0001062993-17-003979.txt : 20170829 0001062993-17-003979.hdr.sgml : 20170829 20170828203108 ACCESSION NUMBER: 0001062993-17-003979 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20170630 FILED AS OF DATE: 20170829 DATE AS OF CHANGE: 20170828 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELECTRAMECCANICA VEHICLES CORP. CENTRAL INDEX KEY: 0001637736 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 000000000 STATE OF INCORPORATION: A1 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-214067 FILM NUMBER: 171055908 BUSINESS ADDRESS: STREET 1: 102 EAST 1ST AVENUE CITY: VANCOUVER STATE: A1 ZIP: V5T 1A4 BUSINESS PHONE: 604-428-7656 MAIL ADDRESS: STREET 1: 102 EAST 1ST AVENUE CITY: VANCOUVER STATE: A1 ZIP: V5T 1A4 6-K 1 form6k.htm FORM 6-K Electrameccanica Vehicles Corp. - Form 6-K - Filed by newsfilecorp.com

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 August 2017

Commission File No. 333-214067

ELECTRAMECCANICA VEHICLES CORP.
(Translation of registrant's name into English)

102 East 1st Avenue
Vancouver, British Columbia, V5T 1A4, Canada
(Address of principal executive office)

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 [X]   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) [   ]


SUBMITTED HEREWITH

Exhibits  
   
99.1

Interim financial statements for the three and six months ended June 30, 2017 and 2016

 

 

99.2

Management’s Discussion & Analysis for the six months ended June 30, 2017

 

 

99.3

Form 52-109FV2 Certification of Interim Filings – Venture Issuer Basic Certificate – CEO

 

 

99.4

Form 52-109FV2 Certification of Interim Filings – Venture Issuer Basic Certificate – CFO



SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ELECTRAMECCANICA VEHICLES CORP.

/s/ Kulwant Sandher  
Kulwant Sandher  
Chief Financial Officer  
Date: August 28, 2017  


EX-99.1 2 exhibit99-1.htm EXHIBIT 99.1 Electrameccanica Vehicles Corp. - Exhibit 99.1 - Filed by newsfilecorp.com

 

 

Electrameccanica Vehicles Corp.
Interim Financial Statements
June 30, 2017

Unaudited - Expressed in Canadian Dollars

 

 


Electrameccanica Vehicles Corp.
Statements of Financial Position
(Expressed in Canadian dollars)

      June 30,     December 31,  
      2017     2016  
  Note   (Unaudited)        
ASSETS              
Current assets              
Cash and cash equivalents   $  1,588,772   $  3,916,283  
Receivables 4   184,070     271,284  
Prepaid expenses     232,105     249,585  
Inventory     3,475     -  
      2,008,422     4,437,152  
Non-current assets              
Plant and equipment 5   309,186     225,269  
Investment 6   200,000     100,000  
Trademark and patents 7   58,987     25,345  
               
TOTAL ASSETS   $  2,576,595   $  4,787,766  
               
LIABILITIES              
Current liabilities              
Trade payables and accrued liabilities 8 $  595,393   $  468,000  
Customer deposits     202,250     169,500  
Convertible loan 10   284,455     243,676  
TOTAL LIABILITIES     1,082,098     881,176  
               
EQUITY              
Share capital 11   12,295,837     11,383,996  
Common share subscription     1,500     101,500  
Share-based payment reserve 12   2,891,746     2,351,144  
Equity component of convertible loan     39,130     39,130  
Deficit     (13,733,716 )   (9,969,180 )
TOTAL EQUITY     1,494,497     3,906,590  
               
TOTAL LIABILITIES AND EQUITY   $  2,576,595   $  4,787,766  
Commitments (Notes 9)              
Subsequent events (Note 18)              

On behalf of the Board of Directors.

“Jerry Kroll”   “Robert Tarzwell”
Director   Director

The accompanying notes are an integral part of these financial statements 2


Electrameccanica Vehicles Corp.
Statements of Comprehensive Loss
(Unaudited - Expressed in Canadian dollars)

      Three months ended     Six months ended  
                           
      June 30,     June 30,     June 30,     June 30,  
Note   2017     2016     2017     2016  
                           
Operating expenses                          
   Amortization 5 & 7 $  30,294   $  2,197   $  55,204   $  3,649  
   General and administrative expenses 13   445,146     207,227     927,955     387,871  
   Research and development expenses 14   621,321     478,031     1,905,050     1,126,910  
   Sales and marketing expenses     165,972     38,560     290,238     76,060  
   Stock-based compensation expense 11   289,723     235,489     537,379     484,622  
      (1,552,456 )   (961,504 )   (3,715,826 )   (2,079,112 )
Other items                          
   Accretion interest expense     20,502     -     40,779     -  
   Foreign exchange loss (gain)     2,009     (433 )   7,931     3,042  
                           
Net and comprehensive loss   $  (1,574,967 ) $  (961,071 ) $  (3,764,536 ) $  (2,082,154 )
                           
Loss per share – basic and fully diluted   $  (0.04 ) $  (0.03 ) $  (0.09 ) $  (0.07 )
                           
Weighted average number of shares outstanding – basic and fully diluted 11   42,653,400     31,304,935     42,315,808     28,228,432  


The accompanying notes are an integral part of these financial statements 3

Electrameccanica Vehicles Corp.
Statements of Changes in Equity
(Unaudited - Expressed in Canadian dollars)

                                                   
      Share capital                                      
                                    Equity              
                              Share-based     component of              
      Number of           Share     Share     payment     convertible              
      shares     Amount     subscription     Issue cost     reserve     loan     Deficit     Total  
Balance at December 31, 2015     26,783,625   $  458,520   $  50,000   $     $  354,015   $     $  (995,833 ) $  (133,298 )
Shares issued for cash     13,575,200     8,375,519     -     (1,604,486 )   -     -     -     6,771,033  
Shares issued for finders fees     1,273,512     823,512     -     -     519,088     -     -     1,342,600  
Shares issued for convertible debt issue cost     26,250     26,250     -     -     16,852     -     -     43,102  
Share issued to settle debt     125,000     50,000     -     -     -     -     -     50,000  
Share-based payment     -     3,264,681     -     -     -     -     -     3,264,681  
Stock-based compensation     -     -     -     -     1,461,189     -     -     1,461,189  
Share subscription     -     -     51,500     (10,000 )   -     -     -     41,500  
Equity component of convertible loan     -     -     -     -     -     39,130     -     39,130  
Comprehensive loss for the year     -     -     -     -     -     -     (8,973,347 )   (8,973,347 )
                                                 
Balance at December 31, 2016     41,783,587   $ 12,998,482   $ 101,500   $  (1,614,486 ) $  2,351,144   $  39,130   $ (9,969,180 ) $  3,906,590  
                                                   
Shares issued for cash 11   1,028,000     1,028,000     -     (131,159 )   -     -     -     896,841  
Shares issued for finders fees 11   5,000     5,000     -     -     3,223     -     -     8,223  
Share subscription 11   -     -     (100,000 )   10,000     -     -     -     (90,000 )
Stock-based compensation 11   -     -     -     -     537,379     -     -     537,379  
Comprehensive loss for the period     -     -     -     -     -     -     (3,764,536 )   (3,764,536 )
                                                 
Balance at June 30, 2017     42,816,587   $ 14,031,482   $ 1,500   $  (1,735,645 ) $  2,891,746   $  39,130   $ (13,733,716 ) $  1,494,497  

During the year ended December 31, 2016, the Company completed a 1:5 forward share split and all references to number of shares have been retroactively adjusted. See note 11 for further details.

