affected. In addition, any litigation or claims, whether or not valid, couldresult 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 areincorporated under the laws of the Province of British Columbia, a substantial portion of our assets are in Canada and some of our executive officers and a largenumber of our directors reside outside the United States. |
| We are organized pursuant to the laws of the Province of British Columbia under the Business Corporations Act (British Columbia). One of our five executive officers,our auditor and four of our directors reside outside the United States. In addition, a substantial portion of their assets and our assets are located outside of the UnitedStates. 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 inand 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 liabilityprovisions 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 any experts named in this Quarterly Report who are not residents of the United States, in original actions or in actions for enforcement of judgments of U.S.courts, of liabilities based solely upon the civil liability provisions of the U.S. federal securities laws. In addition, shareholders in British Columbia companies may nothave 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 intereststhrough actions against us, our management, our directors or our major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the UnitedStates. |
| Global economic conditions could materially adversely impact demand for our products and services. |
| Our operations and performance depend significantly on economic conditions. Uncertainty about global economic conditions could result in customers postponingpurchases of our products and services in response to tighter credit, unemployment, negative financial news and/or declines in income or asset values and othermacroeconomic factors, which could have a material negative effect on demand for our products and services and, accordingly, on our business, results of operations orfinancial condition. |
| We are vulnerable to an ongoing trade dispute between the United States and China |
| The existing trade dispute between the United States and China could increase the proposed sales price of our products or decrease our profits, if any. In June 2018, theprevious U.S. administration imposed tariffs on $34 billion of Chinese exports, including a 25% duty on cars built in China and shipped to the United States. Followingthe imposition of these tariffs, China has imposed additional tariffs on U.S. goods manufactured in the United States and exported to China. Subsequently, the U.S.administration indicated that it may impose tariffs on up to US$500 billion on goods manufactured in China and imported into the United States. These tariffs mayescalate a nascent trade war between China and the United States. This trade conflict could affect our business because our Solo is presently produced in China and ourintended principal market is the west coast of North America. If a trade war were to escalate, or if tariffs were imposed on any of our products, we could be forced toincrease the proposed sales price of such products or reduce the margins, if any, on such products. |
| Recently, U.S. Customs and Border Protection ruled that the SOLO has a classification under the Harmonized Tariff Schedule of the United States that applies topassenger vehicles for less than 10 people with only electric motors. The total applicable duty for this classification was recently raised to 27.5% (2.5% is a “most-favored-nation” tariff for this classification and 25% derives from this classification being on the China 301 List 1). The suggested retail purchase price for our SOLO is$18,500. As the landscape for tariffs |
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| involving imports to the United States from the PRC has been changing over the past year and may change again, we have not determined how to adjust the purchaseprice in the United States in response to the recent tariff increase. |
| On January 15, 2020, the United States and the PRC signed the Phase 1 Trade Agreement which came into force on February 14, 2020. Notwithstanding the coming intoforce of the Phase 1 Trade Agreement, the United States will maintain its tariffs on cars built in China and shipped to the United States. |
| Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available to you and us. |
| The legal system in the PRC is based on written statutes. Unlike common law systems, it is a system in which legal cases have limited value as precedents. In the late1970s the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislationover the past three decades has significantly increased the protections afforded to various production services in the PRC. Zongshen, our manufacturing partner, is subjectto various PRC laws and regulations generally applicable to companies in China. However, since these laws and regulations are relatively new and the PRC legal systemcontinues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involveuncertainties. |
| From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights or Zongshen may have to resort to administrative and courtproceedings to fulfill its obligations under the Manufacturing Agreement. However, since PRC administrative and court authorities have significant discretion ininterpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level oflegal protection we enjoy than in more developed legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some ofwhich are not published in a timely manner or at all) that may have retroactive effect. As a result, we or Zongshen may not be aware of our violation of these policies andrules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property)and procedural rights, and any failure to respond to changes in the regulatory environment in China, could materially and adversely affect our business and impede ourability to continue our operations. |
| Risks Related to Our Common Shares |
| Our executive officers and directors beneficially own a large controlling percentage of our common shares. |
| As of November 14, 2022, our executive officers and directors beneficially owned, in the aggregate, approximately 10.27% of our common shares, which includes sharesthat our executive officers and directors have the right to acquire pursuant to warrants, stock options, RSUs and DSUs which have vested. As a result, they will be able toexercise a significant level of control over all matters requiring shareholder approval, including the election of directors, amendments to our Articles and approval ofsignificant corporate transactions. This control could have the effect of delaying or preventing a change of control of our Company or changes in management and willmake the approval of certain transactions difficult or impossible without the support of these shareholders. |
| The continued sale of our equity securities will dilute the ownership percentage of our existing shareholders and may decrease the market price for our commonshares. |
| Our Notice of Articles authorize the issuance of an unlimited number of common shares and the issuance of preferred shares. Our Board has the authority to issueadditional shares of our capital stock to provide additional financing in the future and designate the rights of the preferred shares, which may include voting, dividend,distribution or other rights that are preferential to those held by the common shareholders. The issuance of any such common or preferred shares may result in a reductionof the book value or market price, if one exists at the time, of our outstanding common shares. Given our lack of revenues, we will likely have to issue additional equitysecurities 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 existingshareholders. 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 othershareholders. As a result of such dilution, if you acquire common shares your proportionate ownership interest and voting power could be decreased. Furthermore, anysuch issuances could result in a change of control or a reduction in the market price for our common shares. |
| Additionally, we had 13,620,526 options and 6,186,519 warrants outstanding as of November 14, 2022. The exercise price of some of these options and warrants isbelow our current market price, and you could purchase shares in the market at a price in excess of the |
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| exercise price of our outstanding warrants or options. If the holders of these options and warrants elect to exercise them, your ownership position will be diluted and theper share value of the common shares you have or acquire could be diluted as well. As a result, the market value of our common shares could significantly decrease aswell. |
| Issuances of our preferred stock may adversely affect the rights of the holders of our common shares and reduce the value of our common shares. |
| Our Notice of Articles authorize the issuance of an unlimited number of shares of preferred stock. Our Board has the authority to create one or more series of preferredstock 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 preferredstock 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 changein 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 issueany 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 thevalue of our common shares. |
| The market price of our common shares may be volatile and may fluctuate in a way that is disproportionate to our operating performance. |
