UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
| | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
For the transition period from to
Commission File No.
SONO GROUP N.V.
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
The
(Jurisdiction of incorporation or organization)
+49 (0)89 4520 5818
(Address of principal executive offices)
Chief Executive Officer &
Chief Financial Officer
Sono Group N.V.
+49
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class: | Trading Symbol(s) | Name of each exchange on which registered: |
| Not Applicable | Not Applicable | Not Applicable |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act of 1934. Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company.
Large accelerated filer ☐ Accelerated filer ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
† The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.
| U.S. GAAP ☐ | | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company. Yes
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)**
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
**As described in more detail in this Annual Report , the issuer was involved in preliminary self-administration proceedings under German insolvency law before the local court of Munich, Germany from mid-May 2023 through January 31, 2024 Since no insolvency plan providing for the distribution of securities was confirmed by the court, the issuer has not checked either of the boxes above.
TABLE OF CONTENTS
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We conduct our business through our subsidiary Sono Motors GmbH, a German limited liability company (Gesellschaft mit beschränkter Haftung) (the “Subsidiary”). Unless otherwise indicated or the context otherwise requires, the terms “Sono Motors,” “the Companies,” “we,” “our,” “ours,” “ourselves,” “us” or similar terms refer to Sono Group N.V. together with its subsidiary. The “Company” refers to Sono Group N.V. and the “Subsidiary” refers to Sono Motors GmbH. The Companies believe they are a pioneer in the field of solar-powered mobility applications. After terminating the Sion passenger car program (“Sion”) due to a lack of available funding at the end of February 2023, the Companies pivoted their business model to focus exclusively on retrofitting and integrating their proprietary solar technology onto third party vehicles, with an initial focus in the short- to medium-term on the Solar Bus Kit and similar retrofit solar products. For more information on the Companies, see “Item 4. Information on the Company—B. Business Overview”.
The Self-Administration Proceedings and the Yorkville Investment
On May 15, 2023, based on management’s conclusion that the Company was over-indebted and faced impending illiquidity (drohende Zahlungsunfähigkeit), the Company applied to the insolvency court of the local court of Munich, Germany (the “Court”), to permit the opening of a self-administration proceeding (Eigenverwaltung) with respect to the Company pursuant to Section 270 (b) of the German Insolvency Code (Insolvenzordnung). On the same day and for the same reason, the Subsidiary applied to the Court to permit the opening of a self-administration proceeding in the form of a protective shield proceeding (Schutzschirmverfahren) with respect to the Subsidiary pursuant Section 270 (d) of the German Insolvency Code (collectively, the “Self-Administration Proceedings”). On May 17, 2023 and May 19, 2023, the Court admitted the opening of Self-Administration Proceedings on a preliminary basis (the “Preliminary Self-Administration Proceedings”) with respect to the Company and the Subsidiary, respectively. On September 1, 2023, the Court opened the Self-Administration Proceedings with respect to the Subsidiary (the “Subsidiary Self-Administration Proceedings”).
On January 31, 2024, the Subsidiary withdrew its application for Preliminary Self-Administration Proceedings. The Subsidiary exited its Self-Administration Proceedings on February 29, 2024 via its plan under the German Insolvency Code (the “Plan”), which set out how the Subsidiary intended to restructure its debt and procure the inflow of new cash, including pursuant to a funding commitment from YA II PN, Ltd. (“Yorkville”), in connection with which Yorkville committed to provide financing to the Company (the “First Commitment”) subject to the Companies’ continued compliance with the terms of the Yorkville Agreements (as defined herein). The funding of the first tranche of the investment from Yorkville occurred on February 6, 2024 for €4.0 million, or USD 4,317,600 (the “First Tranche”). On April 30, 2024, Yorkville committed additional financing to the Company (the “Second Commitment” and together with the First Commitment, the “Yorkville Investment”) by way of an amendment to the Funding Commitment Letter (as defined herein) issued by Yorkville to the Company in connection with the First Commitment. For more information on the Yorkville Investment and the transactions contemplated and entered into in connection therewith (the “Transactions”), see “Item 4. Information on the Company—B. Business Overview—Overview—The Yorkville Investment”. For more information about the Self-Administration Proceedings, see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings—The Self-Administration Proceedings”.
Despite the Companies’ emergence from their respective Self-Administration Proceedings, the Yorkville Investment remains subject to a number of contingencies and risks, including, among others, (i) whether the Companies are able to successfully comply with the terms of the Yorkville Agreements so as to gain access to the unfunded portion of the Yorkville Investment, and (ii) the absence of any Termination Event (as defined herein) or any event of default. For more information see “Item 3. Key Information—D. Risk Factors—Risks Related to the Yorkville Investment” and “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings—The Self-Administration Proceedings”.
The forward-looking information in this Annual Report is subject to, and qualified in its entirety by, the risk factors discussed herein. For more information see “Item 3. Key Information—D. Risk Factors”.
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
We report under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Our consolidated financial statements are reported in euros, which are denoted “euros,” “EUR” or “€” throughout this Annual Report and refer to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the treaty establishing the European Community, as amended. Also, throughout this Annual Report, the terms “dollar,” “USD” or “$” refer to U.S. dollars.
Financial information is presented in thousands or millions, and percentage figures have been rounded. Rounded total and subtotal figures in tables in this Annual Report may differ marginally from unrounded figures indicated elsewhere in this Annual Report or in the financial statements. Moreover, rounded individual figures and percentages may not produce the exact arithmetic totals and subtotals indicated elsewhere in this Annual Report.
We obtained the industry, market and competitive position data in this Annual Report from our own internal estimates, surveys, and research as well as from publicly available information, industry and general publications and research, surveys and studies conducted by third parties, including, but not limited to, Bloomberg New Energy Finance (“BloombergNEF”), the International Energy Agency (IEA) and the German Federal Ministry for Economic Affairs and Climate Action (Bundesministerium für Wirtschaft und Klimaschutz).
Industry publications, research, surveys, studies and forecasts generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in this Annual Report. These forecasts and forward-looking information are subject to uncertainty and risk due to a variety of factors, including those described under “Item 3. Key Information.” These and other factors could cause results to differ materially from those expressed in our forecasts or estimates or those of independent third parties.
TRADEMARKS, SERVICE MARKS AND TRADE NAMES
We have proprietary rights to trademarks used in this Annual Report that are important to our business, many of which are registered under applicable intellectual property laws. Solely for convenience, the trademarks, service marks, logos and trade names referred to in this Annual Report are without the ® and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.