The accompanying notes are an integral part of these financial statements 4

Electrameccanica Vehicles Corp.
Statements of Cash Flows
(Unaudited - Expressed in Canadian dollars)

    Three months ended     Six months ended  
    June 30,     June 30,     June 30,     June 30,  
    2017     2016     2017     2016  
Operating activities                        
Loss for the period $  (1,574,967 ) $  (961,071 ) $  (3,764,536 ) $  (2,082,154 )
Adjustments for:                        
   Amortization   30,294     2,197     55,204     3,649  
   Stock-based compensation expense   289,723     235,489     537,379     484,622  
   Interest accretion expense   20,502     -     40,779     -  
Changes in non-cash working capital items:                        
   Receivables   161,302     (15,877 )   87,214     (81,392 )
   Prepaid expenses   (16,997 )   (85,044 )   17,480     (167,295 )
   Inventory   -     -     (3,475 )   14,966  
   Trades payable and accrued liabilities   42,978     23,639     105,393     61,452  
   Advance payable   -     -     -     (50,000 )
   Customer deposits   9,500     250     32,750     244  
Net cash flows used in operating activities   (1,037,665 )   (800,417 )   (2,891,812 )   (1,815,908 )
                         
Investing activities                        
Expenditures on plant and equipment   (10,314 )   (15,961 )   (137,510 )   (31,832 )
Investment   -     -     (100,000 )   -  
Expenditures on intellectual property   (21,190 )   (9,901 )   (35,253 )   (9,901 )
Net cash flows used in investing activities   (31,504 )   (25,862 )   (272,763 )   (41,733 )
                         
Financing activities                        
Proceeds from (repayment of) shareholder loan   -     -     -     (135,000 )
Proceeds on issuance of common shares – net of share issue costs   456,107     1,205,200     837,064     2,445,200  
Net cash flows from financing activities   456,107     1,205,200     837,064     2,310,200  
(Decrease) increase in cash and cash equivalents   (613,062 )   378,921     (2,327,511 )   452,559  
                         
Cash and cash equivalents, beginning   2,201,834     179,995     3,916,283     106,357  
Cash and cash equivalents, ending $  1,588,772   $  558,916   $  1,588,772   $  558,916  
                         
Cash   578,772     558,916     578,772     558,916  
Cash equivalents   1,010,000     -     1,010,000     -  
Cash and cash equivalents, ending $  1,588,772   $  558,916   $  1,588,772   $  558,916  


The accompanying notes are an integral part of these financial statements 5

Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the six months ended June 30, 2017 and 2016

1.

Nature and continuance of operations

   

Electrameccanica Vehicles Corp (the “Company”) was incorporated on February 16, 2015, under the laws of the province of British Columbia, Canada, and its principal activity is the development and manufacturing of single occupancy electric vehicles.

   

The head office and principal address of the Company are located at 102 East 1st Avenue, Vancouver, British Columbia, Canada, V5T 1A4.

   

These financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. As at June 30, 2017 the Company had not commenced commercial production and is not able to finance day to day activities through operations. The Company’s continuation as a going concern is dependent upon the successful results from its electric vehicles manufacturing activities and its ability to attain profitable operations and generate funds there from and/or raise equity capital or borrowings sufficient to meet current and future obligations. These factors indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. Management intends to finance its operations over the next twelve months through private placement of convertible debt and equity capital. Should the Company be unable to continue as a going concern, the net realizable value of its assets may be materially less than the amounts on its statement of financial position.

   
2.

Significant accounting policies and basis of preparation

   

The financial statements were authorized for issue on August 28, 2017 by the directors of the Company.

   

Statement of compliance with International Financial Reporting Standards

These unaudited interim condensed financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) applicable to the preparation of interim financial statements, including International Accounting Standards (“IAS”) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”). These unaudited interim condensed financial statements follow the same accounting policies and methods of application as the most recent annual financial statements of the Company. These unaudited interim condensed financial statements do not include all the information and disclosures required by IFRS for annual financial statements and should be read in conjunction with the annual audited financial statements for the year ended December 31, 2016, which have been prepared in accordance with IFRS as issued by the IASB.

   

Basis of preparation

The financial statements of the Company have been prepared on an accrual basis and are based on historical costs, modified where applicable. The financial statements are presented in Canadian dollars.

   

Significant estimates and assumptions

The preparation of financial statements in accordance with IFRS requires the Company to make estimates and assumptions concerning the future. The Company’s management reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised.

6


Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the six months ended June 30, 2017 and 2016

2.

Significant accounting policies and basis of preparation (cont’d)

   

Estimates and assumptions where there is significant risk of material adjustments to assets and liabilities in future accounting periods include the useful lives of plant and equipment, fair value measurements for financial instruments and share-based payments, and the recoverability and measurement of deferred tax assets.

   

Significant judgments

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


 

-

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

  - the classification of financial instruments; and
  - the calculation of income taxes require judgement in interpreting tax rules and regulations.

Share-based payments
Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to the option reserve. The fair value of options is determined using a Black–Scholes pricing model. The number of options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.

Loss per share
Basic loss per share is calculated by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding in the period. For all periods presented, the loss attributable to common shareholders equals the reported loss attributable to owners of the Company. Fully diluted loss per share is calculated by the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding for the calculation of fully diluted loss per share assumes that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during the period.

Financial instruments
The Company classifies its financial instruments in the following categories: at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale and financial liabilities. The classification depends on the purpose for which the financial instruments were acquired. Management determines the classification of its financial instruments at initial recognition. The Company has no financial instruments classified as fair value through profit or loss, held-to-maturity, or available for sale.

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

7


Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the six months ended June 30, 2017 and 2016

2.

Significant accounting policies and basis of preparation (cont’d)

   

Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortized cost. The Company’s non-derivative financial liabilities consist of trade payables, customer deposits, convertible loan and shareholder loan.

   

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

   

At each reporting date, the Company assesses whether there is objective evidence that a financial instrument has been impaired. Any impairment is recorded in profit or loss. No impairment was required on the Company’s financial instruments.

   

The Company does not have any derivative financial assets and liabilities.

   

Impairment of assets

The carrying amount of the Company’s long-lived assets is reviewed at each reporting date to determine whether there is any indication of impairment. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. An impairment loss is recognized whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognized in the statement of comprehensive loss.

   

The recoverable amount of assets is the greater of an asset’s fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

   

An impairment loss is only reversed if there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount. Any reversal of impairment cannot increase the carrying value of the asset to an amount higher than the carrying amount that would have been determined had no impairment loss been recognized in previous years.

   

Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment.

   

Income taxes

Current income tax:

Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries where the Company operates and generates taxable income.

   

Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

8


Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the six months ended June 30, 2017 and 2016

2.

Significant accounting policies and basis of preparation (cont’d)

   

Deferred income tax:

Deferred income tax is recognized, using the asset and liability method, on temporary differences at the reporting date arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

   

The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.

   

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

   

Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

   

Plant and Equipment

Plant and equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses.

   

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the statement of comprehensive loss during the financial period in which they are incurred.

   

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the statement of comprehensive loss.

   

Amortization is calculated on a straight-line method to write off the cost of the assets to their residual values over their estimated useful lives. The amortization rates applicable to each category of property, plant and equipment are as follows:


  Class of plant and equipment Amortization rate
  Office furniture and equipment 20%
  Shop equipment 20%
  Computer equipment 33%
  Computer software 50%
  Vehicles 33%
  Leasehold improvements over term of lease

Trademarks and Patents
The Company capitalizes legal fees and filing costs associated with the development of its trademarks and patents. Trademarks and patents are depreciated over an estimated useful life of 5 years using the straight-line method, however trademarks or patents with indefinite useful lives are not amortized.

9


Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the six months ended June 30, 2017 and 2016

2.