| Our common shares began trading on the Nasdaq Capital Market in August 2018, and before that it had been trading on the OTCQB in September 2017. The historicalvolume of trading has been low (within the past year, the fewest number of our shares that were traded on the Nasdaq Capital Market was 28,706 shares daily), and theshare price has fluctuated significantly (since trading began on the Nasdaq Capital Market our closing price has been as low as US$0.91 and as high as US$10.81). Theshare price for our common shares could decline due to the impact of any of the following factors: |
| | | sales or potential sales of substantial amounts of our common shares; |
| | | announcements about us or about our competitors; |
| | | litigation and other developments relating to our patents or other proprietary rights or those of our competitors; |
| | | conditions in the automobile industry; |
| | | governmental regulation and legislation; |
| | | variations in our anticipated or actual operating results; |
| | | change in securities analysts’ estimates of our performance, or our failure to meet analysts’ expectations; |
| | | change in general economic trends; and |
| | | investor perception of our industry or our prospects. |
| Many of these factors are beyond our control. The stock markets in general, and the market for automobile companies in particular, have historically experienced extremeprice and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These broad marketand industry factors could reduce the market price of our common shares regardless of our actual operating performance. |
| We do not intend to pay dividends and there will thus be fewer ways in which you are able to make a gain on your investment. |
| We have never paid any cash or stock dividends and we do not intend to pay any dividends for the foreseeable future. To the extent that we require additional fundingcurrently 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 gainon 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 gainon your investment. |
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| FINRA sales practice requirements may limit your ability to buy and sell our common shares, which could depress the price of our shares. |
| Financial Industry Regulation Authority (“FINRA”) rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customerbefore recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers mustmake reasonable efforts to obtain information about the customer’s financial status, tax status and investment objectives, among other things. Under interpretations ofthese rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRArequirements 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 ourcommon shares, have an adverse effect on the market for our common shares and, thereby, depress their market prices. |
| Our common shares have been thinly traded, and you may be unable to sell at or near ask prices or at all if you need to sell your common shares to raise money orotherwise desire to liquidate your shares. |
| From October 2017 until August 2018, our common shares were quoted on the OTCQB where they were “thinly-traded”, meaning that the number of persons interestedin purchasing our common shares at or near bid prices at any given time was relatively small or non-existent. Since we listed on the Nasdaq Capital Market in August2018, the volume of our common shares traded has increased, but that volume could decrease until we are thinly-traded again. That could occur due to a number offactors, including that we are relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate orinfluence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and might be reluctant to follow an unproven company suchas ours or purchase or recommend the purchase of our common shares until such time as we became more seasoned. As a consequence, there may be periods of severaldays or more when trading activity in our common shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of tradingactivity that will generally support continuous sales without an adverse effect on share price. Broad or active public trading market for our common shares may notdevelop or be sustained. |
| Volatility in our common shares or warrant price may subject us to securities litigation. |
| The market for our common shares may have, when compared to seasoned issuers, significant price volatility, and we expect that our share or warrant prices maycontinue to be more volatile than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against acompany following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result insubstantial costs and liabilities and could divert management’s attention and resources. |
| We are able to use the forms and rules designated for foreign private issuers within the meaning of the rules under the Exchange Act until January 1, 2023, and assuch we are exempt from certain provisions applicable to United States domestic public companies. |
| We are a foreign private issuer within the meaning of the rules under the Exchange Act. As such, we are exempt from certain provisions applicable to United Statesdomestic public companies. For example: |
| | | we are not required to provide as many Exchange Act reports, or as frequently, as a domestic public company; |
| | | for interim reporting we are permitted to comply solely with our home country requirements, which are less rigorous than the rules that apply to domestic publiccompanies; |
| | | we are not required to provide the same level of disclosure on certain issues, such as executive compensation; |
| | | we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; |
| | | we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a securityregistered under the Exchange Act; and |
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| | | we are not required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities andestablishing insider liability for profits realized from any “short-swing” trading transaction. |
| Our shareholders may not have access to certain information they may deem important and are accustomed to receive from U.S. reporting companies. |
| As an “emerging growth company” under applicable law, we will be subject to lessened disclosure requirements. Such reduced disclosure may make our commonshares less attractive to investors. |
| For as long as we remain an “emerging growth company”, as defined in the JOBS Act, we will elect to take advantage of certain exemptions from various reportingrequirements that are applicable to other public companies that are not “emerging growth companies” and including, but not limited to, not being required to comply withthe auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports,exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments notpreviously approved. Because of these lessened regulatory requirements our shareholders would be left without information or rights available to shareholders of moremature companies. If some investors find our common shares less attractive as a result, there may be a less active trading market for such securities and their marketprices may be more volatile. |
| We incur significant costs as a result of being a public company, which costs will grow after we cease to qualify as an “emerging growth company.” |
| We incur significant legal, accounting and other expenses as a public company. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and theNasdaq Capital Market, impose various requirements on the corporate governance practices of public companies. We are an “emerging growth company”, as defined inthe JOBS Act, and will remain an emerging growth company until the earlier of : (1) the last day of the fiscal year (a) following May 23, 2022, (b) in which we have totalannual gross revenue of at least US$1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common shares that isheld by non-affiliates exceeds US$700 million as of the prior June 30th; and (2) the date on which we have issued more than US$1.0 billion in non-convertible debtduring the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicablegenerally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act in theassessment of the emerging growth company’s internal control over financial reporting and permission to delay adopting new or revised accounting standards until suchtime as those standards apply to private companies. |
| Compliance with these rules and regulations increases our legal and financial compliance costs and makes some corporate activities more time-consuming and costlier.After we are no longer an emerging growth company, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance withthe requirements of Section 404 and the other rules and regulations of the SEC. For example, as a public company we have been required to increase the number ofindependent directors and adopt policies regarding internal controls and disclosure controls and procedures. We have incurred additional costs in obtaining director andofficer liability insurance. In addition, we incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to findqualified persons to serve on our Board or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, andwe cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs. |
| We may become subject to product liability claims, which could harm our business, prospects, operating results and financial condition. The automobile industryexperiences significant product liability claims and we face inherent risk of exposure to claims in the event our vehicles do not perform as expected or malfunctionresulting in personal injury or death. Our risks in this area are particularly pronounced given we have limited field experience of our vehicles. A successful productliability claim against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about ourvehicles and business and inhibit or prevent commercialization of other future vehicle candidates which would have a material adverse effect on our brand, business,prospects and operating results. In the United States we are presently self-insured and are in the process of applying for additional product liability insurance for all ourvehicles on a claims-made basis, but any such insurance might not be sufficient to cover all potential product liability claims. Any lawsuit seeking significant monetarydamages 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 notbe able to secure additional product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly if we do face liabilityfor our products and are forced to make a claim under our policy. |