This Annual Report contains additional trademarks, service marks and trade names of others, which are the property of their respective owners. All trademarks, service marks and trade names appearing in this Annual Report are, to our knowledge, the property of their respective owners. We do not intend our use or display of other companies’ trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements that relate to our current expectations and views of future events. These statements relate to events that involve known and unknown risks, uncertainties and other factors, including those listed under “Risk Factors,” which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, these forward-looking statements can be identified by words or phrases such as “believe,” “may,” “will,” “expect,” “estimate,” “could,” “should,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar or comparable expressions. These forward-looking statements include all matters that are not historical facts. Forward-looking statements contained in this Annual Report include, but are not limited to, statements about:
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our expectations regarding our ability to access the unfunded portion of the Yorkville Investment, including our ability to successfully comply with the Yorkville Agreements and the absence of any Termination Event or any event of default; |
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our ability to maintain relationships with lenders, suppliers, customers, employees and other third parties in light of the performance and credit risks associated with our constrained liquidity position and capital structure; |
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the Subsidiary’s ability to comply with its obligations under the Plan and related agreements in connection with its exit from the Subsidiary Self-Administration Proceedings; |
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our status as a foreign private issuer under the Exchange Act; |
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following the delisting of our ordinary shares from The Nasdaq Global Market (“Nasdaq”) in February 2024, our ability to have our ordinary shares admitted to trading on OTCQB and to comply with OTCQB continuing standards, as well as our ability to have our shares admitted to trading on a stock exchange in the future, including our ability to meet the relevant initial listing requirements and to pay for all costs associated with an initial listing; |
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our strategies, plan, objectives and goals, including, for example: |
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the successful implementation and management of the pivot of our business to exclusively retrofitting and integrating our solar technology onto third party vehicles, with an initial focus in the short- to medium-term on our Solar Bus Kit and similar retrofit solar products; and |
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the successful development, launch of sales and delivery of our Solar Bus Kit, as well as the continuous advancement of our current technologies and development of new technologies; |
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our ability to raise the additional funding required beyond the Yorkville Investment, if we are able to successfully access the unfunded portion of the investment as planned , to further develop and commercialize our solar technology and business as well as to continue as a going concern; |
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our future business and financial performance, including our ability to turn profitable, scale our operations and build a well-recognized and respected brand cost-effectively; |
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our ability to achieve customer acceptance of and demand for our products, including by developing and maintaining relationships with key business partners who are crucial for our operations or who directly deal with end users in our target market; and |
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our expectations regarding the development of our industry, market size and the regulatory and competitive environment in which we operate. |
These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions, many of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Annual Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industries in which we operate are consistent with the forward-looking statements contained in this Annual Report, those results or developments may not be indicative of results or developments in subsequent periods. Actual outcomes may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the risk factors set forth in “Item 3. Key Information”.
The Self-Administration Proceedings we have applied for and our business are subject to numerous risks, as more fully described in “Item 3. Key Information—D. Risk Factors—Risks Related to the Yorkville Investment.”
The principal risks associated with the Yorkville Investment include, but are not limited to, the following:
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our ability to successfully access the unfunded portion of the Yorkville Investment by complying with the terms of the Yorkville Agreements , or to otherwise obtain sufficient financing to allow us to execute our business plan following our emergence from the Self-Administration Proceedings; |
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the risk that, in the event of a Termination Event, Yorkville could, at its sole discretion, cancel any unfunded amounts of the Yorkville Investment and exercise all of its rights under any of the new convertible debentures as if an event of default had occurred; |
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our ability to maintain our relationships with our suppliers, service providers, creditors, customers, officers, supervisory board members, employees, counterparties and other third parties, to pursue new customer arrangements and projects, and to attract, retain and motivate key employees as a result of the Self-Administration Proceedings; |
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the risk that, as a result of the Transactions, we may lose our status as a foreign private issuer , which may result in additional legal, accounting and other expenses and would divert our management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and prospect; |
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our ability to maintain contracts that are critical to our operations on reasonably acceptable terms and conditions as a result of the former Self-Administration Proceedings; |
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the Subsidiary’s ability to comply with its obligations under the Plan and related agreements in connection with its exit from the Subsidiary Self-Administration Proceedings, violations of which could expose us to legal proceedings and therefore financial and other liabilities; and |
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our ability to achieve our stated goals and continue as a going concern following our emergence from the Self-Administration Proceedings. |
If we are able to successfully access the unfunded portion of the Yorkville Investment and restructure our business, our business continues to be subject to numerous other risks, and we may be unable, for many reasons, including those that are beyond our control, to implement our business strategy. Such risks include, but are not limited to, the following:
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the dependence of our success and future growth upon the market’s willingness to adopt solar-powered mobility solutions; |
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the competitiveness of the mobility market and the risk to fail to successfully commercialize our proprietary solar technology in time or at all; |
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the risk that we may not be able to meet the initial listing requirements for admission of our shares to trading on a stock exchange in the future and pay for the costs associated with such an initial listing, and therefore may not be able to have our shares admitted to trading on a stock exchange in the future; |
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our ability to prevent liquidation and continue as a going concern, including our ability to raise the additional external financing upon which our ability to accomplish any of our business plans is dependent; |
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our ability to remediate material weaknesses in our internal control over financial reporting and to report our financial results accurately, prevent fraud or file our periodic reports as a public company in a timely manner; |
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our unproven ability to commercialize solar technology on a larger scale and to develop solar power electronics, such as our maximum power point tracker central unit (“MCU”), and the risk of failing to further develop and realize the commercialization of our solar products within the intended timeframe, budget or at all; |
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that our products may not be fully functional or available on our anticipated schedule or at all, and may remain unproven and pose additional risks; |
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our dependence on the adequate protection of our intellectual property, which can be difficult and costly; |
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that our patent applications are unsuccessful, which may adversely affect our ability to prevent others from commercially exploiting products similar to ours and/or that one or more of our products conflicts with the proprietary rights of third parties of which we are not aware, which could have a material adverse effect on our ability to commercialize and market our products as planned; |
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our possible inability to develop installation processes and capabilities within our projected costs and timelines; |
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our dependence on a limited number of suppliers for the sourcing of raw materials and components required for our Solar Bus Kit; |
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increases in costs, disruption of supply or shortage of raw materials or certain products that could harm our business; |
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ongoing negotiations of contractual agreements with many of our prospective suppliers and business partners and potential renegotiations of these agreements as we scale our business; |
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our ability to obtain or agree on acceptable terms and conditions on all or a significant portion of the government grants, loans and other incentives for which we may apply, which may negatively affect our ability to reach funding goals; |
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the involvement of numerous third parties in our process, which adds significant complexity; |
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our dependence on the acceptance of our brand and any negative publicity relating to any of our business partners and their products or services, which could have a significant negative impact on our business and reputation; |
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the risk that our solar solutions may fail to perform as expected; |
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damage to our reputation due to the perception that our advertisements were overly positive or that we do not live up to our promises; |
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our ability to establish a network for aftersales customer service or otherwise successfully address the service and maintenance requirements of our customers; |
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product recalls that could materially adversely affect our business, prospects, operating results and financial condition; |
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health and safety risks posed by our products; |
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risks posed by interruptions or failures of information technology and communications systems; |
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risks associated with international operations, including unfavorable regulatory, political, tax and labor conditions, which could harm our business; |
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our inability to attract and retain key employees and hire additional qualified management, technical and engineering personnel, which could harm our ability to compete; |
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our exposure to various liability risks resulting from past or existing employment relationships and labor laws; and |
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the adverse effects that disasters or unpredictable events could have on our operations. |
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
A. Director and Senior Management
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
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Not applicable.