Significant accounting policies and basis of preparation (cont’d)

   

Research and Development Costs

Research costs are expensed when incurred and are stated net of government grants. Development costs including direct material, direct labour and contract service costs are capitalized as intangible assets when the Company can demonstrate that the technical feasibility of the project has been established; the Company intends to complete the asset for use or sale and has the ability to do so; the asset can generate probable future economic benefits; the technical and financial resources are available to complete the development; and the Company can reliably measure the expenditure attributable to the intangible asset during its development. After initial recognition, internally generated intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses. These costs are amortized on a straight-line basis over the estimated useful life. The Company did not have any development costs that met the capitalization criteria for the period ended June 30, 2017, or in the prior fiscal year.


3.

Accounting standards issued but not yet effective

   

New standard IFRS 9 “Financial Instruments”

   

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

   

The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2018.

   

New standard IFRS 15 “Revenue from Contracts with Customers”

   

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

   

New standard IFRS 16 “Leases”

   

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

   

The Company has not early adopted these new standards and is currently assessing the impact that these standards will have on its financial statements.

10


Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the six months ended June 30, 2017 and 2016

3.

Accounting standards issued but not yet effective (cont’d)

   

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


4.

Receivables


    June 30,     December 31,  
    2017     2016  
Trade receivable $  29,969   $  -  
GST receivable   43,978     155,498  
IRAP contribution receivable   90,000     108,535  
GIC interest receivable   13,807     6,000  
Other   6,316     1,251  
  $  184,070   $  271,284  

5.

Plant and equipment


    Office                                      
    Furniture                                      
    and     Shop     Computer                   Leasehold        
    Equipment     Equipment     Equipment       Software       Vehicles       Improvements       Total  
Cost:                                          
                                           
At December 31, 2015 $  13,500   $  2,938   $     $     $     $ -   $ 16,438  
Additions   10,555     17,216     18,897     -     173,213     12,146     232,027  
At December 31, 2016   24,055     20,154     18,897     -     173,213     12,146     248,465  
Additions   31,268     36,301     17,370     18,713     16,463     17,395     137,510  
At June 30, 2017   55,323     56,455     36,267     18,713     189,676     29,541     385,975  
                                           
Amortization:                                          
                                           
At December 31, 2015   580     49     -     -     -     -     629  
Charge for the year   4,318     2,165     2,514     -     11,666     1,904     22,567  
At December 31, 2016   4,898     2,214     2,514     -     11,666     1,904     23,196  
Charge for the period   4,904     5,476     4,851     3,534     31,719     3,109     53,593  
At June 30, 2017   9,802     7,690     7,365     3,534     43,385     5,013     76,789  
                                           
Net book value:                                          
At December 31, 2016 $  19,157   $  17,940   $  16,383   $ -   $ 161,547   $ 10,242   $ 225,269  
At June 30, 2017 $  45,521   $  48,765   $  28,902   $ 15,179   $ 146,291   $ 24,528   $ 309,186  

11


Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the six months ended June 30, 2017 and 2016

6.

Investment

   

On July 15, 2015, the Company entered into a Joint Operating Agreement (the “Agreement”) with Intermeccanica International Inc. and Henry Reisner, as amended September 19, 2016. The Joint Operating Agreement includes an operating lease agreement, a product assembly agreement and buy-out or merger agreement.

   

Under the buy-out agreement following a qualifying public listing the Company has the right to acquire all the issued and outstanding shares of Intermeccanica (the Call Option”) for a period of 24 months from public listing at a minimum purchase price of $5,000,000, which amount may be increased, dependent on future events, as set out the Agreement. The purchase price shall be paid in a combination of cash and shares of the Company. The Call Option is subject to an initial payment of $100,000 that was made during 2016 and two subsequent annual payments of $100,000 if the Call Option has not yet been exercised. During the period ended June 30, 2017 an additional $100,000 was paid.


7.

Trademarks and patents


         
         
  Cost:      
         
  At December 31, 2015 $  -  
  Additions   25,345  
  At December 31, 2016   25,345  
  Additions   35,253  
  At June 30, 2017   60,598  
         
  Amortization:      
         
  At December 31, 2015   -  
  Charge for the year   -  
  At December 31, 2016   -  
  Charge for the period   1,611  
  At June 30, 2017   1,611  
         
  Net book value:      
  At December 31, 2016 $  25,345  
  At June 30, 2017 $  58,987  

8.

Trade payables and accrued liabilities


      June 30,     December 31,  
      2017     2016  
  Trade payables $  165,143   $  70,401  
  Due to related parties (Note 15)   81,862     79,904  
  Accrued liabilities   348,388     317,695  
    $  595,393   $  486,000  

12


Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the six months ended June 30, 2017 and 2016

9.

Commitments

   

Lease obligations relate to the Company’s rent of office space and warehouse space. The term of the leases expire on November 1, 2020 and July 1, 2020 with the Company holding an option to renew for a further five years for the office space.

   

As at June 30, 2017, future payments required under non-cancellable operating leases contracted for but not capitalized in the financial statements are as follows:


      June 30,     December 31,  
      2017     2016  
  Payable not later than one year $  243,503   $  221,071  
  Payable later than one year and not later than five years   490,171     601,542  
  Payable later than five years   -     -  
    $  733,674   $  882,613  

10. Convertible loan
   

On September 7, 2016, the Company issued an unsecured convertible loan for $300,000. The loan, which is non-interest bearing, matures on September 7, 2017. The loan is convertible, at the holder’s option at any time before maturity into units of the Company at a price of $1.00 per unit or will automatically convert into units of the Company at a price of $1.00 per unit, if prior to maturity the Company has filed an approved registration statement with the US Securities and Exchange Commission and are listed for trading on the OTCQB. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share for a period of five years from date of issue. On October 5, 2016, the Company issued 26,250 units at a price of $1.00 per unit with a fair value of $43,102 for third party finder’s fees regarding the convertible loan.

   

The fair value of the liability component was calculated using a market interest rate for an equivalent non-convertible loan, which the Company determined to be 15%. The residual amount, representing the value of the equity conversion option, is included in shareholders equity as the equity component of the convertible loan. The implicit interest rate for the convertible loan is 15% per annum. The carrying value of the liability component is being accreted to the face value of the convertible loan over the period from issuance to the maturity date.


      June 30,     December 31,  
      2017     2016  
  Proceeds from issue of convertible loan $ 300,000   $  300,000  
  Amount allocated to equity on issue of convertible loan   (39,130 )   (39,130 )
  Convertible loan issue costs   (43,102 )   (43,102 )
  Interest accretion expense   66,687     25,908  
    $ 284,455   $  243,676  

On July 31, 2017 the loan was converted by the holder into units of the Company at a price of $1.00 per unit. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share for a period of five years from date of issue.

13


Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the six months ended June 30, 2017 and 2016

11.

Share capital

   

Authorized share capital

Unlimited number of common shares without par value.

   

On June 22, 2016, the Company completed a stock split of one pre-split common share for five post-split shares. All information related to common shares, options and warrants presented in these financial statements and accompanying notes have been retroactively adjusted to reflect the increased number of common shares resulting from the stock split.

   

Issued share capital

   

At June 30, 2017 the Company had 42,816,587 issued and outstanding common shares (December 31, 2016 – 41,783,587).

   

Private placements

   

On February 8, 2017, the Company completed a private placement of 320,000 units at a price of $1.00 per unit for gross proceeds of $320,000. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share until February 8, 2022. The Company incurred share issue costs of $42,655 relating to this private placement.

   

On March 29, 2017, the Company completed a private placement of 108,000 units at a price of $1.00 per unit for gross proceeds of $108,000. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share until March 29, 2022. The Company incurred share issue costs of $10,417 relating to this private placement.

   

On March 30, 2017, the Company completed a private placement of 100,000 units at a price of $1.00 per unit for gross proceeds of $100,000. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share until March 30, 2022. The Company incurred share issue costs of $12,194 relating to this private placement.