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| ElectraMeccanica Vehicles Corp.Interim Condensed Unaudited Consolidated Statements of Changes in Equity(Expressed in United States dollars) |
| | Share capital | Foreign |
| Amount net | | | Share-based | currency |
| | Number | of share | | | payment | translation |
| | | | | | | of shares | | issue cost | | | | reserve | | | | reserve | | | | | | Deficit | | Total |
| Balance at December 31, 2020 | | | 89,309,563 | $ | 212,058,836 | | | $ | 16,446,400 | $ | 4,501,213 | | | | | $ | (110,327,159) | $ | 122,679,290 |
| Effect of change in functional currency | | | | | | | | | | | | — | | (14,539,226) | | | | | | — | | | | | | — | | | — | | (14,539,226) |
| Balance at January 1, 2021 | | | | | | | 89,309,563 | $ | 197,519,610 | | | $ | 16,446,400 | $ | 4,501,213 | | | | | $ | (110,327,159) | $ | 108,140,064 |
| Shares issued for cash | | | | | | 20,365,495 | | 142,493,563 | | | | | | — | | | | | | — | | | — | $ | 142,493,563 |
| Shares issued pursuant to exercise of warrants | | 2,195,640 | | 16,802,299 | | | | | | (1,164) | | | | | | — | | | — | | 16,801,135 |
| Shares issued pursuant to exercise of options | | | | | | | 1,058,724 | | | | | | | | | | | | | 727,253 | | (277,794) | | | | | | — | | | — | | 449,459 |
| Stock-based compensation | | | | | | | | | | | | | | | | — | | | | | | | | | | | | | — | | 1,462,866 | | | | | | — | | | — | | 1,462,866 |
| Net loss for the period | | | | | | | | | | | | | | | | — | | | | | | | | | | | | | — | | | | — | | | | | | — | | (180,664) | | (180,664) |
| Foreign currency translation reserve | | | | | | | | | | | | | | | | — | | | | | | | | | | | | | — | | | | — | | (7,859) | | | | | | | — | | (7,859) |
| Balance at March 31, 2021 | | | | | | | 112,929,422 | $ | 357,542,725 | | | $ | 17,630,308 | $ | 4,493,354 | | | | | $ | (110,507,823) | $ | 269,158,564 |
| Share issuance costs | | | | | | | | | | | | | | | | — | | | | | | | | | | | | | (2,887) | | | | — | | | | | | — | | | — | | (2,887) |
| Shares issued pursuant to exercise of warrants | | | | | | | 88,774 | | | | | | | | | | | | | 404,354 | | | | — | | | | | | — | | | — | | 404,354 |
| Shares issued pursuant to exercise of options | | | | | | | 21,825 | | | | | | | | | | | | | 104,301 | | (53,972) | | | | | | — | | | — | | 50,329 |
| Stock-based compensation | | | | | | | | | | | | | | | | — | | | | | | | | | | | | | — | | 1,720,483 | | | | | | — | | | — | | 1,720,483 |
| Net loss for the period | | | | | | | | | | | | | | | | — | | | | | | | | | | | | | — | | | | — | | | | | | — | | (11,447,385) | | (11,447,385) |
| Foreign currency translation reserve | | | | | | | | | | | | — | — | — | (6,474) | | | | | | | - | (6,474) |
| Balance at June 30, 2021 | | 113,040,021 | $ | 358,048,493 | | | $ | 19,296,819 | $ | 4,486,880 | | | | | $ | (121,955,208) | $ | 259,876,984 |
| Share issuance costs | | | | | | | | | | | | — | (55,123) | — | — | | — | (55,123) |
| Shares issued pursuant to exercise of warrants | | 405,000 | 1,682,416 | | | | | | — | — | | — | 1,682,416 |
| Shares issued pursuant to exercise of options | | 1,375,400 | 3,115,294 | | | (2,469,544) | | | | — | | — | 645,750 |
| Shares issued pursuant to exercise of RSU | | 118,497 | | | | | | | | | | | 397,060 | (582,334) | | | | — | | — | (185,274) |
| Shares issued pursuant to exercise of DSU | | | | | | | | | | | | 5,755 | 19,625 | (39,250) | | | | — | | — | (19,625) |
| Transfer of DSU to liabilities | | | | | | | | | | | | — | — | (112,915) | | | | — | | — | (112,915) |
| Stock-based compensation | | | | | | | | | | | | | | | | — | | | | | | | | | | | | | — | | 824,489 | | | | | | — | | | — | | 824,489 |
| Net loss for the period | | | | | | | | | | | | | | | | — | | | | | | | | | | | | | — | | | | — | | | | | | — | | (12,847,398) | | (12,847,398) |
| Foreign currency translation reserve | | | | | | | | | | | | — | | | | | | | | | | | | | — | | | | — | | 17,688 | | | | | | | — | | 17,688 |
| Balance at September 30, 2021 | | | | | | | 114,944,673 | $ | 363,207,765 | | | $ | 16,917,265 | $ | 4,504,568 | | | | | $ | (134,802,606) | $ | 249,826,992 |
| Balance at December 31, 2021 | | | | | | | 117,338,964 | $ | 372,278,512 | | | $ | 18,011,591 | $ | 4,501,800 | | | | | $ | (151,653,994) | $ | 243,137,909 |
| Shares issued pursuant to exercise of options | | | | | | | 1,245,455 | | | | | | | | | | | | | 346,206 | | (50,690) | | | | | | — | | — | | 295,516 |
| Shares issued pursuant to exercise of RSU | | | | | | | 27,077 | | | | | | | | | | | | | 224,557 | | (245,343) | | | | | | — | | | — | | (20,786) |
| Stock-based compensation | | | | | | | | | | | | — | — | 1,109,266 | | | | — | | — | 1,109,266 |
| Net loss for the period | | | | | | | | | | | | | | | | — | | | | | | | | | | | | | — | | | | — | | | | | | — | | (17,831,537) | | (17,831,537) |
| Foreign currency translation reserve | | | | | | | | | | | | | | | | — | | | | | | | | | | | | | — | | | | — | | (5,850) | | | | | | | — | | (5,850) |
| Balance at March 31, 2022 | | | | | | 118,611,496 | $ | 372,849,275 | | | $ | 18,824,824 | $ | 4,495,950 | | | | | $ | (169,485,531) | $ | 226,684,518 |
| Shares issued pursuant to exercise of options | | 113,636 | | | | | | | | | | | 62,862 | (14,312) | | | | — | | — | 48,550 |
| Stock-based compensation | | | | | | | | | | | | — | — | 1,548,437 | | | | — | | — | 1,548,437 |
| Net loss for the period | | | | | | | | | | | | — | — | — | — | (20,296,746) | | (20,296,746) |
| Foreign currency translation reserve | | | | | | | | | | | | — | — | — | 12,195 | | | | | | | — | 12,195 |
| Balance at June 30, 2022 | | 118,725,132 | $ | 372,912,137 | | | $ | 20,358,949 | $ | 4,508,145 | | | | | $ | (189,782,277) | $ | 207,996,954 |
| Shares issued pursuant to exercise of options | | 25,000 | | | | | | | | | | | 6,795 | (1,018) | — | | — | 5,777 |
| Shares issued pursuant to exercise of RSU | | 137,976 | | | | | | | | | | | 479,148 | (562,501) | | | | — | | — | (83,353) |
| Stock-based compensation | | | | | | | | | | | | — | — | 1,294,008 | | | | — | | — | 1,294,008 |
| Net loss for the period | | | | | | | | | | | | — | — | — | — | (21,544,803) | | (21,544,803) |
| Foreign currency translation reserve | | | | | | | | | | | | — | — | — | 35,015 | | | | | | | — | 35,015 |
| Balance at September 30, 2022 | | 118,888,108 | $ | 373,398,080 | | | $ | 21,089,438 | $ | 4,543,160 | | | | | $ | (211,327,080) | $ | 187,703,598 |
| | | | | | | | | | | | | | The accompanying notes are an integral part of these interim condensed unaudited consolidated financial statements |
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| Table of Contents |
| ElectraMeccanica Vehicles Corp.Interim Condensed Unaudited Consolidated Statements of Cash Flows(Expressed in United States dollars) |
| | Three Months Ended | Nine Months Ended |
| | September 30, 2022 | | | September 30, 2021 | | September 30, 2022 | | | | September 30, 2021 |
| Operating activities | | | | | | |
| Net loss for the period | $ | (21,544,803) | | $ | | | (12,847,398) | $ | (59,673,086) | | | $ | | (24,475,447) |
| Adjustments for: | | | | | | |
| Amortization | | 1,612,421 | | | | | 1,102,638 | 4,268,912 | | | | | 3,005,004 |
| Stock-based compensation expense | | 1,334,359 | | | | | 833,973 | 4,174,819 | | | | | 4,017,322 |
| Interest (income) / expense | | (308,947) | | | | | (52,190) | (328,374) | | | | | (222,303) |
| Inventory provision | | 306,085 | | | — | 3,118,581 | | | | | | — |
| Change in fair value of derivative liabilities | | (41,396) | | | | | (4,178,638) | (312,142) | | | | | (16,436,023) |
| Unrealized currency translation losses | | 24,107 | | | — | 24,107 |
| Changes in non-cash working capital items | | | | | | |
| Receivables | | 96,910 | | | (4,718) | 266,850 | | | | | (282,242) |
| Prepaid expenses and deposit | | 122,917 | | | | | (2,942,644) | (5,233,291) | | | | | (10,266,438) |
| Inventory | | (1,343,259) | | | | | (2,699,611) | (9,079,654) | | | | | (2,668,847) |
| Trade payables and accrued liabilities | | (1,795,703) | | | | | (2,361,538) | (1,936,111) | | | | | (217,417) |
| Customer deposits and construction contract liabilities | | (211,205) | | | | | 192,888 | (341,078) | | | | | 215,392 |
| Net cash flows used in operating activities | | (21,748,514) | | | | | (22,957,238) | (65,050,467) | | | | | (47,330,999) |
| Investing activities | | | | | | |
| Decrease/(increase) in restricted cash | | — | | | 2,059 | (228,874) | | | | | (17,397) |
| Transfer/(purchase) of plant and equipment | | (1,125,340) | | | | | 166,023 | (3,296,400) | | | | | (2,859,100) |
| Net cash flows used in investing activities | | (1,125,340) | | | | | 168,082 | (3,525,274) | | | | | (2,876,497) |
| Financing activities | | | | | | |
| Interest income received | | 764,000 | | | 94,410 | 1,094,195 | | | | | 495,138 |
| Interest income received from net investment in sublease | | — | | | 124 | — | | | | | 1,459 |
| Interest paid on lease payments | | (111,877) | | | | | (37,890) | (233,032) | | | | | (111,978) |
| Repayment of leases | | (138,715) | | | | | (209,452) | (531,897) | | | | | (560,295) |
| Payment received from net investment in sublease | | — | | | 9,876 | — | | | | | 38,541 |
| Proceeds on issuance of common shares – net of issue costs | | — | | | | | (55,123) | — | | | | | 142,435,553 |