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Not applicable.
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The following risks may have material adverse effects on our business, financial condition and results of operations. Additional risks and uncertainties of which we are not presently aware or that we currently deem immaterial could also materially affect our business operations and financial condition.
Risks Related to the Yorkville Investment
We are subject to risks and uncertainties associated with the Companies’ Self-Administration Proceedings.
On May 15, 2023, based on management’s conclusion that the Company was over-indebted and faced impending illiquidity (drohende Zahlungsunfähigkeit), the Company applied to the Court, to permit the opening of a self-administration proceeding (Eigenverwaltung) with respect to the Company pursuant to Section 270 (b) of the German Insolvency Code (Insolvenzordnung). On the same day and for the same reason, the Subsidiary applied to the Court to permit the opening of a self-administration proceeding in the form of a protective shield proceeding (Schutzschirmverfahren) with respect to the Subsidiary pursuant Section 270 (d) of the German Insolvency Code. The applications, in each case, were made with the goal of sustainably restructuring the business of both Companies. On May 17, 2023 and May 19, 2023, the Court admitted the opening of the Preliminary Self-Administration Proceedings with respect to the Company and the Subsidiary, respectively. On September 1, 2023, the Court opened the Subsidiary Self-Administration Proceedings.
In mid-November 2023, in connection with the Yorkville Investment, the Company and Yorkville entered into certain investment-related agreements that became effective on November 20, 2023, including a restructuring agreement (as amended from time to time, the “Restructuring Agreement”) and a funding commitment letter with respect to the First Commitment (as amended from time to time, the “Funding Commitment Letter” and together with the Restructuring Agreement and the ancillary agreements entered into in connection therewith, (the “Yorkville Agreements”). The Subsidiary filed the Plan with the Court on December 7, 2023 for approval by the Subsidiary’s creditors and subsequent confirmation by the Court. The Plan set out how the Subsidiary intended to restructure its debt and procure the inflow of new cash, including in connection with the First Commitment , and subsequently exit the Subsidiary Self-Administration Proceedings. Approval by the creditors and confirmation by the Court was obtained in the creditors meeting on December 21, 2023, and the Court confirmed on January 26, 2024 that the Plan became legally binding. On January 31, 2024, the Company withdrew its application for its Preliminary Self-Administration Proceedings with the Court. The funding of the First Tranche of the Yorkville Investment occurred on February 6, 2024. The Subsidiary exited its Self-Administration Proceedings on February 29, 2024. On April 30, 2024, the Company and Yorkville entered into an amendment to the Funding Commitment Letter in connection with the Second Commitment.
The Companies expect the Yorkville Investment to position them to obtain sufficient funding for their business operations, with an initial focus on the Solar Bus Kit and similar retrofit solar products, through June 30, 2025, subject to the Companies’ continued compliance with their obligations under the terms of the Yorkville Agreements. For more information on the Transactions and the structure of the Yorkville Investment, see “Item 4. Information on the Company—B. Business Overview—Overview—The Yorkville Investment”.
However, despite the Companies’ emergence from their respective Self-Administration Proceedings, the Yorkville Investment poses a number of risks, including, among others:
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our ability to successfully access the unfunded portion of the Yorkville Investment by complying with the terms of the Yorkville Agreements , or to otherwise obtain sufficient financing to allow us to execute our business plan; |
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the risk that, in the event of a Termination Event, Yorkville could, at its sole discretion, cancel any unfunded portion of the Yorkville Investment and exercise all of its rights under any of the new convertible debentures as if an event of default had occurred; |
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our ability to maintain our relationships with our suppliers, service providers, creditors, customers, officers, supervisory board members, employees, counterparties and other third parties, to pursue new customer arrangements and projects, and to attract, retain and motivate key employees as a result of the former Self-Administration Proceedings; |
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the risk that, as a result of the Transactions, we could lose our status as a foreign private issuer , which may result in additional legal, accounting and other expenses and would divert our management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and prospect; |
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our ability to maintain contracts that are critical to our operations on reasonably acceptable terms and conditions ; |
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the Subsidiary’s ability to comply with its obligations under the Plan and related agreements in connection with its exit from the Subsidiary Self-Administration Proceedings, violations of which could expose us to legal proceedings and therefore financial and other liabilities; and |
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our ability to achieve our stated goals and continue as a going concern following our emergence from the Self-Administration Proceedings. |
Although we have taken multiple measures to reduce our expenses and have significantly reduced the scale of our operations in connection with both the change of our business model announced on February 23, 2023 and the business changes and streamlined initial business focus on our Solar Bus Kit implemented in connection with the Yorkville Investment, we expect to require additional cash in an amount of approximately €5.0 million to fund our ongoing operations through the second quarter of 2025. Our liquidity, including our ability to meet our ongoing operational obligations, is dependent upon, among other things: (i) our ability to maintain adequate cash on hand, (ii) our ability to access the unfunded portion of the Yorkville Investment, and (iii) our ability to raise additional external funding in the short term.
If we are unable to meet our liquidity requirements, our businesses and assets may become subject to liquidation in a regular insolvency proceeding under the German Insolvency Code, and we may cease to continue as a going concern.
Because of the risks and uncertainties associated with the Yorkville Investment and despite our emergence from the Self-Administration Proceedings, we cannot accurately predict or quantify the ultimate impact that events related to the investment or the proceedings may have on us and there is no certainty as to our ability to continue as a going concern. Following our emergence from the Self-Administration Proceedings, we may be adversely affected by the possible reluctance of prospective lenders and other counterparties to do business with a company that has recently emerged from such proceedings.
If the Company is not able to access the unfunded portion of the Yorkville Investment, in the absence of substantial additional sources of external funding, we would be required to curtail our operations, which could adversely affect our business, results of operations, financial position and cash flows and may ultimately lead to insolvency and liquidation.