   

On April 17, 2017, the Company completed a private placement of 200,000 units at a price of $1.00 per unit for gross proceeds of $200,000. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share until April 17, 2022. The Company incurred share issue costs of $24,820 relating to this private placement.

   

On April 26, 2017, the Company completed a private placement of 75,000 units at a price of $1.00 per unit for gross proceeds of $75,000. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share until April 26, 2022. The Company incurred share issue costs of $24,820 relating to this private placement.

   

On May 30, 2017, the Company completed a private placement of 200,000 units at a price of $1.00 per unit for gross proceeds of $200,000. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share until May 30, 2022. The Company incurred share issue costs of $13,159 relating to this private placement.

14


Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the six months ended June 30, 2017 and 2016

11.

Share capital (cont’d)

   

On June 29, 2017, the Company completed a private placement of 25,000 units at a price of $1.00 per unit for gross proceeds of $25,000. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share until June 29, 2022. The Company incurred share issue costs of $3,095 relating to this private placement.

   

Basic and fully diluted loss per share

   

The calculation of basic and fully diluted loss per share for the period ended June 30, 2017 was based on the loss attributable to common shareholders of $3,764,536 and the weighted average number of common shares outstanding of 42,315,808. Fully diluted loss per share did not include the effect of stock options and warrants as the effect would be anti-dilutive.

   

Stock options

   

The Company has adopted an incentive stock option plan, which provides that the Board of Directors of the Company may from time to time, in its discretion, grant to directors, officers, employees and technical consultants to the Company, non-transferable stock options to purchase common shares, provided that the number of common shares reserved for issuance will not exceed 60,000,000. Such options will be exercisable for a period of up to 7 years from the date of grant. Options may be exercised no later than 90 days following cessation of the optionee’s position with the Company.

   

Options granted vest one-quarter on the first anniversary subsequent to the grant date and the remaining three-quarters vest in thirty-six (36) equal monthly instalments commencing on the first anniversary of the grant date.

   

On exercise, each option allows the holder to purchase one common share of the Company.

   

The changes in options during period ended June 30, 2017 are as follows:


      June 30, 2017  
            Weighted average  
      Number of options     exercise price  
  Options outstanding, beginning   56,175,000   $  0.19  
  Options granted   1,020,000     1.00  
  Options expired and forfeited   (85,000 )   1.00  
  Options outstanding, ending   57,110,000   $  0.20  

Details of options outstanding as at June 30, 2017 are as follows:

  Weighted average Number of option Number of options
Exercise price contractual life outstandin exercisable
$ 0.15 4.95 years 45,000,000 22,500,000
$ 0.15 5.12 years 2,675,000 1,226,042
$ 0.40 5.45 years 8,400,000 3,150,000
$ 0.40 5.69 years 25,000 7,813
$ 1.00 5.98 years 50,000 12,500
$ 1.00 6.64 years 960,000  
  5.07 years 57,110,000 26,896,355

15


Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the six months ended June 30, 2017 and 2016

11.

Share capital (cont’d)

   

The weighted average grant date fair value of options granted during the period ended June 30, 2017 was $0.74. The fair value was determined using the Black-Scholes option pricing model using the following weighted average assumptions:


    Period ended June 30, 2017
  Expected life of options 5 years
  Annualized volatility 100%
  Risk-free interest rate 1.02%
  Dividend rate 0%

Volatility was determined based on the historical volatility of a similar Company’s share price over a period of time equivalent to the expected life of the option granted. During the period ended June 30, 2017, the Company recognized stock-based compensation expense of $537,379.

Warrants

On exercise, each warrant allows the holder to purchase one common share of the Company. The fair value of the warrants issued as part of the third party finder’s fee at issue date on March 29, 2017 was $3,223 as calculated using the Black-Scholes option pricing model with the same assumptions used for stock options.

The changes in warrants during the period ended June 30, 2017 are as follows:

      June 30, 2017  
            Weighted  
            average  
      Number of warrants     exercise price  
  Warrants outstanding, beginning   18,533,587   $  1.64  
  Warrants issued   1,033,000     2.00  
  Warrants outstanding, ending   19,566,587   $  1.66  

At June 30, 2017, all warrants outstanding were exercisable.
Details of warrants outstanding as at June 30, 2017 are as follows:

    Weighted average Number of warrants
  Exercise price contractual life outstanding
  $0.40-$2.00 4.07 years 19,566,587

12.

Reserve

   

Share-based payment reserve

The share-based payment reserve records items recognized as stock-based compensation expense and other share-based payments until such time that the stock options or warrants are exercised, at which time the corresponding amount will be transferred to share capital. If the options, or warrants expire unexercised, the amount remains in the share-based payment reserve account.

16


Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the six months ended June 30, 2017 and 2016

13.

General and administrative expenses


      Three months ended      Six months ended  
      June 30,     June 30,     June 30,     June 30,  
      2017     2016     2017     2016  
  Rent $  62,409   $  29,865   $  120,693   $  57,334  
  Office Expenses   28,648     11,555     60,697     34,307  
  Legal & Professional   176,552     116,585     353,405     179,331  
  Consulting Fees   93,564     30,230     186,908     59,703  
  Investor Relations   18,354     -     40,577     -  
  Salaries   65,619     18,992     165,675     57,196  
    $  445,146   $  207,227   $  927,955   $  387,871  

14.

Research and development expenses


      Three months ended      Six months ended  
      June 30,     June 30,     June 30,     June 30,  
      2017     2016     2017     2016  
  Labour $  454,914   $  391,872   $  904,337   $  781,993  
  Materials   256,407     144,396     1,194,247     440,378  
  Government grants   (90,000 )   (58,237 )   (193,534 )   (95,462 )
    $  621,321   $ 478,031   $  1,905,050   $  1,126,910  

15.

Related party transactions

   

Related party balances

The following amounts are due to related parties


      June 30,     December 31,  
      2017     2016  
  Due to related parties (Note 8) $  81,862   $  79,904  
    $  81,862   $  79,904  

These amounts are unsecured, non-interest bearing and have no fixed terms of repayment.

Key management personnel compensation

      Three months ended     Six months ended  
      June 30,     June 30,     June 30,     June 30,  
      2017     2016     2017     2016  
  Consulting fees $  45,000   $ 25,000   $  90,000   $  46,500  
  Salary   51,000     7,500     102,000     15,000  
  Deferred salary for CEO   15,000     -     30,000        
  Stock-based compensation   224,255     221,494     426,892     457,841  
    $  335,255   $ 253,994   $  648,892   $  519,341  

17


Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the six months ended June 30, 2017 and 2016

16.

Financial instruments and financial risk management

   

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

   

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s primary exposure to credit risk is on its cash and cash equivalents comprising cash and short-term deposits held in bank accounts. The majority of cash and short-term deposits are deposited in bank accounts held with major financial institutions in Canada. As most of the Company’s cash and short-term deposits are held by one financial institution there is a concentration of credit risk. This risk is managed by using major financial institutions that are high credit quality financial institutions as determined by rating agencies. The Company’s secondary exposure to risk is on its other receivables. This risk is minimal as receivables consist primarily of government grant and refundable government goods and services taxes.

   

Liquidity risk

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

   

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

   

The following is an analysis of the contractual maturities of the Company’s non-derivative financial liabilities as at June 30, 2017:


  At June 30, 2017   Within one     Between one        
      year     and five     More than  
            years     five years  
  Trade payables $  247,005   $  -   $  -  
  Customer deposits   202,250     -     -  
  Convertible loan   284,455              
    $  733,710   $  -   $  -  

  At December 31, 2016   Within one     Between one        
      year     and five     More than  
            years     five years  
  Trade payables $  150,305   $  -   $  -  
  Customer deposits   169,500     -     -  
  Convertible loan   243,676     -     -  
    $  563,481   $  -   $  -  

18


Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the six months ended June 30, 2017 and 2016

16.