| Payment for RSU settlement | | (83,353) | | | | | (185,274) | (104,139) | | | | | (185,274) |
| Payment for DSU settlement | | — | | | | | (19,625) | — | | | | | (19,625) |
| Proceeds from issuance of common shares for options exercised | | 5,777 | | | | | 645,750 | 349,843 | | | | | 1,145,538 |
| Proceeds from issuance of common shares for warrants exercised | | — | | | | | 1,313,167 | — | | | | | 6,327,694 |
| Net cash flows from financing activities | | 435,832 | | | | | 1,555,963 | 574,970 | | | | | 149,566,751 |
| Increase / (decrease) in cash and cash equivalents | | (22,438,022) | | | | | (21,233,193) | (68,000,771) | | | | | 99,359,255 |
| Effect of exchange rate changes on cash | | (50,302) | | | 17,688 | (43,958) | | | | | 3,355 |
| Cash and cash equivalents, beginning | | 176,371,603 | | | | | 250,028,791 | 221,928,008 | | | | | 129,450,676 |
| Cash and cash equivalents, ending | $ | 153,883,279 | | $ | | | 228,813,286 | $ | 153,883,279 | | | $ | | 228,813,286 |
| | | | | | | | | | The accompanying notes are an integral part of these consolidated financial statements |
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| Table of Contents |
| 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 principalactivity is the development and manufacturing of electric vehicles (“EV”s). |
| The head office and principal address of the Company are located at 8057 North Fraser Way, Burnaby, BC, V5J 5M8. Our registered and records office is located at Suite1500, 1055 West Georgia Street, P.O. Box 11117, Vancouver, British Columbia, Canada, V6E 4N7. |
| These consolidated financial statements have been prepared on the assumption that the Company will continue in operation for the foreseeable future and will be able torealize assets and discharge liabilities in the ordinary course of operations. The Company’s principal activity is the development and manufacture of EVs. As atSeptember 30, 2022, although the Company has commenced commercial production of the SOLO single seat EV, it is not able to finance day-to-day activities throughoperations. The Company’s continuation is dependent upon the successful results from its electric vehicle manufacturing activities and its ability to attain profitableoperations and generate funds therefrom and/or raise equity capital or borrowings sufficient to meet current and future obligations. |
| The Company began production and commenced commercial deliveries of its first SOLO EV in October 2021. |
| It is anticipated that significant funding will be required. Management primarily intends to finance its operations over the next 12 months using the existing cash on hand,as well as through sales of the SOLO, private placements and/or public offerings of equity/debt capital. |
| 2. Significant accounting policies and basis of preparation |
| The consolidated financial statements were authorized for issue on November 10, 2022 by the directors of the Company. |
| Statement of compliance with International Financial Reporting Standards |
| These interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by theInternational Accounting Standards Board (“IASB”). These interim condensed consolidated financial statements are prepared in accordance with InternationalAccounting Standards (“IAS”) 34 – Interim Financial Reporting on a basis consistent with those followed in the most recent annual consolidated financial statements forthe year ended December 31, 2021. |
| These interim condensed consolidated financial statements do not include all of the information required for full annual financial statements and should be read inconjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2021. |
| Certain amounts in the prior year’s comparative figures have been reclassified to conform to the current year’s presentation. |
| Basis of preparation |
| The consolidated financial statements of the Company have been prepared on an accrual basis and are based on historical costs except for derivative liabilities which aremeasured at fair value and vehicles inventory which are measured at lower of cost and net realizable value. As at September 30, 2022, the Company’s functional andpresentation currency is United States dollars (“USD”). |
| Consolidation |
| The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, EMV Automotive USA Inc., from the date of itsincorporation on January 22, 2018, Intermeccanica International Inc. (“InterMeccanica”), from the date of its acquisition on October 18, 2017, EMV AutomotiveTechnology (Chongqing) Inc., from the date of its incorporation on October 15, 2019, SOLO EV, LLC, from the date of its incorporation on November 22, 2019, andElectraMeccanica USA, LLC, from the date of its incorporation on March 19, 2021. Inter-company balances and transactions, including unrealized income and expensesarising from inter-company transactions, are eliminated on consolidation. |
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| Table of Contents |
| 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’smanagement reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events thatare believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised. |
| Estimates and assumptions where there is significant risk of material adjustments to assets and liabilities in future accounting periods include the estimated fair valuemeasurements for financial instruments and share-based payments. |
| The Covid-19 outbreak brings significant uncertainty as to the potential impact on our operations, supply chains for parts and sales channels for our products, and on theglobal economy as a whole. It is currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to priorlevels. Therefore, the Company has not changed any estimates and assumptions in the preparation of the financial statements. |
| Significant judgments |
| The preparation of financial statements in accordance with IFRS requires the Company to make judgments, apart from those involving estimates, in applying accountingpolicies. The most significant areas that require judgment from the Company in completing its consolidated financial statements include: |
| - | the assessment of the Company’s ability to continue operations and whether there are events or conditions that may give rise to significant uncertainty; |
| 3. Prepaid expenses |
| | | September 30, 2022 | | December 31, 2021 |
| Solo deposit | | $ | | | | 10,731,551 | $ | | | 4,734,914 |
| Battery cell deposit | | | | | | 4,430,130 | 6,121,372 |
| Battery deposit | | | | | | 100,207 | 100,207 |
| Parts deposit | | | | | | 94,627 | 227,366 |
| Prepaid insurance | | | | | | 98,390 | 2,027,001 |
| Prepaid rent and security deposit | | | | | | 501,957 | 444,976 |
| Other prepaid expenses | | | | | | 1,130,811 | 772,281 |
| | $ | | | | 17,087,673 | $ | | | 14,428,117 |
| 4. Inventory |
| | September 30, 2022 | | | December 31, 2021 |
| Parts, battery, and accessories | | $ | | | | 1,925,200 | $ | | | 906,505 |
| Work in progress | | | | | | — | | | | 128,424 |
| Vehicles | | | | | | 11,717,317 | | | | 4,232,736 |
| Inventory provision | | | | | | (4,805,151) | | | | (1,687,215) |
| | $ | | | | 8,837,366 | $ | | | 3,580,450 |
| For the three and nine months ended September 30, 2022, the amount of $306,085 and $3,118,581 of inventory write-down has been recognized as an expense,respectively (September 30, 2021 - $Nil for the three and nine months) in the cost of revenue. |
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| 5. Long-term deposit |
| | | |
| | September 30, 2022 | December 31, 2021 |
| Security deposit | | $ | | 1,161,000 | $ | | 1,161,000 |
| Deposit for facility construction and equipment | | | | 186,392 | | | | — |
| | $ | | 1,347,392 | $ | | 1,161,000 |
| As of September 30, 2022, a deposit amount of $186,392 (December 31, 2021 - $Nil) was made for purchasing of equipment and Mesa facility construction. |
| 6. Plant and equipment |
| | | | | | | | | Computer | | | | | | | | | | | |
| | | | | | | Furniture | hardware | | | Production |
| | | | | | | | | | | and | and | Leasehold | | tooling |
| | | | | | | | equipment | | software | | | | | | | | | | | Vehicles | | improvements | and molds | | | Total |
| Cost: | | | | | | | | | | | | |
| December 31, 2020 | | | | | | | $ | | | | 477,823 | $ | 421,198 | | | | | | | | $ | | | 1,384,597 | $ | 435,376 | | $ | 7,613,969 | $ | | 10,332,963 |
| Additions | | | | | | | | | | | 448,918 | 584,307 | | | | | | | | | | | 1,816,568 | 1,124,818 | | 387,260 | 4,361,871 |
| Disposal— | (1,971) | | | | | | | | | | | (894,316) | — | — | | (896,287) |
| Foreign exchange translation difference | | | | | | | | 689 | 41 | | | | | | | | | — | 482 | — | | 1,212 |
| December 31, 2021 | | | | | | | | | | | 927,430 | 1,003,575 | | | | | | | | | | | 2,306,849 | 1,560,676 | | 8,001,229 | 13,799,759 |
| Additions | | | | | | | | | | | 881,292 | 373,760 | | | | | | | | | | | 1,643,445 | 7,549,364 | | 4,563,066 | 15,010,927 |
| Disposal | | | | | | | | — | — | | | | | | | | | | | (393,669) | — | (56,285) | | (449,954) |
| Foreign exchange translation difference | | | | | | | | | | | (12,848) | (476) | | | | | | | | | — | (5,721) | — | | (19,045) |
| September 30, 2022 | | | | | | | $ | | | | 1,795,874 $ | 1,376,859 $ | | | | | | | | | | | 3,556,625 $ | 9,104,319 $ | | 12,508,010 $ | 28,341,687 |
| Amortization:December 31, 2020 |
| | | | | | | $ | | | | 309,321 | $ | 198,331 | | | | | | | | $ | | | 294,672 | $ | 273,756 | | $ | 893,909 | $ | | 1,969,989 |
| Additions | | | | | | | | | | | 97,760 | 249,754 | | | | | | | | | | | 340,621 | 116,105 | | 2,675,815 | 3,480,055 |
| Disposal— | (219) | | | | | | | | | | | (38,022) | — | — | | (38,241) |
| Foreign exchange translation difference | | | | | | | | 985 | 38 | | | | | | | | | — | 455 | — | | 1,478 |
| December 31, 2021 | | | | | | | | | | | 408,066 | 447,904 | | | | | | | | | | | 597,271 | 390,316 | | 3,569,724 | 5,413,281 |