In mid-November 2023, the Companies entered into the Yorkville Agreements in connection with the First Commitment. On April 30, 2024, the Company and Yorkville entered into an amendment to the Funding Commitment Letter in connection with the Second Commitment, which increased Yorkville’s funding commitment to the Company by EUR 2.0 million and extended the date upon which the obligation of Yorkville to commit any fundings automatically lapses from December 31, 2024 to May 1, 2025. The Companies expect the Yorkville Investment to position them to obtain sufficient funding for their business operations, with an initial focus on the Solar Bus Kit and similar retrofit solar products, through June 30, 2025, subject to the Companies’ continued compliance with the terms of the Yorkville Agreements. The funding of the First Tranche took place on February 6, 2024 in the amount of €4.0 million.
Under the Funding Commitment Letter, Yorkville will secure the financing of the Companies’ expected operational costs, with an initial focus on the Solar Bus Kit during the period from December 1, 2023 until the end of the second quarter of 2025 (the “Funding Period”) up to a maximum amount of €11.0 million minus €2.048 million of cash left-over at the Company as of December 1, 2023. . Pursuant to the Funding Commitment Letter, funding from Yorkville is provided by way of new interest-bearing convertible debenture(s). The new convertible debenture issued to Yorkville on February 5, 2024 in connection with the funding of the First Tranche will mature on July 1, 2025, and each subsequent new convertible debenture will mature on the earlier of (i) July 1, 2025 or (ii) 12 months from the issuance date of such new debenture. Such funds are paid by the Company to the Subsidiary under the terms of the Continuation Agreement and the Back-to-Back Letter of Comfort (as defined herein) by way of intercompany loan(s). In the event of a shortfall during the Funding Period, Yorkville has agreed to provide additional funds to the Company, provided that agreements are reached in good faith on an adjusted budget for the Funding Period.
Yorkville’s obligation to provide funding pursuant to the terms of the Funding Commitment Letter, is subject to our compliance with certain covenants and other obligations set forth in the Yorkville Agreements, including the terms of the new convertible debenture(s) issued to Yorkville in connection with the Yorkville Investment. In addition, Yorkville’s funding commitment is subject to the absence of the following events (each a “Termination Event”):
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The Budget (as defined below) is exceeded as a result of incorrect or misleading work. |
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The Budget is exceeded and Yorkville and the Company cannot agree on an adjustment, or Yorkville requests information regarding the Budget and the Company fails to provide it within ten business days. |
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An event of default occurs with regard to the convertible debentures. |
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The Companies fail to materially comply with the Yorkville Agreements and fail to rectify their noncompliance within ten business days following a request from Yorkville to such effect. |
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Other than with regard to the Self-Administration Proceedings, the Companies are unable or admit inability to pay their debts as they fall due, suspend making payments on any of their debts, or, by reason of actual or anticipated financial difficulties, commence negotiations with one or more of their creditors (excluding any finance party in its capacity as such) with a view to rescheduling any of their indebtedness. |
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An entity incorporated in Germany is unable to pay its debts as they fall due (zahlungsunfähig) within the meaning of section 17 of the German Insolvency Code (Insolvenzordnung) or is over indebted within the meaning of section 19 of the Germany Insolvency Code (Insolvenzordnung). |
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Except in relation to the Self-Administration Proceedings, any corporate action, legal proceedings or other procedure or step is taken in relation to, amongst others, the suspension of payments, an arrangement with a creditor of the Company, the appointment of a liquidator or administrative receiver or the enforcement of a security over any asset of the Company or the Subsidiary. |
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It is or becomes unlawful for the Company to perform any of its obligations under the Yorkville Agreements. |
In the event of a Termination Event, Yorkville would have the right, at its sole discretion, to cancel any unfunded portion of the Yorkville Investment , meaning that the Company would no longer be able to draw down on the unused portion of the Yorkville Investment, and to exercise all of its rights under any of the new convertible debentures as if an event of default had occurred.
Our ability to access the unfunded portion of the Yorkville Investment is subject to certain risks, including, among others, (i) whether the Companies are able to successfully comply with the terms of the Yorkville Agreements so as to gain access to the unfunded portion of the Yorkville Investment, and (ii) the absence of any Termination Event or any event of default.
If we are unable to access the unfunded portion of the Yorkville Investment as planned, in the absence of substantial additional sources of external funding, we would be required to curtail our operations, which could adversely affect our business, results of operations, financial position and cash flows and may ultimately lead to insolvency and liquidation. For more information on the Transactions and the Yorkville Investment, see “Item 4. Information on the Company—B. Business Overview—Overview—The Yorkville Investment”.
The Plan that was submitted to the Court in connection with the Subsidiary Self-Administration Proceedings is based in large part upon assumptions and analyses developed by us. If these assumptions and analyses prove to be incorrect, the Plan may not be successful in its execution. Furthermore, should we fail to comply with our obligations under the Plan, we may be subject to legal proceedings, which could expose us to substantial financial and other liabilities.
The Plan submitted to the Court under the German Insolvency Code in connection with the Subsidiary Self-Administration Proceedings addresses the structure and operation of our business going forward and reflects assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we consider appropriate under the circumstances. Whether actual future results and developments will be consistent with our expectations and assumptions depends on a number of factors, which are highly uncertain, including but not limited to: (i) our ability to obtain adequate liquidity and access financing sources, including our ability to comply with the terms of the Yorkville Agreements so as to gain access to the unfunded portion of the Yorkville Investment and the absence of any Termination Event or any event of default , (ii) our ability to maintain customers’ confidence in our viability as a going concern and to attract sufficient business from them, (iii) our ability to retain key employees and (iv) the overall strength and stability of general macroeconomic conditions. Should actual future results and developments not be consistent with our expectations and assumptions, this could materially adversely affect the sustainable restructuring of our business.
In addition, the Subsidiary’s Plan under the German Insolvency Code relies upon financial projections that are necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the basis of these financial forecasts are not accurate. In our case, the forecasts will be even more speculative than normal because of the many uncertainties we face relating to the successful implementation and management of the pivot of our business to exclusively retrofitting and integrating our solar solutions onto third party vehicles, with an initial focus in the short- to medium-term on our Solar Bus Kit and similar retrofit solar products, and our ability to raise the funding required to further develop and refine our own solar technology and business. Accordingly, there is a substantial risk that our actual financial condition and results of operations will differ, perhaps materially, from what we have anticipated. Consequently, there can be no assurance that the results or developments contemplated by the Plan will occur or, even if they do occur, that they will have the anticipated effects on us or our business or operations. The failure of any such results or developments to materialize as anticipated could materially and adversely affect the successful execution of the Plan. Furthermore, if we are unable or otherwise fail to comply with our obligations under the Plan, we may be subject to legal proceedings or other liabilities, which could have a material adverse effect on our financial condition and results of operations.
Despite our emergence from the Self-Administration Proceedings, the proceedings may materially and adversely affect our operations, including by consuming significant time and attention of our management team, adversely affecting our ability to maintain important relationships with creditors, customers, suppliers, service providers, employees and counterparties, and impacting our ability to pursue new customer arrangements and projects.