Financial instruments and financial risk management (cont’d)

 

Foreign exchange risk

Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company is exposed to currency risk as it incurs expenditures that are denominated in US dollars while its functional currency is the Canadian dollar. The Company does not hedge its exposure to fluctuations in foreign exchange rates.

   

The following is an analysis of Canadian dollar equivalent of financial assets and liabilities that are denominated in US dollars:


      June 30,     December 31,  
      2017     2016  
  Cash and cash equivalents $  180,216   $  98,762  
  Trade payables   (78,605 )   (4,804 )
    $  101,611   $  93,958  

Based on the above net exposures, as at June 30, 2017, a 10% change in the US dollars to Canadian dollar exchange rate would impact the Company’s net loss by $7,838 (December 31, 2016 - $6,992).

Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on its cash equivalents as these instruments have original maturities of twelve months or less and are therefore exposed to interest rate fluctuations on renewal. A 1% change in market interest rates would have an impact on the Company’s net loss of $5,000 for the period ended June 30, 2017 (December 31, 2016 - $39,163)

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

      June 30,     December 31,  
      2017     2016  
  Loans and receivables:            
   Cash and cash equivalents $  1,588,772   $  3,916,283  
   Other receivables   184,070     271,284  
    $  1,772,842   $  4,187,567  

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

      June 30,     December 31,  
      2017     2016  
  Non-derivative financial liabilities:            
   Trade payable $  247,005   $  150,305  
   Customer deposits   202,250     169,500  
   Convertible loan   284,455     243,676  
    $  733,710   $  563,481  

19


Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the six months ended June 30, 2017 and 2016

16.

Financial instruments and financial risk management (cont’d)

   

Fair value

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


 

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

 

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

 

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


17.

Capital management

 

The Company’s policy is to maintain a strong capital base so as to safeguard the Company’s ability to maintain its business and sustain future development of the business. The capital structure of the Company consists of equity. There were no changes in the Company’s approach to capital management during the year. The Company is not subject to any externally imposed capital requirements.

   
18.

Subsequent events

   

On July 13, 2017, the Company completed a private placement of 300,000 units at a price of $1.00 per unit for gross proceeds of $300,000. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share until July 13, 2022. The Company has agreed to pay cash third party finder’s fees of $30,000 relating to this private placement.

   

On July 27, 2017, the Company completed a private placement of 1,500 units at a price of $1.00 per unit for gross proceeds of $1,500. Each unit consists of one common share and one non- transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share until July 27, 2022.

   

On July 31, 2017 the unsecured convertible loan for $300,000 (note 10) was converted by the holder into units of the Company at a price of $1.00 per unit. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share for a period of five years from date of issue.

   

On July 31, 2017, the Company issued an unsecured convertible loan for $1,000,034. The loan, which is non-interest bearing, matures on July 31, 2018. The loan is convertible, at the holder’s option at any time before maturity into units of the Company at a price of $1.00 per unit or will automatically convert into units of the Company at a price of $1.00 per unit, if, prior to maturity the Company’s common shares trade on the over-the-counter OTCQB market (or on such other stock exchange or market on which such common shares are listed at the time and as may be selected for such purposes by the Board of Directors of the Company in its sole discretion) at either a volume weighted average trading price or with a final closing bid price of $2.00 or greater per common share for a period of 10 consecutive trading days. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share for a period of five years from date of issue. The Company has agreed to pay cash third party finder’s fees of $100,003 relating to this convertible loan.

20


Electrameccanica Vehicles Corp.
Notes to the Financial Statements
(Unaudited - Expressed in Canadian dollars)
For the six months ended June 30, 2017 and 2016

18.

Subsequent events (cont’d)

   

On August 9, 2017, the Company completed a private placement of 200,000 units at a price of $1.00 per unit for gross proceeds of $200,000. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share until Aug 9, 2022. The Company has agreed to pay cash third party finder’s fees of $20,000 relating to this private placement.

21


EX-99.2 3 exhibit99-2.htm EXHIBIT 99.2 Electrameccanica Vehicles Corp. - Exhibit 99.2 - Filed by newsfilecorp.com

ELECTRAMECCANICA VEHICLES CORP.
Form 51-102F1 Management's Discussion & Analysis
For the six months June 30, 2017

1.1.1 Date August 28, 2017

Introduction

The following management's discussion and analysis, prepared as of June 30, 2017, is a review of operations, current financial position and outlook for ElectraMeccanica Vehicles Corp., (the "Company") and should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2016 and the notes thereto. The reader should also refer to the annual audited financial statements for the year ended December 31, 2015. Amounts are reported in Canadian dollars based upon financial statements prepared in accordance with International Financial Reporting Standards. Additional information relevant to the Company's activities can be found on SEDAR at www.sedar.com.

Forward-Looking Statements

Certain statements contained in the following Management’s Discussion and Analysis (MD&A) constitute forward-looking statements. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements.

Risks and Uncertainties

A going concern assessment is outlined in Note 1 of the financial statements.

1.2 Overall Performance

Description of Business

The Company was incorporated on February 16, 2015, under the laws of the province of British Columbia, Canada, and its principal activity is the development and manufacturing of single occupancy electric vehicles.

The head office and principal address of the Company are located at 102 East 1st Avenue, Vancouver, British Columbia, Canada, V5T 1A4.

Additional information related to the Company is available on SEDAR at www.sedar.com.

Performance Summary

The following is a summary of significant events and transactions that occurred during the six months ended June 30, 2017:

The Company introduced its second electric vehicle, the Tofino, to the public at the Vancouver International Auto Show show held at the Vancouver Convention Centre, Vancouver, British Columbia on March 28, 2017.

The Company started its deliveries to customers during the 3 months to June 30, 2017.


During the six months ended June 30, 2017, the Company raised gross proceeds of $528,000 from private placements.

Financings

During the six months ended June 30, 2017, the Company issued the following shares;

Issuance of Shares Number of Shares Issued Cash Proceeds
Private Placements 1,033,000 $ 1,028,000
Finders Fee 5,000 $ Nil
Share issued costs Nil $ 131,159

On July 13, 2017, the Company completed a private placement of 300,000 units at a price of $1.00 per unit for gross proceeds of $300,000. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share until July 13, 2022. The Company has agreed to pay cash third party finder’s fees of $30,000 relating to this private placement.

On July 27, 2017, the Company completed a private placement of 1,500 units at a price of $1.00 per unit for gross proceeds of $1,500. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share until July 27, 2022.

On July 31, 2017 the unsecured convertible loan for $300,000 (note 10) was converted by the holder into units of the Company at a price of $1.00 per unit. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share for a period of five years from date of issue.

On July 31, 2017, the Company issued an unsecured convertible loan for $1,000,034. The loan, which is non-interest bearing, matures on July 31, 2018. The loan is convertible, at the holder’s option at any time before maturity into units of the Company at a price of $1.00 per unit or will automatically convert into units of the Company at a price of $1.00 per unit, if, prior to maturity the Company’s common shares trade on the over-the-counter OTCQB market (or on such other stock exchange or market on which such common shares are listed at the time and as may be selected for such purposes by the Board of Directors of the Company in its sole discretion) at either a volume weighted average trading price or with a final closing bid price of $2.00 or greater per common share for a period of 10 consecutive trading days. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share for a period of five years from date of issue. The Company has agreed to pay cash third party finder’s fees of $100,003 relating to this convertible loan.

On August 9, 2017, the Company completed a private placement of 200,000 units at a price of $1.00 per unit for gross proceeds of $200,000. Each unit consists of one common share and one non-transferable common share purchase warrant with each warrant entitling the subscriber to acquire one additional share at a price of $2 per warrant share until Aug 9, 2022. The Company has agreed to pay cash third party finder’s fees of $20,000 relating to this private placement.