| Additions | | | | | | | | | | | 178,824 | 283,099 | | | | | | | | | | | 603,291 | 279,190 | | 2,038,308 | 3,382,712 |
| Disposal | | | | | | | | — | — | | | | | | | | | | | (90,252) | — | — | | (90,252) |
| Foreign exchange translation difference | | | | | | | | | | | (12,247) | (476) | | | | | | | | | — | (5,719) | — | | (18,442) |
| September 30, 2022 | | | | | | | $ | | | | 574,643 $ | 730,527 $ | | | | | | | | | | | 1,110,310 $ | 663,787 $ | | 5,608,032 $ | 8,687,299 |
| Net book value: | | | | | | | | | | | | |
| December 31, 2021 | | | | | | | $ | | | | 519,364 | $ | 555,671 | | | | | | | | $ | | | 1,709,578 | $ | 1,170,360 | | $ | 4,431,505 | $ | | 8,386,478 |
| September 30, 2022 | | | | | | | $ | | | | 1,221,231 | $ | 646,332 | | | | | | | | $ | | | 2,446,315 | $ | 8,440,532 | | $ | 6,899,978 | $ | | 19,654,388 |
| During the nine months ended September 30, 2022, vehicles with cost of $363,079 and accumulated depreciation of $86,853 were transferred to R&D usage andrecorded on the statement of loss and comprehensive loss. |
| During the nine months ended September 30, 2022, the Company had non-cash additions to leasehold improvements of $7,500,515 (September 30, 2021 - $Nil) pursuantto the completion of the Mesa facility work by the landlord. |
| During the nine months ended September 30, 2022, the Company had non-cash additions to vehicles of $704,157 (September 30, 2021 - $Nil) upon change in the use ofinventory vehicles. |
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| Table of Contents |
| 7. Trade payables and accrued liabilities |
| | | September 30, 2022 | | December 31, 2021 |
| Trade payables | | $ | | | | 1,090,554 | $ | | | 1,249,861 |
| Due to related parties (Note 15) | | | | — | | | 743,100 |
| Accrued liabilities | | | | | | 4,090,722 | 4,817,820 |
| | $ | | | | 5,181,276 | $ | | | 6,810,781 |
| 8. Leases |
| The Company leases buildings for its engineering center and head office and, warehouse spaces and kiosk locations to promote vehicle sales. These leases generally spana period of one to five years. |
| Set out below are the carrying amounts of right-of-use assets recognized and the movements during the period: |
| | | | | | | Right-of-use |
| | | | assets |
| | | | | | | | Cost: | |
| | | | | | | | December 31, 2020 | $ | 1,660,098 |
| | | | | | | | Additions | | 1,575,434 |
| | | | | | | | Foreign exchange translation difference | | 2,520 |
| | | | | | | | December 31, 2021 | | 3,238,052 |
| | | | | | | | Additions | | 8,424,158 |
| | | | | | | | Disposal | | (524,568) |
| | | | | | | | Foreign exchange translation difference | | (658) |
| | | | | | | | September 30, 2022 | $ | 11,136,984 |
| | | | | | | | Amortization: | | |
| | | | | | | | December 31, 2020 | $ | 732,764 |
| | | | | | | | Additions | | 767,293 |
| | | | | | | | Foreign exchange translation difference | | 586 |
| | | | | | | | December 31, 2021 | | 1,500,643 |
| | | | | | | | Additions | | 883,253 |
| | | | | | | | Disposal | | (198,623) |
| | | | | | | | Foreign exchange translation difference | | (227) |
| | | | | | | | September 30, 2022 | $ | 2,185,046 |
| | | | | | | | Net book value: | | |
| | | | | | | | December 31, 2021 | $ | 1,737,409 |
| | | | | | | | September 30, 2022 | $ | 8,951,938 |
| The following tables reconcile the change in the lease liabilities and disclose a maturity analysis of the lease liabilities for the nine months ended September 30, 2022 andthe year ended December 31, 2021: |
| | | | | | | | Balance as at December 31, 2020 | $ | 1,075,773 |
| | | | | | | | Lease addition | | 1,575,434 |
| | | | | | | | Accretion of lease liability | | 144,975 |
| | | | | | | | Repayment of principal and interest | | (908,911) |
| | | | | | | | Balance as at December 31, 2021 | $ | 1,887,271 |
| | | | | | | | Lease addition | 16,426,759 |
| | | | | | | | Accretion of lease liability | 765,768 |
| | | | | | | | Repayment of principal and interest | (849,532) |
| | | | | | | | Lease modification | (356,433) |
| | | | | | | | Balance as at September 30, 2022 | $ | 17,873,833 |
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| Table of Contents |
| During the nine months ended September 30, 2022, the Company entered into a lease agreement for a storage and distribution premise in California for $25,711 a monthfor period of five years. As a result, the Company recognized right-of-use asset of $1,299,744 at the commencement of the lease. |
| During the nine months ended September 30, 2022, the Company renewed an existing lease agreement for a kiosk location in Arizona for $12,500 a month for period of33 months. As a result, the Company recognized right-of-use asset of $410,481 at the commencement of the lease. |
| During the nine months ended September 30, 2022, the Company renewed an existing lease agreement for an office premise in Mesa Arizona for $15,813 a month forperiod of 13 months. As a result, the Company recognized right-of-use asset of $195,672 at the commencement of the lease. |
| During the nine months ended September 30, 2022, the Company commenced a lease agreement for Mesa facility for period of 129.5 months. As a result, the Companyrecognized right-of-use asset of $6,518,261 and lease liability of $14,520,861 at the commencement of the lease. |
| The Company incurred $275,408 and $1,037,180 of lease expenses for the three and nine months ended September 30, 2022, respectively (September 30, 2021 -$336,858 and $782,490 for the three and nine months respectively), for short-term leases and low-value leases which are not included in the measurement of leaseliabilities. |
| During the nine months ended September 30, 2022, the Company decided to not exercise its renewal options for two existing lease agreements expiring on July 31, 2022.The Company derecognized right-of-use assets with cost of $524,568 and accumulated depreciation of $198,623, lease liabilities of $356,433, and recorded a gain of$30,488 on disposal which is included in the other income in the statement of loss. |
| | | Present value of |
| | | Future minimum | | | | minimum lease |
| At September 30, 2022 | | lease payments | | | Interest | payments |
| Less than one year | | $ | | | | 2,142,683 | $ | 859,240 | $ | 1,283,443 |
| Between one and five years | | | | | | 11,747,097 | 6,121,109 | 5,625,988 |
| More than five years | | | | | | 15,711,180 | 4,746,778 | 10,964,402 |
| | $ | | | | 29,600,961 | $ | 11,727,127 | $ | 17,873,833 |
| Current portion of lease liabilities | | | | | | 1,283,443 |
| Non-current portion of lease liabilities | | | $ | 16,590,390 |
| 9. Derivative liabilities |
| a) Warrants |
| The exercise price of certain warrants is denominated in CAD; however the functional currency of the Company is USD. Consequently, the value of the proceeds onexercise is not fixed and will vary based on foreign exchange rate movements. The warrants when issued other than as compensation for goods and services are thereforea derivative for accounting purposes and are required to be recognized as derivative liabilities and measured at fair value at each reporting period. Any changes in fairvalue from period to period are recorded as non-cash gain or loss in the consolidated statements of loss and comprehensive loss. Upon exercise, the holders will pay theCompany the respective exercise price for each warrant exercised in exchange for one common share of the Company and the fair value at the date of exercise and theassociated non-cash liability will be reclassified to share capital. The non-cash liability associated with any warrants that expire unexercised will be recorded as a gain inthe consolidated statements of loss and comprehensive loss. There are no circumstances in which the Company would be required to pay any cash upon exercise orexpiry of the warrants (see Note 10 for further information on warrants issued and outstanding). |
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| Table of Contents |
| A reconciliation of the changes in fair values of the warrants derivative liabilities for the nine months ended September 30, 2022 and the year ended December 31, 2021is below: |
| | | |
| | September 30, 2022 | December 31, 2021 |
| | | | Balance, beginning | $ | | | 191,203 $ | 17,899,855 |
| | | | Decrease of derivative liabilities for warrants priced in USD per change in functionalcurrency |
| | | — | | | (17,899,855) |
| | | | Recognize of derivative liabilities for warrants priced in CAD per change in functionalcurrency |
| | | — | | | 32,439,081 |
| | | | Warrants exercised | — | | | (13,327,450) |
| | | | Changes in fair value of derivative liabilities | | | | (191,174) | (18,920,428) |
| | | | Balance, ending | $ | 29 $ | | | 191,203 |
| The fair value of the non-transferrable warrants was calculated using the Black-Scholes Option Pricing Model. |
| b) Deferred Stock Units |
| Deferred Stock Units (“DSU’s) are stock-based awards that may be granted by the Company to certain eligible participants pursuant to its Stock Incentive Plan. Duringthe year ended December 31, 2021, the Company changed the settlement intention by allowing the holders of the DSUs to settle the DSUs in cash or common shares. Asa result, the entire DSU balance was reclassified from equity to DSU liability. |
| During the nine months ended September 30, 2022, the Company issued 42,879 DSUs, which will vest over one year. |
| At each reporting date, between the grant and settlement dates of DSUs, the fair value of the liability is re-measured with any changes in fair value recognized in netincome (loss) for the period. The entire DSU balance is presented in long-term liabilities. |
| The changes in DSUs during the nine months ended September 30, 2022 are as follows: |
| | | | | Number of | |
| | | | | DSU | Amount |
| | | | Balance, December 31, 2021 | | | | 84,581 | $ | | | 53,362 |