We will attempt to minimize the potential adverse effect of the Self-Administration Proceedings on our relationships with creditors, customers, suppliers, service providers, employees and counterparties. Nonetheless, these relationships may be adversely impacted and our operations could be materially and adversely affected.
For instance, negative publicity associated with the Self-Administration Proceedings may adversely affect our commercial relationships and our ability to negotiate favorable terms with important stakeholders and counterparties. Furthermore, our creditors will not receive complete recovery for their claims in the context of the proceedings. Public perception of our continued viability may also adversely affect our relationships with customers and their loyalty to us, as well as our ability to pursue new customer arrangements and projects. Strains in any of these relationships could materially and adversely affect us.
Our management has been required to spend a significant amount of time and effort focusing on these proceedings instead of focusing exclusively on our business operations, and will be required to continue to do so in the context of the Subsidiary’s compliance with its remaining obligations under the Plan and the Companies’ compliance with the terms of the Yorkville Investment. This diversion of attention may have a material adverse effect on the conduct of our business, and, as a result, our financial condition and results of operations, particularly if the proceedings are protracted.
In addition, our employees faced considerable distraction and uncertainty during the pendency of the proceedings, which may lead to increased levels of employee attrition. Apart from negatively affecting our ability to retain existing high performing employees, executives and supervisory board members, the proceedings may also prevent us from attracting new employees, executives and supervisory board members. A loss of, or failure to attract, key personnel or a material erosion of employee morale could impair our ability to execute our strategy and implement operational initiatives, thereby adversely affecting us.
Despite our emergence from the Self-Administration Proceedings, we may not be able to achieve our stated goals and continue as a going concern.
Despite our emergence from the Self-Administration Proceedings, we will continue to face a number of risks in connection with our business and operations, financial condition and the industry we operate in or otherwise. Accordingly, we cannot guarantee that the Plan will achieve our stated goals and permit us to effectively implement our strategy.
Furthermore, even if we are able to access the unfunded portion of the Yorkville Investment as planned, we will need to raise additional funds through public or private debt or equity financing or other means to fund our business beyond the Funding Period. Our access to additional financing is, and for the foreseeable future will likely continue to be, limited, if it is available at all. Therefore, adequate funds may not be available when needed or may not be available on favorable terms and we may not be able to continue as a going concern.
The Company’s visibility, credibility, stock price, and trading volume, as well as investor confidence, may further decrease as a result of the delisting of the Company’s securities from Nasdaq.
On December 11, 2023, the Company received a decision of the Nasdaq Hearings Panel (the “Panel”) advising the Company that the Panel had determined to delist the Company’s ordinary shares from Nasdaq. Nasdaq filed a Form 25 Notification of Delisting with the U.S. Securities and Exchange Commission (the “SEC”) on February 15, 2023 to complete the delisting.
The Company received a first delist determination letter on July 12, 2023 from the staff of the Listing Qualifications Department (the “Staff”) following the Company’s application for its Preliminary Self-Administration Proceedings pursuant to Section 270 (b) of the German Insolvency Code. The Staff’s delist letter additionally found that the Company failed to meet the filing requirement in Listing Rule 5250(c)(1), as it had failed to file its Annual Report on Form 20-F for the year ended December 31, 2022. On August 28, 2023, the Staff issued an additional delist determination letter for the Company’s failure to meet the minimum bid price requirement in Listing Rule 5450(a)(1) and the audit committee requirement in Listing Rule 5605(c)(2). The Company appealed the Staff’s determination and appeared before the Panel on September 14, 2023.
Trading of our ordinary shares on Nasdaq was suspended on July 21, 2023. Since then, our ordinary shares have been quoted on the over-the-counter market, and we are currently applying to have our ordinary shares admitted to trading on OTCQB. As a result, we have faced, and in the future could continue to face, significant material adverse consequences, such as (i) a limited availability of market quotations for our ordinary shares; (ii) a reduced liquidity of our ordinary shares; (iii) a determination that our ordinary shares are a “penny stock” which will require brokers trading in our ordinary shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; (iv) a limited amount of news and analyst coverage; and (v) a decreased ability to issue additional securities or obtain additional financing in the future. The delisting of the Company’s securities from Nasdaq may result in a loss of investor confidence and further decrease our visibility, credibility and trading volume, all of which could adversely impact the market price of our shares.
Risks Related to Our Industry
If we are able to access the unfunded portion of the Yorkville Investment and restructure our business, our success and future growth will be dependent upon the market’s willingness to adopt solar-powered mobility solutions.
If we are able to successfully access the unfunded portion of the Yorkville Investment, we intend to focus in the short- to medium-term on our Solar Bus Kit. While we expect the Yorkville Investment to position us to obtain sufficient funding for our business operations, with the initial focus on our Solar Bus Kit and similar retrofit solar products, through June 30, 2025, our pursuit of other solar integration projects will be dependent on the success of future capital raising efforts. The market for mobility-related solar solutions is still evolving, characterized by rapidly changing technologies, prices and other competition, evolving government regulation and industry standards, as well as changing or uncertain consumer demands and behaviors. Factors that may influence the adoption of our solar technology solutions include:
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perceptions about the effectiveness of mobility-related solar technology solutions; |
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perceptions about the quality, safety, design, performance and cost of solar technology solutions; |
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significant developments in new alternative technologies, such as hydrogen fuel cell technology; |
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improvements in the fuel economy of internal combustion engines; |
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the degree of environmental consciousness of consumers; |
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changes in the relative cost of electricity, oil, gasoline and hydrogen; |
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government regulations and economic incentives promoting fuel efficiency and alternate forms of energy; |
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the availability of tax and other governmental incentives promoting e-mobility or future regulation requiring increased use of nonpolluting mobility solutions; and |
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macroeconomic factors. |
Solar-powered mobility solutions largely remain commercially unproven. Our solar-powered mobility solutions may therefore not be as well accepted by the market as expected, or may not be accepted at all, and may not be able to claim the market position we hope for.
The mobility market is highly competitive and even if we are able to successfully access the unfunded portion of the Yorkville Investment and restructure our business, we may not be able to successfully commercialize our solar solutions in time or at all.
The segment of alternative mobility solutions is highly competitive and continuously evolving. We are not the only company seeking to develop and offer solar-powered mobility solutions. Numerous competitors strive to offer mobility and e-mobility solutions to the mass market and several other market players are currently experimenting with or intend to commercialize solar charging technology, including manufacturers with established brands and significantly greater financial resources than us. Some of our competitors benefit from greater financial resources, more extensive development, manufacturing, marketing and service capabilities, owned manufacturing assets, greater brand recognition and a larger number of managerial and technical personnel. Smaller existing or future competitors may be acquired by larger companies with significant capital or other resources, thereby further intensifying competition with us. Any inability on our part to remain competitive in terms of the technology capabilities of our solar solutions could have a material adverse effect on our business, prospects, operating results and financial condition. As a result, even if we are able to successfully access the unfunded portion of the Yorkville Investment, we may experience a significant reduction in potential market share and expected revenue streams, which could impact our ability to successfully market our solar technology and adversely affect our business, results of operations, financial position and cash flows.