Incentive Stock Options

During the six months ended June 30, 2017, the Company granted 1,020,000 additional stock options with an exercise price of $1.00 per share, which options will expire on February 17, 2023. The following table represents the number of stock options that are outstanding as at June 30, 2017.

Date of Grant Number of Options Price Per Option Expiry Date
June 11, 2015 45,000,000 $0.15 June 11, 2022
August 13, 2015 2,675,000 $0.15 August 13, 2022
December 9, 2015 8,400,000 $0.40 December 9, 2022
March 7, 2016 25,000 $0.40 March 7, 2023
June 21, 2016 75,000 $1.00 June 21, 2023
February 17, 2017 935,000 $1.00 February 17, 2023

1.2 Selected Annual Financial Information


Year Ended
December 31, 2016
From inception to
December 31, 2015
Operations: $ $
Amortisation 22,567 629
General & Administration Exp. 1,205,835 132,870
Research & Development Exp. 2,778,295 486,809
Sales & Marketing Exp. 209,455 19,691
Stock-based compensation Exp. 1,461,189 354,015
Share-based payment Exp. 3,264,681 Nil
Subtotal (8,942,022) (994,014)
Accretion Interest Exp. 25,908 92
Foreign exchange loss 5,417 1,727
Loss for the Period (8,973,347) (995,833)
Basic & Diluted Loss per Share (0.27) (0.04)
     
Balance Sheet    
Working Capital 3,555,976 (149,107)
Total Assets 4,787,766 213,118
Total Long Term    
Liabilities Nil Nil


1.3 Results of Operations

Three months ended June 30, 2017

During the quarter ended June 30, 2017, the Company incurred a comprehensive loss of $1,574,967 compared to $961,071 loss for the corresponding period. The largest expense items that resulted in an increase in net comprehensive loss for the quarter ended June 30, 2017 were;

General and administrative expenses for quarter ended June 30, 2017 were $445,146 compared to $207,227 for the quarter ended June 30, 2016. The following items are included in office and general expenses;

  • Rent increased to $62,409, for the quarter ended June 30, 2017, from $29,865 for the corresponding quarter ended June 30, 2016. The increase was caused by the increase in the Company’s production premises as it expands its production capabilities to produce the SOLO and an increase in its retail presence
  • Office expenses increased to $28,648, for the quarter ended June 30, 2017, from $11,555 for the corresponding quarter ended June 30, 2016. As the Company increases its staffing levels, office expenses will increase as well.
  • Legal & Professional increased to $176,552, for the quarter ended June 30, 2017, from $116,585 for the corresponding quarter ended June 30, 2016. The majority of the legal expenses was due to the Company’s filing of its application for a ticker symbol to the Financial Industry Regulation Authority (FINRA) in the United States of America and other legal costs associated with contracts, together with professional fees associated with the filing of its amended F1 registration statement.
  • Consulting fees increased to $93,564, for the quarter June 30, 2017, from $30,230 for the corresponding quarter ended June 30, 2016. Consulting fees relate to services provided for accounting, finance and corporate advisory services.

Research and development expenses increased to $621,321 for the quarter ended June 30, 2017, from $478,031 for the corresponding quarter ended June 30, 2016. The Company continues to develop its first electric vehicle, the SOLO. All costs related to pre-production vehicles are being expensed to research and development. During the quarter ended June 30, 2017, the Company received $90,000 (2016: $58,237) in government grants.

Sales and marketing expenses increased to $165,972 for the quarter ended June 30, 2017, from $38,560 for the corresponding quarter ended June 30, 2016. The Company has increased its sales and marketing efforts by opening retail stores, increasing its social media presence and increasing its staff as its first electric vehicle, the SOLO, nears production.

Stock-based compensation charges for the quarter ended June 30, 2017 were $289,723 (2016: $235,489). The Company issued 1,020,000 stock options at an exercise price of $1.00 per share during the quarter ended March 31, 2017. In addition, the stock-based compensation charges relate to stock options issued during previous quarters where charges are recognised over the stock option vesting period. The Company uses the Black-Scholes method of calculating the stock-based compensation expense under the graded method.


The operating expenses for the quarter ended June 30, 2017 increased to $1,552,456 (2016: $961,504); the increase in operating loss was caused by the aforementioned expenses for the year.

The Company incurred an interest accretion expense of $20,502 for the quarter ended June 30, 2017 (2016: $nil), relating to a convertible loan (note 10 in the financial statements for the six months ended June 30, 2017). The Company also had a foreign exchange gain of $2,009 (2016: $(433)).

Net loss and comprehensive loss of the quarter ended June 30, 2017 was $1,574,967 (2016: $961,071).

Six months ended June 30, 2017

During the six months ended June 30, 2017, the Company incurred a comprehensive loss of $3,764,536 compared to $2,082,154 loss for the corresponding period. The largest expense items that resulted in an increase in net comprehensive loss for the six months ended June 30, 2017 were;

General and administrative expenses for quarter ended June 30, 2017 were $927,955 compared to $387,871 for the six months ended June 30, 2016. The following items are included in office and general expenses;

  • Rent increased to $120,694, for the six months ended June 30, 2017, from $57,334 for the corresponding period ended June 30, 2016. The increase was caused by the increase in the Company’s production premises as it expands its production capabilities to produce the SOLO and an increase in its retail presence
  • Office expenses increased to $60,698, for the six months ended June 30, 2017, from $34,307 for the corresponding quarter ended June 30, 2016. As the Company increases its staffing levels, office expenses will increase as well.
  • Legal & Professional increased to $353,405, for the six months ended June 30, 2017, from $179,331 for the corresponding period ended June 30, 2016. The majority of the legal expenses was due to the Company’s filing of its application for a ticker symbol to the Financial Industry Regulation Authority (FINRA) in the United States of America and other legal costs associated with contracts, together with professional fees associated with the filing of its amended F1 registration statement.
  • Consulting fees increased to $186,908, for the six months June 30, 2017, from $59,703 for the corresponding period ended June 30, 2016. Consulting fees relate to services provided for accounting, finance and corporate advisory services.

Research and development expenses increased to $1,905,050 for the six months ended June 30, 2017, from $1,126,910 for the corresponding period ended June 30, 2016. The Company continues to develop its first electric vehicle, the SOLO. All costs related to pre-production vehicles are being expensed to research and development. During the six months ended June 30, 2017, the Company received $193,534 (2016: $95,462) in government grants.

Sales and marketing expenses increased to $290,238 for the six months ended June 30, 2017, from $76,060 for the corresponding period ended June 30, 2016. The Company has increased its sales and marketing efforts by opening retail stores, increasing its social media presence and increasing its staff as its first electric vehicle, the SOLO, nears full production.


Stock-based compensation charges for the six months ended June 30, 2017 were $537,379 (2016: $484,622). The Company issued 1,020,000 stock options at an exercise price of $1.00 per share during the six months ended June 30, 2017. In addition, the stock-based compensation charges relate to stock options issued during previous quarters where charges are recognised over the stock option vesting period. The Company uses the Black-Scholes method of calculating the stock-based compensation expense under the graded method.

The operating expenses for the six months ended June 30, 2017 increased to $3,715,826 (2016: $2,079,112); the increase in operating loss was caused by the aforementioned expenses for the year.

The Company incurred an interest accretion expense of $40,779 for the six months ended June 30, 2017 (2016: $nil), relating to a convertible loan (note 10 in the financial statements for the six months ended June 30, 2017). The Company also had a foreign exchange gain of $7,931 (2016: $3,042).

Net loss and comprehensive loss of the six months ended June 30, 2017 was $3,764,536 (2016: $2,082,154).