| | | | Issuance | | | | 42,879 | | | | | — |
| | | | Stock-based compensation expense | | — | | | | 223,107 |
| | | | Changes in fair value of derivative liabilities | | — | | | | (120,968) |
| | | | Balance, September 30, 2022 | | | | 127,460 | $ | | | 155,501 |
| 10. Share capital |
| Authorized share capital |
| Unlimited number of common shares without par value. |
| At September 30, 2022, the Company had 118,888,108 issued and outstanding common shares (December 31, 2021 – 117,338,964). |
| On September 30, 2021, the Company contracted with Stifel, Nicolaus & Company, Incorporated and Roth Capital Partners, LLC (each, an “Agent”, and collectively, the“Agents”) to sell additional common shares having an aggregate offering price of up to $200,000,000 through the Agents (the “September Sales Agreement”). |
| In accordance with the terms of the September Sales Agreement, the Company may offer and sell common shares from time to time through the Agent selected by theCompany (the “Designated Agent”), acting as sales agent or, with consent of the Company, as principal. The common shares may be offered and sold by any methodpermitted by law deemed to be an “at the market” offering (the “ATM Offering”) as defined in Rule 415 promulgated under the Securities Act, including sales madedirectly on or through the Nasdaq Capital Market on any other existing trading market for the common shares, and, if expressly authorized by the Company, in negotiated |
| 47 |
| Table of Contents |
| transactions. During the nine month ended September 30, 2022, the Company issued Nil common shares under the September Sales Agreement. |
| During the three months ended March 31, 2022, the Company issued 1,245,455 common shares at CAD$0.30 per share for gross proceeds of CAD$373,637(USD$297,564) pursuant to the exercise of certain stock options by a director. |
| During the three months ended June 30, 2022, the Company issued 56,818 common shares at CAD$0.30 per share for gross proceeds of CAD$17,045 (USD$13,241)pursuant to the exercise of certain stock options by a former director. |
| During the three months ended June 30, 2022, the Company issued 56,818 common shares at CAD$0.80 per share for gross proceeds of CAD$45,454 (USD$35,309)pursuant to the exercise of certain stock options by a former director. |
| During the three months ended September 30, 2022, the Company issued 25,000 common shares at CAD$0.30 per share for gross proceeds of CAD$7,500 (USD$5,777)pursuant to the exercise of stock options. |
| During the three months ended September 30, 2022, the Company issued 137,976 common shares pursuant to RSUs exercised by officers and increased share capital by$83,353. |
| Basic and fully diluted loss per share |
| The calculation of basic and fully diluted loss per share for the three and nine months ended September 30, 2022 was based on the net loss attributable to commonshareholders of $21,544,803 and $59,673,086, respectively (September 30, 2021 – $12,847,398 and $24,475,447 for the three and nine months respectively) and theweighted average number of common shares outstanding of 118,847,779 and 118,638,876, respectively (September 30, 2021 – 113,670,604 and 110,110,785 for the threeand nine months respectively). Fully diluted loss per share for the three and nine months ended September 30, 2022 did not include the effect of 12,616,414 stock options(September 30, 2021 – 10,252,227), 6,186,519 warrants (September 30, 2021 – 11,604,402), 127,460 DSUs (September 30, 2021 – 84,581) and 325,275 RSUs(September 30, 2021 – 649,473) as the effect would be anti-dilutive. |
| Stock options |
| The Company adopted its 2020 Stock Incentive Plan (the “Stock Incentive Plan”) on July 9, 2020, which provides that the Board of Directors of the Company may fromtime to time, in its discretion, grant to directors, officers, employees and consultants of the Company certain stock-based compensation awards including non-transferablestock options to purchase common shares, provided that the number of common shares reserved for issuance will not exceed 30,000,000. Such stock options may beexercisable for a period of up to 10 years from the date of grant. Stock options may be exercised no later than 90 days following cessation of the optionee’s position withthe Company unless any exercise extension has been approved in advance by the Plan Administrator. |
| Stock options granted may vest based on terms and conditions set out in the stock option agreements themselves. On exercise, each stock option allows the holder topurchase one common share of the Company or to exchange common share of the Company without cash payment for the number of common shares calculated by aformula as set forth in the stock option agreement. |
| The changes in stock options during the nine months ended September 30, 2022 and the year ended December 31, 2021 are as follows: |
| | September 30, 2022 | | December 31, 2021 |
| | | | | Weighted | Weighted |
| Number of | | | | average exercise | Number of | | | average |
| | options | | | | price | | options | | exercise price |
| | | | | | | Options outstanding, beginning | 11,974,300 | | | | $ | 2.73 | 13,008,364 | | | $ | 2.14 |
| | | | | | | Options granted | 2,908,849 | | 1.83 | 3,217,378 | | 3.94 |
| | | | | | | Options exercised | | (1,384,091) | | 0.32 | (3,785,174) | | 1.58 |
| | | | | | | Options forfeited/expired/cancelled | | (882,644) | | 3.84 | (466,268) | | 2.85 |
| | | | | | | Options outstanding, ending | | 12,616,414 $ | | 2.71 | 11,974,300 $ | | 2.73 |
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| Table of Contents |
| Details of stock options outstanding as at September 30, 2022 were as follows: |
| | | | | Number of |
| Weighted average | | | | | Number of options | options |
| | | | | | | Exercise price | | contractual life | | | | | outstanding | | exercisable |
| | | | | | | | $0.80 CAD | 0.20 | | | | | | 277,273 | 277,273 |
| | | | | | | | $2.00 CAD | 1.55 | | | | | | 80,214 | 80,214 |
| | | | | | | | $1.50 | | 6.78 | | | | | | 1,021,000 | 369,555 |
| | | | | | | | $1.91 | | 5.14 | | | | | | 2,955,000 | 2,649,446 |
| | | | | | | | $1.94 | | 6.55 | | | | | | 597,002 | 217,158 |
| | | | | | | | $2.13 | | 6.35 | | | | | | 115,466 | 49,506 |
| | | | | | | | $2.20 | | 6.51 | | | | | | 500,000 | 212,962 |
| | | | | | | | $2.45 | | 3.85 | | | | | | 1,250,000 | 1,250,000 |
| | | | | | | | $2.53 | 3.86 | | | | | | 75,000 | 75,000 |
| | | | | | | | $2.62 | | 0.98 | | | | | | 700,000 | 700,000 |
| | | | | | | | $3.01 | 7.67 | | | | | | 1,500,000 | — |
| | | | | | | | $3.40 | 3.47 | | | | | | 1,035,000 | 1,035,000 |
| | | | | | | | $3.41 | 4.81 | | | | | | 772,729 | 619,638 |
| | | | | | | | $3.55 | 5.79 | | | | | | 75,000 | 30,420 |
| | | | | | | | $3.56 | 6.12 | | | | | | 247,393 | 124,909 |
| | | | | | | | $3.77 | | 5.12 | | | | | | 165,000 | 131,462 |
| | | | | | | | $4.15 | | 8.57 | | | | | | 755,000 | 607,080 |
| | | | | | | | $5.00 | 1.17 | | | | | | 193,629 | 193,629 |
| | | | | | | | $7.23 | 5.28 | | | | | | 101,721 | 75,061 |
| | | | | | | | $7.75 | 5.39 | | | | | | 92,487 | 74,785 |
| | | | | | | | $9.60 | | 2.18 | | | | | | 107,500 | 107,500 |
| | | | | | | | | 12,616,414 | 8,880,598 |
| The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2022 was $0.95 (September 30, 2021 - $2.59). |
| During the three and nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $925,767 and $3,130,348, respectively(September 30, 2021 - $930,097 and $3,579,636 for the three and nine months, respectively) for stock options granted. |
| Warrants |
| On exercise, each warrant allows the holder to purchase one common share of the Company or to exchange common share of the Company without cash payment for thenumber of common shares calculated by the formula set forth in the warrant agreement. |
| The changes in warrants during the nine months ended September 30, 2022 and the year ended December 31, 2021 are as follows: |
| | | | September 30, 2022 | | | | | | | December 31, 2021 |
| | | | Weighted | | | | | | | Weighted |
| | | Number of | average | Number of | | | | | | average |
| | | | warrants | | | | | | | exercise price | warrants | | | | | | | exercise price |
| Warrants outstanding, beginning | | | 7,402,021 | | | | | | $ | 5.23 | 15,070,883 | | | | | | $ | 4.01 |
| Warrants exercised | | | | | | — | — | (4,270,005) | | | | | | 3.34 |
| Warrants expired | | | (1,215,502) | 4.68 | (3,398,857) | | | | | | 4.66 |
| Warrants outstanding, ending | | | | 6,186,519 | | | | | | $ | 5.34 | 7,402,021 | | | | | | $ | 5.23 |
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| Table of Contents |
| At September 30, 2022, all warrants outstanding were exercisable. Details of warrants outstanding as at September 30, 2022 are as follows: |
| | | Weighted average | | Number of warrants |
| Exercise Price | | | | contractual life | outstanding |
| Non-Transferable Warrants | | | | | |
| $12.00 CAD - $16.00 CAD | | | | 0.73 years | | 630,998 |
| $2.56 USD - $15.00 USD | | | | 1.43 years | 1,054,253 |
| Transferable Warrants |
| $4.25 USD | | | | 0.85 years | 4,501,268 |
| Warrants outstanding, ending | | | | 0.94 years | 6,186,519 |
| DSUs |
| DSUs are stock-based awards that may be granted by the Company to certain eligible participants pursuant to its current Stock Incentive Plan. Each DSU will issue onecommon share of the Company or settle by equivalent cash to the holders of the DSU (Note 9). |
| The changes in DSUs during the nine months ended September 30, 2022 and the year ended December 31, 2021 are as follows: |
| | | | | | | September 30, 2022 | | December 31, 2021 |
| | | | | | | | Weighted average | Weighted average |
| | Number of DSU | | | | | | | fair value | Number of DSU | | | fair value |
| DSUs outstanding, beginning | | | | | | | 84,581 | $ | 3.41 | 44,623 | $ | | | 3.41 |