We expect competition in our industry to intensify in the future, particularly in light of increased demand for alternative fuel and a regulatory push for e-mobility (e.g., CO2 target emission regulations and tax or other monetary incentives), as well as declining battery prices. Continuing globalization may lead to additional potential competitors in emerging economies. Factors affecting competition include manufacturing efficiency, product prices and quality, performance and features, innovation and development time, reliability, safety, energy economy, charging options, customer service and financing terms. Increased competition may lead to lower product sales and increased inventory, which may result in price pressure. Even if we are able to access the unfunded portion of the Yorkville Investment and restructure our business, we may not be able to successfully compete in our markets. In addition, there can be no assurance that our intention to initially focus in the short- to medium-term on our Solar Bus Kits and similar retrofit products is a viable business setup.
Risks Related to Our Business and Operations
We are an early-stage company with a history of significant losses that recently adapted its business model and expects continuing losses for the foreseeable future, which means that our ability to prevent insolvency and continue as a going concern and, if we are successful in doing so, to accomplish any of our business plans depends on our ability to imminently raise significant external financing.
For the year ended December 31, 2023, we incurred a loss of €53.6 million. We have incurred net losses since our inception in March 2016, resulting in an accumulated deficit of €384.3 million as of December 31, 2023 compared to an accumulated deficit of €330.8 million as of December 31, 2022.
Even if we are able to successfully access the unfunded portion of the Yorkville Investment and restructure our business, we expect to continue to generate operating losses in 2024, and may continue to generate operating losses thereafter if we are not able to complete the development of our solar technology and significantly scale our sales and operations as planned.
We have already realized revenues from certain of our solar technology products. However, such sales were, and at least in the short term are expected to remain, only marginal and will not be sufficient to support our operations and cash requirements until we significantly scale our operations, which is currently expected to occur in the second half of 2024. We have finished the development phase with respect to our Solar Bus Kit and plan to start commercial production in the second quarter of 2024. We are in discussions with several potential customers and have been developing a potential customer base by signing letters of intent and contracts for pilot fleets and prototypes, and although the pre-series version of our Solar Bus Kit has been installed, and is currently in operation, on buses of multiple customers we have not yet executed any large-volume binding series sales contracts for our Solar Bus Kit. We seek to incrementally increase monetization of our technology, starting with our Solar Bus Kits in 2024. The current business plan, which was elaborated in the context of the Yorkville Investment, foresees a clear focus on the bus industry and our Solar Bus Kit product in 2024, and additionally considers the truck and trailer industry, including the refrigerated vehicle industry, and the e-transporter industry as long-term business opportunities.
If we are able to successfully access the unfunded portion of the Yorkville Investment and continue as a going concern, we would expect to continue to incur significant expenses as we seek to further develop, expand and refine our solar technology and to invest in sales and operations. We would also expect to incur expenses related to preparations for the commercialization of our technology, starting with our Solar Bus Kits, increasing our sales and marketing activities with the goal of building our brand, and adding infrastructure and personnel to support our growth. In addition, we currently continue to incur various expenses from, for example, general administrative functions, our headquarters and costs relating to being a public company. We will not be able to cover our expenses with revenues at least until we complete the development and start the commercialization of our solar technology, starting with our Solar Bus Kits, and significantly increase the scale of our operations. We expect to incur additional substantial expenses in the foreseeable future. The activities related to our solar technology and the development of our business may result in prolonged losses. There is no guarantee that we would ever reach meaningful revenue levels or profitability or even that we will be able to continue as a going concern. Our ability to reach profitability in the future will not only depend on our ability to successfully implement the change in our business to exclusively retrofitting and integrating our solar technology onto third party vehicles, with an initial focus on our Solar Bus Kits and similar retrofit solar products, and to successfully complete the development of and commercialize our solar technology but also on our ability to control our expenses and capital expenditures and manage our costs efficiently. If we are unable to achieve profitability, we may have to reduce the planned scale of our operations, which may impact our business growth and adversely affect our financial condition, results of operations, financial position and cash flows. In addition, our continuous operation and our ability to continue as a going concern will depend on our ability to obtain sufficient external equity or debt financing. If we do not succeed in doing so, we may need to curtail our operations, which could adversely affect our business, results of operations, financial position and cash flows and may ultimately lead to insolvency and liquidation.
There is no historical basis for reliably assessing the market potential and demand for our products, our ability to develop, integrate, and deliver our products at commercial scales, or our future profitability. There can be no assurance that any of our products, including our Solar Bus Kits, will be commercially successful or that we will be able to scale our operations. We currently rely on a single product, our Solar Bus Kits, and variations thereof, and if the market does not accept our Solar Bus Kits or similar products or does not develop as expected, we will have no other product to compensate for the shortfall. We have no reliable basis for the prediction of our future revenues and expenses, and we may have limited insight into future trends that may emerge and affect our business. The estimated costs and timelines that we have developed to reach commercial production of our products are subject to inherent risks and uncertainties involved in the transition from a start-up company focused on development activities to the commercial-scale sourcing and sale of our products. You should therefore consider our business and prospects in light of the risks and challenges we face as a new market entrant, including, but not limited to:
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our ability to successfully implement and manage the change of our business to exclusively retrofitting and integrating our solar technology onto third party vehicles; |
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our ability to successfully develop and launch commercial production and sales of our Solar Bus Kit; |
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our ability to obtain, maintain and protect patents and other intellectual property rights that are crucial to our solar technology and commercialization efforts in our target markets; |
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our ability to raise the funding required to develop business operations and sales; |
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our ability to maintain, further develop and improve our Solar Bus Kit and any other solar solutions or variations thereof; |
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customer acceptance of and demand for our products; |
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our ability to turn profitable, scale our operations and build a well-recognized and respected brand cost-effectively; |
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our ability to develop and maintain relationships with key business partners who are crucial for our operations or who directly deal with end users in our target market; |
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our ability to navigate the evolving regulatory environment and potentially expand our product line-up; |
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our ability to improve and maintain our operational efficiency, set up and manage our supply chain efficiently and adapt to changing market conditions, including technological developments and changes in our competitive landscape; and |
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our ability to find the necessary qualified personnel and to build up and scale functioning structures within Sono Motors. |
Following our emergence from the Self-Administration Proceedings, our business was restructured, which included the release of significant liabilities, and entailed significant changes to our consolidated balance sheet and consolidated statement of operations. In addition, due to the opening of the Self-Administration Proceedings, the Company lost control of the Subsidiary on May 19, 2023 and regained control when the Subsidiary exited the Subsidiary Self-Administration Proceedings on February 29, 2024. The effect of the loss of control is that in 2023, the results of the Subsidiary are consolidated up until the loss of control and the assets and liabilities of the Subsidiary will be derecognized from the consolidated statement of financial position. The Subsidiary is again consolidated with the Company following the Company’s regaining of control in 2024. As a result, our financial information going forward may in many respects not be comparable to our historical financial information. In addition, the financial information for the years ending December 31, 2022 and 2023 contains significant expenses related to the Company’s former Sion passenger car project, which was terminated in February 2023. Accordingly, the financial information contained in this Annual Report is likely not indicative of any future financial information and has only limited value for purposes of assessing our solar-only business.