1.5 Summary of Quarterly Results

The following table sets forth selected financial information of the Company for each of the last eight quarters:

Quarter Ending

Note

Expenses
$
Net Loss
$
Basic and diluted net
loss per share
$
June 30, 2017   (1,552,456) (1,574,967) (0.04)
March 31, 2017   (2,163,370) (2,189,569) (0.05)
December 31, 2016 1 (5,400,888) (5,400,888) (0.14)
September 30, 2016   (1,453,885) (1,453,885) (0.05)
June 30, 2016   (961,071) (961,071) (0.03)
March 31, 2016   (1,121,083) (1,121,083) (0.04)
December 31, 2015   (525,333) (525,333) (0.02)
September 30, 2015   (291,953) (291,953) (0.01)

Note 1– The Company incurred a share-based payment charge of $3,264,681.

1.6 Liquidity and Capital Resources

The Company’s operations consist of the designing, developing and manufacturing of electric vehicles. The Company’s financial success is dependent upon its ability to market and sell its electric vehicles; and to raise sufficient working capital to enable the Company to execute its business plan. The Company’s historical capital needs have been met by the sale of the Company’s stock. There is no assurance that equity funding will be possible at the times required by the Company. If no funds are can be raised and sales of its electric vehicles does not produce sufficient net cash flow, then the Company may require a significant curtailing of operations to ensure its survival.


The financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company incurred a net loss and comprehensive loss of $3,764,536 during the six months ended June 30, 2017 and has a cash balance and a working capital surplus of $1,588,772 and $926,324, respectively, as at June 30, 2017.The Company’s ability to meet its obligations as they fall due and to continue to operate as a going concern is dependent on the continued financial support of the creditors and the shareholders. In the past, the Company has relied on sales of its equity securities to meet its cash requirements. There can be no assurance that funding from this or other sources will be sufficient in the future to continue its operations. Even if the Company is able to obtain new financing, it may not be on commercially reasonable terms or terms that are acceptable to it. Failure to obtain such financing on a timely basis could cause the Company to reduce or terminate its operations. The above indicates the existence of a material uncertainty that may cast significant doubt on the Company’s ability to continue as a going concern.

As of June 30, 2017, the Company had 42,816,587 issued and outstanding shares and 119,493,174 shares on a fully diluted basis. Since the Company is seeking a public listing there can be no assurances that any stock options and warrants will be exercised until the Company attains its public listing and the market price of its stock will be above the exercise price of its stock options and warrants.

The Company had $926,324, of working capital surplus as at June 30, 2017 compared to $3,555,976 working capital surplus as at December 31, 2016. The decrease in working capital surplus resulted from the cash used in operations of $2,891,812, (2016: $1,815,908); cash used in investing activities of $272,763 (2016: $41,733); which was offset by financing activities generating cash of $837,064, (2016: $2,310,200), due to the issuance of 1,028,000 common shares for net cash proceeds of $837,064 (2016: $2,445,200).

1.7 Capital Resources

As at June 30, 2017, the Company had cash and cash equivalents of $1,588,772 (2016: $3,916,283). The Company is aggressively pursuing equity financing and there can be no guarantees that the Company will be successful in its endeavors.

As of the date of this MD&A, the Company has no outstanding commitments, other than rent and lease commitments. The Company has not pledged any of its assets as security for loans, or otherwise and is not subject to any debt covenants.

1.8 Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

1.9 Transactions with Related Parties

Related party balances
The following amounts are due to related parties

      June 30,     December 31,  
      2017     2016  
  Due to related parties   81,862     79,904  
  $ 81,862   $  79,904  


These amounts are unsecured, non-interest bearing and have no fixed terms of repayment.

Key management personnel compensation

      Three months ended     Six months ended  
      June 30,     June 30,     June 30,     June 30,  
      2017     2016     2017     2016  
  Consulting fees $  45,000   $ 25,000   $  90,000   $  46,500  
  Salary   51,000     7,500     102,000     15,000  
  Deferred salary for CEO   15,000     -     30,000     -  
  Stock-based compensation   224,255     221,494     426,892     457,841  
    $  335,255   $ 253,994   $  648,892   $  519,341  

1.10 Critical Accounting Estimates.

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

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

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

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

1.11 Changes in Accounting Policies including Initial Adoption

See Note 1 of the Company's financial statements for the six months ended June 30, 2017.

Going concern issue

These financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. As at June 30, 2017, the Company had not commenced commercial production and is not able to finance day to day activities through operations. The Company’s continuation as a going concern is dependent upon the successful results from its electric vehicles manufacturing activities and its ability to attain profitable operations and generate funds there from and/or raise equity capital or borrowings sufficient to meet current and future obligations. These factors indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. Management intends to finance its operations over the next twelve months through private placement of equity capital. Should the Company be unable to continue as a going concern, the net realizable value of its assets may be materially less than the amounts on its statement of financial position.


Internal control over financial reporting and disclosure controls and procedures

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

Current disclosure controls include meetings with the CEO, chief financial officer and members of the Board of Directors and audit committee through e-mails, on telephone conferences and informal meetings to review public disclosure. All public disclosures are reviewed by certain members of senior management and the board of directors and audit committee of the Board of Directors has delegated the duties to the chief executive officer who is primarily responsible for financial and disclosure controls.

Management and the board of directors continue to work to mitigate the risk of material misstatement.

Risk and uncertainties

We have a limited operating history and have not yet generated any revenues.

Our limited operating history makes evaluating our business and future prospects difficult. We were formed in February 2015 and we have not yet begun producing or delivering our first vehicle. To date, we have no revenues. We intend in the longer term to derive substantial revenues from the sales of our SOLO vehicle and other intended elective vehicles. The SOLO is in development, and we have started to deliver the SOLO to our customers. However, the SOLO vehicle requires significant investment prior to commercial production and may not be successfully developed or commercially successful.

It is anticipated that we will experience an increase in losses prior to the launch of the SOLO.

For the six months ended June 30, 2017, we generated a loss of $3,764,536, bringing our accumulated deficit to $13,733,716. We anticipate generating a significant loss for the current fiscal year. The independent auditor’s report on our financial statements includes an explanatory paragraph relating to our ability to continue as a going concern.

We have no revenues, are currently in debt and expect significant increases in costs and expenses to forestall revenues for the foreseeable future. Even if we are able to successfully develop the SOLO, there can be no assurance that we will be commercially successful. If we are to achieve profitability we must have a successful commercial introduction and acceptance of the SOLO, which may not occur.


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

design, develop and manufacture the SOLO and its components;
   
design and develop the Tofino and its components for a launch in 2019;
   
develop and equip our manufacturing facility;
   
build up inventories of parts and components for the SOLO;
   
open Electrameccanica stores;
   
expand our design, development, maintenance and repair capabilities;
   
develop and increase our sales and marketing activities; and
   

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

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

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

We have made significant up-front investments in research and development, sales and marketing, and general and administrative expenses in order to rapidly develop and expand our business. We are currently incurring expenditures related to our operations that have generated a negative operating cash flow. Operating cash flow may decline in certain circumstances, many of which are beyond our control. There is no assurance that sufficient revenues will be generated in the near future. Because we continue to incur such significant future expenditures for research and development, sales and marketing, and general and administrative expenses, we may continue to experience negative cash flow until we reach a sufficient level of sales with positive gross margins to cover operating expenses. An inability to generate positive cash flow until we reach a sufficient level of sales with positive gross margins to cover operating expenses or raise additional capital on reasonable terms will adversely affect our viability as an operating business.

We will need a significant amount of capital to carry out our proposed business plan, and unless we are able to raise sufficient funds we may be forced to discontinue our operations.