| DSUs granted | | | | | | | 42,879 | | 2.24 | 51,468 | | | | 3.41 |
| DSUs exercised | | | | | | | — | | — | (11,510) | | | | 3.41 |
| DSUs outstanding, ending | | | | | | | 127,460 | $ | 3.02 | 84,581 | $ | | | 3.41 |
| Details of DSUs outstanding as at September 30, 2022 are as follows: |
| | | | | | | | | Weighted | Number of |
| | | | | | | | | average | DSUs | Number of DSUs |
| | | | | | | | | | Deemed value | | contractual life | | | | | | | outstanding | | | exercisable |
| | | | | | | | | | | | $ | 3.02 | | 8.84 | 127,460 | 127,460 |
| During the three and nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $40,351 and $223,107, respectively(September 30, 2021 - $9,484 for the three and nine months) for DSUs granted during the period. |
| RSUs |
| RSUs are stock-based awards that may be granted by the Company to certain eligible participants pursuant to its current Stock Incentive Plan. RSUs are accounted for asequity-settled share-based payment transactions as the obligations under an RSU will be settled through the issuance of common shares. The Company measures the costof equity-settled share-based transactions by reference to the fair value of the equity instruments at the date at which they are granted and is recorded in the consolidatedstatements of loss and comprehensive loss over the vesting period. |
| The changes in RSUs during the nine months ended September 30, 2022 and the year ended December 31, 2021 are as follows: |
| | | | | | | September 30, 2022 | December 31, 2021 |
| | | | | | | | Weighted average | Weighted average |
| Number of RSU | | | | | | | exercise price | | Number of RSU | exercise price |
| RSUs outstanding, beginning | | | | | | | 649,473 | $ | 3.42 | 507,849 | | $ | 3.44 |
| RSUs granted | | | | | | | | — | | — | 450,442 | | | 3.41 |
| RSUs exercised | | | | | | | (235,792) | 3.43 | (169,283) | | | 3.44 |
| RSUs expired | | | | | | | (88,406) | 3.42 | (139,535) | | | 3.44 |
| RSUs outstanding, ending | | | | | | | 325,275 | $ | 3.41 | 649,473 | | $ | 3.42 |
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| Table of Contents |
| Details of RSUs outstanding as at September 30, 2022 are as follows: |
| | | Weighted | | | | Number of | |
| | | average | RSUs | | Number of RSUs |
| | | | | | | Deemed value | contractual life | outstanding | | exercisable |
| | | | | | | | $ | 3.41 | 8.87 | | | | | | | | 325,275 | — |
| During the three and nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $368,242 and $821,365, respectively(September 30, 2021 - $(105,608) and $428,202 for the three and nine months, respectively) for RSUs granted during the period. |
| 11. General and administrative expenses |
| | | | | | | | | | | Three months ended | Nine months ended |
| | | | | | | | | | | | | | September 30, 2022 | | | September 30, 2021 | | September 30, 2022 | | | | September 30, 2021 |
| Amortization | | | | | | | | | | | | | $ | 1,612,421 $ | | | | 1,102,638 $ | 4,268,914 $ | | | | | | | | 3,005,004 |
| Consulting fees | | | | | | | | | | | | | | 596,410 | 572,235 | 1,818,390 | | | | | | | | 1,997,975 |
| Insurance | | | | | | | | | | | 752,483 | 510,089 | 2,258,610 | | | | | | | | 1,464,799 |
| Investor relations | | | | | | | | | | | 828,685 | 370,926 | 1,563,714 | | | | | | | | 789,568 |
| Office expenses | | | | | | | | | | | 970,156 | 603,821 | 2,970,362 | | | | | | | | 1,397,269 |
| Professional fees | 2,184,676 | | | | 1,608,623 | 5,181,742 | | | | | | | | 4,170,581 |
| Rent | | | | | | | | | | | 436,352 | 456,014 | 1,069,591 | | | | | | | | 1,153,370 |
| Salaries and employee expenses | 2,728,199 | | | | 3,223,394 | 7,027,747 | | | | | | | | 5,238,224 |
| Share-based compensation expense | 1,165,026 | | | | 603,322 | 3,491,445 | | | | | | | | 2,896,497 |
| $ | 11,274,408 | | | $ | 9,051,062 | $ | 29,650,515 | | | | $ | | | | 22,113,287 |
| 12. Research and development expenses |
| | | | | | | | | | | Three months ended | Nine months ended |
| | | | | | | | | | | | | | September 30, 2022 | | | September 30, 2021 | | September 30, 2022 | | | | September 30, 2021 |
| Labor | $ | 5,938,321 | | | $ | 4,035,735 | $ | 14,701,655 | | | | $ | | | | 9,740,490 |
| Materials | | | | | | | | | | | 461,120 | 1,254,717 | 1,523,919 | | | | | | | | 1,906,467 |
| Share-based compensation expense | | | | | | | | | | | 142,589 | 144,842 | 601,821 | | | | | | | | 671,981 |
| $ | 6,542,030 | | | $ | 5,435,294 | $ | 16,827,395 | | | | $ | | | | 12,318,938 |
| 13. Sales and marketing expenses |
| | | | | | | | | | | Three months ended | Nine months ended |
| | | | | | | | | | | | | | September 30, 2022 | | | September 30, 2021 | | September 30, 2022 | | | | September 30, 2021 |
| Consulting | $ | | | | | | | | | | 379,874 | $ | 310,738 | $ | 946,964 | | | | $ | | | | 490,337 |
| Marketing | 1,418,294 | | | | 980,351 | 3,737,052 | | | | | | | | 2,926,079 |
| Salaries and benefits | | | | | | | | | | | | | | 1,346,884 | | | | 1,302,138 | 4,330,485 | | | | | | | | 3,137,092 |
| Share-based compensation expense | | | | | | | | | | | 26,745 | 85,809 | | | | | | | 81,554 | | 448,844 |
| $ | 3,171,797 | | | $ | 2,679,036 | $ | 9,096,055 | | | | $ | | | | 7,002,352 |
| 14. Segmented information |
| The Company operates in two reportable business segments. |
| The two reportable business segments offer different products, require different production processes, and are based on how the financial information is producedinternally for the purposes of making operating decisions. The following summary describes the operations of each of the Company’s reportable business segments: |
| ● | | | | | | | | | | | | | | | Electric Vehicles – development and manufacture of electric vehicles for mass markets; and |
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| Table of Contents |
| ● | | Custom built vehicles – development and manufacture of high-end custom-built vehicles. |
| No business segments have been aggregated to form the above reportable business segments. |
| | | Three months ended September 30, 2022 | Three months ended September 30, 2021 |
| | | | | Custom Built | Custom Built |
| | | | | | | | Electric Vehicles | | | | | Vehicles | | | | Electric Vehicles | | | | | | Vehicles |
| | | | | | | | | | Revenue | $ | 1,274,523 | $ | | | | | | | | | | 165,626 | $ | | | | | — | $ | | | | | | 110,139 |
| | | | | | | | | | Gross profit / (loss) | (1,002,132) | | | | | | | | 47,064 | — | | | (514) |
| | | | | | | | | | Operating expenses | | (20,980,416) | | | | | | | | (7,819) | (17,081,621) | | | | | | | | (83,771) |
| | | | | | | | | | Other items | | | | | | | 399,455 | (955) | 4,183,967 | | | | | | | | 134,541 |
| | | | | | | | | | Net profit / (loss) | | (21,583,093) | | | | | | | | 38,290 | (12,897,654) | | | | | | | | 50,256 |
| | | | | | | | | | FX translation | | | (5,186) | 40,201 | 882 | | | 16,806 |
| | | | | | | | | | Comprehensive profit / (loss) | $ | (21,588,279) | $ | | | | | | | | | | 78,491 | $ | (12,896,772) | | $ | | | | | | 67,062 |
| | | Nine months ended September 30, 2022 | | Nine months ended September 30, 2021 |
| | | | | | | | Custom Built | | | | Custom Built |
| | | Electric Vehicles | | Vehicles | Electric Vehicles | | Vehicles |
| | | | | | | | | | Revenue | $ | | | | | | | | | | 3,452,005 | $ | | | | | | | | | | 573,502 | $ | | | | | — | $ | | | | | | 592,524 |
| | | | | | | | | | Gross profit / (loss) | | (4,758,006) | | | | | | | | 15,557 | | | | | | — | | | | | | | 12,561 |
| | | | | | | | | | Operating expenses | | (55,454,276) | | | | | | | | | | | (119,689) | (41,232,424) | | | (202,153) |
| | | | | | | | | | Other items | | | | | | | | | | | 622,896 | | | | | | | | 21,279 | | 16,662,028 | | | | | | | | 285,391 |
| | | | | | | | | | Current income tax recovery | | (847) | | | | | | | | — | | | | | | (850) | | | | | | | — |
| | | | | | | | | | Net profit / (loss) | | (59,590,233) | | | | | | | | | | | (82,853) | (24,571,246) | | | | | | | | 95,799 |
| | | | | | | | | | FX translation | | (9,334) | | | | | | | | 50,694 | | | | | | 3,210 | | | | | | | 145 |
| | | | | | | | | | Comprehensive profit / (loss) | $ | (59,599,567) | $ | | | | | | | | | | (32,159) $ | (24,568,036) | | $ | | | | | | 95,944 |
| September 30, 2022 | | | | | | | | December 31, 2021 |
| | | | | | Custom Built |
| | | | Electric Vehicles | | Custom Built Vehicles | | Electric Vehicles | | Vehicles |
| | | | | | | | | | Inventory | $ | | | | | | | | | | 8,663,070 | $ | | | | | | | 174,296 | $ | | | | | | | | | | 3,243,267 | $ | | | | | | 337,183 |
| | | | | | | | | | Plant and equipment | 19,651,855 | | | | | 2,533 | | | | | | 8,379,810 | 6,668 |
| | | | | | | | | | Right-of-use assets | | | | | | | | | | | 8,951,938 | | | | — | | | | | | | | | | | 1,511,875 | | | | | | | 225,534 |
| 15. Related party transactions |
| Related party balances |
| The balance due to related parties is................................. as at September 30, 2022 (December 31, 2021 - $743,100) for the director fees. These amounts are unsecured,non-interest bearing and have no fixed terms of repayment. |
| Key management personnel compensation |
| | | | | Three months ended | Nine months ended |
| | | | | | | | | | | | | | September 30, 2022 | | | | | | | September 30, 2021 | September 30, 2022 | | | | | | September 30, 2021 |
| Salary | $ | 1,128,057 | | | | | | | $ | 2,350,134 | | | | | $ | 2,439,383 | | | | | | $ | | | | 3,095,936 |
| Directors fees | | | | | | | | | | | | | | 218,283 | 103,777 | | 563,336 | | | | | | | | | | 262,641 |
| Stock-based compensation | | | | | | | | | | | | | | 1,178,751 | | | 559,734 | | 3,296,122 | | | | | | | | | | 2,442,098 |
| $ | 2,525,091 | | | | | | | $ | 3,013,645 | | | | | $ | 6,298,841 | | | | | | $ | | | | 5,800,675 |