We intend to use the financing that we obtain in connection with the Yorkville Investment, assuming we are able to successfully access the unfunded portion of the investment, mainly to finance the operations of the Subsidiary and the Company. Accordingly, the Company and the Subsidiary entered into the Back-to-Back Letter of Comfort (as defined herein) in connection with the Transactions to provide funding for the Subsidiary’s business operations, with an initial focus on the Solar Bus Kit and similar retrofit solar products. These arrangements mean that the Company may only hold a small fraction of our total liquidity, which means that creditors at the Company level are structurally subordinated to creditors at the Subsidiary level.
There is substantial doubt about our ability to continue as a going concern, and there is a material risk that we may be liquidated.
Management has concluded, and the report of our auditors included in this Annual Report reflects, that there is substantial doubt about our ability to continue as a going concern within 12 months after the date of this filing. The reaction of investors to the inclusion of a going concern statement by management and our auditors and our potential inability to continue as a going concern may materially adversely affect the price of our publicly traded securities and our ability to raise new capital or financing or enter into partnerships or strategic collaborations. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our financial statements, and it is likely that investors will lose all or part of their investment. Further, the perception that we may be unable to continue as a going concern may impede our ability to pursue strategic opportunities or operate our business due to concerns regarding our ability to fulfill our contractual obligations. In addition, if there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to us on commercially reasonable terms, or at all.
As a result of our recurring losses from operations and the need for additional financing to fund our operating and capital requirements despite the change in our business model, we decided to apply for the Self- Administration Proceedings in May 2023. On January 31, 2024, the Subsidiary withdrew its application for Preliminary Self-Administration Proceedings, and the Subsidiary exited its Self-Administration Proceedings on February 29, 2024 via the Plan.
Because of the risks and uncertainties associated with the Yorkville Investment management cannot accurately predict or quantify the ultimate impact that events related to these proceedings may have on the Companies and thus there is no certainty as to our ability to continue as a going concern. Even if we are able to successfully access the unfunded portion of the Yorkville Investment and restructure our business, the Company’s business plan is reliant on income from customers. As of the date of this Annual Report, while there are several letters of intent, no large-volume contracts with regards to the Solar Bus Kit have been signed, and hence there is a risk that revenue will be less than expected in 2024 and the first half of 2025. Similarly, there is a risk that the solar technology is not fully functional or available on the anticipated schedule or at all, which would result in a delay in realizing potential revenue. Finally, the Yorkville Agreements provide funding until June 30, 2025. We will therefore have to either secure a sufficient number of future customer contracts or other additional financing in order to fund the business from July 2025 onwards. The foregoing can affect the Company’s ability to continue as a going concern.
Even if we are able to successfully access the unfunded portion of the Yorkville Investment, the Company’s access to required additional financing is, and for the foreseeable future will likely continue to be, limited, if it is available at all as of July 1, 2025 and beyond. Therefore, adequate funds may not be available when needed or may not be available on favorable terms and thus the Company might not be able to continue as a going concern.
Based on the above, the Company will need to raise substantial additional capital to finance its planned future operations, which is not assured, and has consequently concluded that there is substantial doubt about its ability to continue as a going concern.
We have identified multiple material weaknesses in our internal control over financial reporting and, as a result, management has concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective as of December 31, 2023. If we are unable to remediate these material weaknesses, or if other control deficiencies are identified as a result of ongoing or future processes, we may not be able to report our financial results accurately, prevent fraud or file our periodic reports as a public company in a timely manner.
Prior to our initial public offering (“IPO”) on November 17, 2021, we operated as a private company that was not required to comply with the obligations of a public company with respect to internal controls over financial reporting under the Sarbanes-Oxley Act. Since our IPO in 2021, we have been a public company in the United States subject to the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires that we include a report from management on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F, starting with our annual report on Form 20-F for the year ended December 31, 2022. As a result, we are required to disclose changes made in our internal controls and procedures and our management is required to assess the effectiveness of these controls annually.
In connection with the audits of our consolidated financial statements for the years ended December 31, 2020, 2021 and 2022 and management’s assessment of the effectiveness of our internal controls and procedures for the year ended December 31, 2023, we identified multiple material weaknesses in our internal control over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or condensed consolidated interim financial statements will not be prevented or detected on a timely basis. Due to the multiple material weaknesses identified, which had not been remediated as of December 31, 2023, our management concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective as of December 31, 2023. While we are continuing to work on remediating the weaknesses identified, based on our limited financial and operational resources we cannot at this time predict when we will have remediated these material weaknesses. The remediation measures are time-consuming and costly and place significant demands on our financial and operational resources. For more information on the nature of the material weaknesses and the related ongoing remediation measures, see “Item 15. Controls and Procedures—B. Management's Annual Report on Internal Control over Financial Reporting.”
During the course of documenting and testing our internal control procedures in the future, we, or an outside advisor, may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.
Further we are non-compliant with the Dutch financial reporting requirements with regard to the timely filing of our audited 2020, 2021 and 2022 Dutch statutory financial statements with the Dutch trade register and, as a result of the corporate measures implemented in connection with the restructuring of our business and resulting personnel and other limitations, it is likely that we will not be timely with the filing of our audited 2023 Dutch statutory financial statements with the Dutch trade register. Dutch financial reporting rules require the timely filing of our audited Dutch statutory financial statements with the Dutch trade register. Non-compliance with these filing requirements exposes us to penalties and fines. Non-compliance with the requirements under Dutch law with respect to the preparation, audit and publication of our Dutch statutory financial statements could also lead to increased exposure for our management board and supervisory board members to direct liability under the standards of Dutch corporate law, which may negatively affect our reputation.
In addition, the Subsidiary is also non-compliant with the German financial reporting requirements with regard to the timely filing of its 2022 statutory financial statements with the German trade register and the German Federal Gazette, which has in the past led, and - until compliance is established - may in the future lead, to the imposition of penalties and fines. German financial reporting rules under the Securities Trading Act (“Vermögensanlagegesetz”) require the timely filing of the Subsidiary’s audited German statutory financial statements by June 30 of the year following the applicable financial period. Non-compliance with these filing requirements exposes us to penalties and fines.