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

We intend to raise our cash requirements for the next 12 months through the sale of our equity securities in private placements, through shareholder loans or possibly through a registered public offering (either self-underwritten or through a broker-dealer). If we are unsuccessful in raising enough funds through such capital-raising efforts, we may review other financing possibilities such as bank loans. There is no assurance that any financing will be available to us or if available, on terms that will be acceptable to us. We intend to negotiate with our management and consultants to pay parts of their salaries and fees with stock and stock options instead of cash.


Our ability to obtain the necessary financing to carry out our business plan is subject to a number of factors, including general market conditions and investor acceptance of our business plan. These factors may make the timing, amount, terms and conditions of such financing unattractive or unavailable to us. If we are unable to raise sufficient funds, we will have to significantly reduce our spending, delay or cancel our planned activities or substantially change our current corporate structure. There is no guarantee that we will be able to obtain any funding or that we will have sufficient resources to conduct our business as projected, any of which could mean that we will be forced to discontinue our operations.

Terms of subsequent financings may adversely impact current investment.

We may have to engage in common equity, debt, or preferred stock financing in the future. The rights and the value of investment in our common stock could be reduced. Interest on debt securities could increase costs and negatively impacts operating results. In addition, if we need to raise more equity capital from the sale of common stock, institutional or other investors may negotiate terms at least as, and possibly more, favorable than the terms of our current shareholders. Shares of common stock which we sell could be sold into any market which develops, which could adversely affect the market price.

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

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

perceptions about electric vehicle quality, safety (in particular with respect to lithium-ion battery packs), design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of electric vehicles;

   

perceptions about vehicle safety in general, in particular safety issues that may be attributed to the use of advanced technology, including vehicle electronics and braking systems;

   

the limited range over which electric vehicles may be driven on a single battery charge;

   

the decline of an electric vehicle’s range resulting from deterioration over time in the battery’s ability to hold a charge;




concerns about electric grid capacity and reliability, which could derail our efforts to promote electric vehicles as a practical solution to vehicles which require gasoline;

 

 

the availability of alternative fuel vehicles, including plug-in hybrid electric vehicles;

 

 

improvements in the fuel economy of the internal combustion engine;

 

 

the availability of service for electric vehicles;

 

 

the environmental consciousness of consumers;

 

 

volatility in the cost of oil and gasoline;

 

 

government regulations and economic incentives promoting fuel efficiency and alternate forms of energy;

 

 

access to charging stations, standardization of electric vehicle charging systems and consumers’ perceptions about convenience and cost to charge an electric vehicle;

 

 

the availability of tax and other governmental incentives to purchase and operate electric vehicles or future regulation requiring increased use of nonpolluting vehicles; and

 

 

perceptions about and the actual cost of alternative fuel.

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

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

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

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

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


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

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

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

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

Demand in the vehicle industry is highly volatile.

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

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

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


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

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

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

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

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

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

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

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

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

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


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

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

We have very limited experience servicing our vehicles. As of December 31, 2016 we had not sold any SOLOs as we do not plan to begin production of any SOLO vehicles until early second quarter of 2017, and do not have any experience servicing these cars as they do not exist currently. Servicing electric vehicles is different than servicing vehicles with internal combustion engines and requires specialized skills, including high voltage training and servicing techniques.

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

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

   

disruption in the supply of cells due to quality issues or recalls by the battery cell manufacturers; and

   

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

Our business is dependent on the continued supply of battery cells for our vehicles. Any disruption in the supply of battery cells from our supplier could temporarily disrupt the planned production of the SOLO until such time as a different supplier is fully qualified. Moreover, battery cell manufacturers may choose to refuse to supply electric vehicle manufacturers to the extent they determine that the vehicles are not sufficiently safe. Furthermore, current fluctuations or shortages in petroleum and other economic conditions may cause us to experience significant increases in freight charges and raw material costs. Substantial increases in the prices for our raw materials would increase our operating costs, and could reduce our margins if we cannot recoup the increased costs through increased electric vehicle prices. There can be no assurance that we will be able to recoup increasing costs of raw materials by increasing vehicle prices. We have also already announced an estimated price for the base model of our planned SOLO. However, any attempts to increase the announced or expected prices in response to increased raw material costs could be viewed negatively by our potential customers, result in cancellations of SOLO reservations and could materially adversely affect our brand, image, business, prospects and operating results.


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

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

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

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

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

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


Our business may be adversely affected by union activities.

Although none of our employees are currently represented by a labor union, it is common throughout the automobile industry generally for many employees at automobile companies to belong to a union, which can result in higher employee costs and increased risk of work stoppages. As we expand our business to include full in-house manufacturing of our SOLO vehicle, there can be no assurances that our employees will not join or form a labor union or that we will not be required to become a union signatory. We are also directly or indirectly dependent upon companies with unionized work forces, such as parts suppliers and trucking and freight companies, and work stoppages or strikes organized by such unions could have a material adverse impact on our business, financial condition or operating results. If a work stoppage occurs, it could delay the manufacture and sale of our electric vehicles and have a material adverse effect on our business, prospects, operating results or financial condition.

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

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

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

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


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

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

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

 

 

pay substantial damages;

 

 

seek a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all;

 

 

redesign our vehicles or other goods or services; or

 

 

establish and maintain alternative branding for our products and services.

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

1.14 Financial Instruments and Other Instruments

See Note 16 to the Company's financial statements for the six months ending June 30, 2017.


1.15 Additional Information

HEAD OFFICE  
102 East 1st Avenue  
Vancouver, BC  
V5T 1A4 CAPITALIZATION
  (as at August 28, 2017)
Tel: (604) 428 - 7656 Shares Authorized: Unlimited
  Shares Issued: 43,318,087
Email: info@electrmeccanica.com  
OFFICERS & DIRECTORS REGISTRAR TRANSFER AGENT
Jerry Kroll, Computershare
President, CEO and Director 3rd Floor, 510 Burrard Street
  Vancouver, BC, V6C 3B9
Kulwant Sandher, B.Sc., CPA, CA  
Chief Financial Officer  
   
Shaun Greffard AUDITORS
Director DMCL LLP
  1500 - 1140 West Pender Street, Vancouver,
  BC
   
Robert Tarzwell LEGAL COUNSEL
Director McMillan LLP
  Royal Centre, 1500 - 1055 W. Georgia Street
  Vancouver, BC, V6E 4N7


EX-99.3 4 exhibit99-3.htm EXHIBIT 99.3 Electrameccanica Vehicles Corp. - Exhibit 99.3 - Filed by newsfilecorp.com

Form 52-109FV2
Certification of Interim Filings
Venture Issuer Basic Certificate

I, Jerry Kroll, Chief Executive Officer of Electrameccanica Vehicles Corp. certify the following:

1.

Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Electrameccanica Vehicles Corp. (the “issuer”) for the interim period ended June 30, 2017.

   
2.

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

   
3.

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

Date: August 28, 2017

“Jerry Kroll”                                          
Jerry Kroll
Chief Executive Officer

 NOTE TO READER
 

In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of

 

i)

controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

   

ii)

a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52- 109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.

 

1


EX-99.4 5 exhibit99-4.htm EXHIBIT 99.4 Electrameccanica Vehicles Corp. - Exhibit 99.4 - Filed by newsfilecorp.com

Form 52-109FV2
Certification of Interim Filings
Venture Issuer Basic Certificate

I, Kulwant Sandher, Chief Financial Officer of Electrameccanica Vehicles Corp. certify the following:

1.

Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Electrameccanica Vehicles Corp. (the “issuer”) for the interim period ended June 30, 2017.

   
2.

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

   
3.

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

Date: August 28, 2017

“Kulwant Sandher”                                      
Kulwant Sandher
Chief Financial Officer

 NOTE TO READER
 

In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of

 

i)

controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

   

ii)

a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52- 109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.

 

1