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| 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 managementprocesses, 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’sprimary 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 financialinstitutions 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 majorfinancial institutions that are high credit quality financial institutions as determined by rating agencies. The Company’s secondary exposure to risk is on its receivables.This risk is minimal as receivables consist primarily of refundable government goods and services taxes and interest receivable from major financial institutions withhigh credit ratings. |
| 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 placeto help determine the funds required to support the Company’s normal operating requirements on an ongoing basis. The Company ensures that there are sufficient fundsto 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 the issuance of equity securities for cash, primarily through private placements and public offerings. TheCompany’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 based on discounted payments as at September 30, 2022and December 31, 2021. The Company excluded warrants derivative liabilities from the table because they are settled by shares (see note 9). |
| | | Between one | More than |
| | | | | At September 30, 2022 | Within one year | and five years | five years |
| | | | | Trade payables | $ | | | | 1,090,554 | $ | | | | — | $ | | | | — |
| | | | | Accrued liabilities | 4,090,722 | — | — |
| | | | | Lease liabilities | 1,283,443 | 5,625,988 | 10,964,402 |
| | | | | DSU liabilities | | | | — | 155,501 | | | | | — |
| | $ | | | | 6,464,719 | $ | 5,781,489 | $ | 10,964,402 |
| | | Between one | More than |
| | | | | At December 31, 2021 | Within one year and five years | | five years |
| | | | | Trade payables | $ | | | | 1,249,861 | $ | | | | — | $ | | | | — |
| | | | | Accrued liabilities | | | | | 4,817,820 | — | — |
| | | | | Due to related parties | 743,100 | — | — |
| | | | | Lease liabilities | 392,279 | 867,757 | 627,235 |
| | | | | DSU liabilities | | — | | | | 53,362 | — |
| | $ | | | | 7,203,060 | $ | | | | 921,119 | $ | 627,235 |
| 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 differfrom the respective functional currency. The Company is exposed to currency risk as it incurs |
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| Table of Contents |
| some expenditures that are denominated in CAD while its functional currency is USD. The Company does not hedge its exposure to fluctuations in foreign exchangerates. |
| The following is an analysis of financial assets and liabilities that are denominated in CAD: |
| | | September 30, | | September 30, |
| | | | 2022 | | | 2021 |
| | | | | | Cash and cash equivalents | $ | | 590,760 | $ | | 889,739 |
| | | | | | Restricted cash | 74,968 | 80,697 |
| | | | | | Receivables | | | 100,802 | 180,632 |
| | | | | | Lease liabilities | (905,243) | (1,511,194) |
| | | | | | Trade payables and accrued liabilities | | | (195,211) | (912,401) |
| | $ | | (333,924) | $ | | (1,272,527) |
| Based on the above net exposures, for the nine months ended September 30, 2022, a 10% change in the CAD to the USD exchange rate would impact the Company’s netloss by $33,392 (September 30, 2021 – $127,253). |
| 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 isexposed to interest rate risk on its cash equivalents as these instruments have original maturities of 12 months or less and are therefore exposed to interest ratefluctuations on renewal. A 0.1% increase in market interest rates would decrease the Company’s net loss by $111,943 for the nine months ended September 30, 2022(September 30, 2021 - minimal). |
| Classification of financial instruments |
| Financial assets included in the consolidated statements of financial position are as follows: |
| | | September 30, | | December 31, |
| | | | 2022 | 2021 |
| | | | | | Amortized cost: | | |
| | | | | | Cash and cash equivalents | $ | 153,883,279 | $ | | 221,928,008 |
| | | | | | Restricted cash | 513,527 | 291,676 |
| | | | | | Receivables | | | 4,370 | | | 129,068 |
| | $ | 154,401,176 | $ | | 222,348,752 |
| Financial liabilities included in the consolidated statements of financial position are as follows: |
| | | September 30, | December 31, |
| | | | 2022 | | | 2021 |
| | | | | | Non-derivative financial liabilities at amortized cost: | | |
| | | | | | Trade payable and accrued liabilities | $ | | 5,181,276 | $ | | 6,810,781 |
| | | | | | Lease liabilities | 17,873,833 | 1,887,271 |
| | | | | | Derivative financial liabilities at fair value through profit or loss: |
| | | | | | Derivative liabilities | | | 155,530 | | | 244,565 |
| | $ | | 23,210,639 | $ | | 8,942,617 |
| Fair value |
| The fair value of the Company’s financial assets and liabilities, other than the derivative liabilities which are measured at fair value, approximates the carrying amount. |
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| Table of Contents |
| 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 toestimate the fair values. The three levels of the fair value hierarchy are: |
| ● | | Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; |
| ● | | Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and |
| ● | | Level 3 – Inputs that are not based on observable market data. |
| Financial liabilities measured at fair value at September 30, 2022 consisted of the derivative liabilities, which include non-transferrable warrants and DSUs. The fairvalue of DSUs is classified as level 1, and the fair value of the non-transferrable warrants are classified as level 2 in the fair value hierarchy. |
| The fair value of the derivative liabilities relating to the non-transferrable warrants was calculated using the Black-Scholes Option Pricing Model using the historicalvolatility of comparable companies as an estimate of future volatility. At September 30, 2022, if the volatility used was increased by 10% the impact would be anincrease to the derivative liabilities of $89 (September 30, 2021 - $227,681) with a corresponding increase in loss and comprehensive loss. |
| 17. Capital management |
| The Company’s policy is to maintain a strong capital base to safeguard the Company’s business and sustain future development of the business. The capital structure ofthe Company consists of equity. There were no changes in the Company’s approach to capital management during the nine months ended September 30, 2022. TheCompany is not subject to any externally imposed capital requirements. |
| 18. Commitments |
| (a) As at September 30, 2022, the Company has capital commitments to incur an additional $3,140,351 (December 31, 2021 - $2,686,537) for development of its |
| | IT infrastructure and construction of Mesa facility. |
| (b) The Company is committed to future minimum lease payments for short-term leases and long-term leases. The leases are related to rentals of its kiosk locations. |
| | The details of lease commitments for those leases not included in the lease liabilities as at September 30, 2022 are as follows: |
| | | Fiscal year | | Amount |
| | | | | 2022 | $ | | 323,236 |
| | | | | 2023 | | | 78,247 |
| | | | | 2024 | | | — |
| | | | | 2025 | | | — |
| | | | | 2026 and after | | | — |
| | | | | Total | $ | | 401,483 |
| 19. Subsequent events |
| Subsequent to September 30, 2022, the Company granted 687,336 stock options to employee with vesting period over 36 months. |
| 55 |
| Exhibit 99.2 |
| CERTIFICATION |
| | I, Kevin Pavlov, certify that: |
| | (1) | I have reviewed this Quarterly Report on Form 6-K for the quarterly period ended September 30, 2022 of Electrameccanica Vehicles Corp.; |
| | (2) | Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this QuarterlyReport; |
| | (3) | Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report; |
| | (4) | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant andhave: |
| | | (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this Quarterly Report is being prepared; |
| | | (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles; |
| | | (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Quarterly Report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report based on such evaluation; and |
| | | (d) | Disclosed in this Quarterly Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and |
| | (5) | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| | | (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| | | (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. |
| | Date: November 14, 2022. |
| | /s/ Kevin PavlovBy: |
| | | Kevin Pavlov |
| | Title: | Chief Executive Officer (Principal Executive Officer) |
| Exhibit 99.3 |
| CERTIFICATION |
| | I, Mark Orsmond, certify that: |
| | (1) | I have reviewed this Quarterly Report on Form 6-K for the quarterly period ended September 30, 2022 of Electrameccanica Vehicles Corp.; |
| | (2) | Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this QuarterlyReport; |
| | (3) | Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report; |
| | (4) | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant andhave: |
| | | (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this Quarterly Report is being prepared; |
| | | (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles; |
| | | (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Quarterly Report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report based on such evaluation; and |
| | | (d) | Disclosed in this Quarterly Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and |
| | (5) | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| | | (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| | | (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. |
| | Date: November 14, 2022. |
| | /s/ Mark OrsmondBy: |
| | | Mark Orsmond |
| | Title: | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