Any failure on our part to discover and/or remediate existing material weaknesses, to discover and address any other control deficiencies and to achieve and maintain an effective internal control environment, could result in inaccuracies in our consolidated financial statements and could also impair our ability to comply with applicable financial reporting requirements and make related regulatory filings on a timely basis, could cause investors to lose confidence in our reported financial information. This could, in turn, limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our shares. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements for prior periods. We cannot assure you that all of our existing material weaknesses have been identified, that we will not in the future identify additional material weaknesses and that we will be able to achieve and maintain an effective internal control environment.
Our ability to commercialize solar technology is unproven and we may fail to further develop and realize the commercialization of our solar technology within the intended timeframe, budget or at all.
Our future success will depend in large part on our ability to execute our plans to commercialize and further develop our proprietary solar technology, starting with our Solar Bus Kits, at large scale. Our industry is characterized by rapid technological evolution and continuing technological changes, which could adversely affect demand for our products. Our development efforts may not be successful and we may not be able to realize all advertised specifications of our technology such as, for example, the effectiveness of our solar modules. We further have to secure the supply of necessary components and raw materials on acceptable terms. For example, lock-downs in China resulted in the limited availability of semiconductor chips, which could also impact our ability to meet any planned timelines. In addition, we may have to change specifications of relevant components on short notice, which may make it difficult for suppliers to deliver required parts in time, at all or at pre-agreed costs, which may, in turn, put potential timelines or projects at risk. Our products also have to meet stringent and constantly evolving safety and certification requirements, potentially in various jurisdictions, and there is no guarantee that our products or vehicles equipped with our solar kits will receive the required certification from relevant authorities. Given the complexities involved in commercializing our solar technology and preparing our solar technology for the mass market, there is no guarantee that we will be successful within the intended timeframe or budget or at all. Any delay in committed or planned timelines due to, for example, a delay in the financing, development or regulatory approval of our solar technology could materially damage our brand, business, prospects, financial condition, results of operations, and cash flows, and could lead to material liquidity constraints.
In early 2023, we decided that it is not feasible for us to further pursue the development and commercialization of the Sion, which the Company had envisaged to become an affordable solar electric vehicle . There is no guarantee that this change and emphasis of our business activities proves successful. We may conclude that the further development and commercialization of our solar technology is not feasible. We may decide to abandon this project, due to, for example, a change in the regulatory framework, lack of feasibility, engineering issues, lack of skilled research and development or other personnel, lack of supplier capacity or availability, lack of customer demand or our inability to secure sufficient capital. In such a case, we may not be able to amortize any investments made. We may enter into contractual arrangements with suppliers or other partners, which may subject us to continuous payment or other obligations irrespective of a decision to abandon the relevant underlying project. Any such decision to discontinue the development or commercialization of our technology or any of our solutions would likely lead to significant losses.
We may also find engineering errors, defects or areas that need improvement in our products. Technological changes or changes in supplier components may require us to change our technology. There can be no assurance that we will be able to implement any such changes in a timely manner or that these changes will not trigger any follow-on issues. Our solar technology may not be as well received, functional or efficient as expected and we may face significant competition with respect to our solar technology. To the extent we may want to monetize our technology based on licensing arrangements with third parties and royalty payments, which requires patent-based or similar legal protection, there is no guarantee that we will obtain such protection in a timely manner, in the relevant jurisdictions or at all. Employees who we have terminated may challenge our ownership in relevant patents or other intellectual property; there is no guarantee that any such challenges will not be successful. We may fail to identify technical innovations that could be patentable and, accordingly, may fail to protect them via patents.
Our solar technology may not be fully functional or available on our anticipated schedule or at all, and may remain unproven and pose additional risks.
The functionality, usability and availability of our solar technology and other solutions in day-to-day use and at scale is largely unproven. There is no guarantee that our products will initially perform as expected under real conditions or that we will be able to detect and fix any potential weaknesses in our technology and solutions prior to commencing commercial production. For example, our solar module technology may not provide the expected efficiency advantage or may be less reliable or more expensive to produce than expected. In addition, our solar modules may be subject to degradation or malfunction due to the weather and mechanical stress over life-time in automotive-use cases. Any of our hardware or software solutions may contain errors, bugs, vulnerabilities or design defects or may be subject to technical limitations that may compromise the functionality of our offering. Some errors, bugs, vulnerabilities, or design defects inherently may be difficult to detect and may only be discovered after industrial commercialization of our technology has begun. Additional risks may result from the use of any of our solutions in jurisdictions where such use is not lawful. For example, our solar module technology may be used or commercialized by any of our licensees in jurisdictions where the use of such a solution may not be lawful or subject to additional regulatory requirements, which may potentially expose us or individuals to significant liability risks or negatively affect our brand.
We depend on the adequate protection of our intellectual property, which can be difficult and costly.
We have invested significant resources in the development of certain proprietary solar technology, and currently plan to continue to invest significant resources in the development of our solar power electronics, the protection of which is critical to our business and the commercial success of our products. We hold several patents relating to our technological innovations, such as our solar module technology and our energy management system for vehicles. To establish and protect our rights in our technology, we rely on a combination of patents, trade secrets (including know-how), copyrights, trademarks, intellectual property licenses, employee and third-party nondisclosure agreements and other contractual rights. Any failure to obtain, maintain, protect, and monitor the use of our existing intellectual property rights could result in the loss of valuable technologies or material business opportunities.
The measures we take to protect our intellectual property from unauthorized use by others, including current or former suppliers, partners or employees, may not be effective for various reasons. Any patent applications we submit may not result in the issuance of patents, the scope of our issued patents may not be broad enough to protect our proprietary rights or our issued patents may be challenged and/or invalidated by our competitors. Any successful challenge to any of our intellectual property rights, including by competitors or current or former employees, could deprive us of rights necessary for the successful commercialization of our solar technology and innovations. Challenges to our patents could impair or eliminate our ability to collect future revenues and royalties in the event we license our technology in the future. The patent prosecution process is expensive, time consuming and complicated, and we and our future licensors may not be able to file, prosecute or maintain all necessary or desirable patent applications at a reasonable cost or in a timely manner or in all jurisdictions where protection may be commercially advantageous. It is also possible that we and any of our future licensors may fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. We filed trademark applications in relevant jurisdictions, and in the future may file further trademark applications as we see fit, but may be unable to register our trademarks or otherwise protect them. For example, we have failed in some jurisdictions to obtain protection for our circle with a dot in the middle, if it is not combined with other distinctive elements. In China, our trademark application for certain logos has been objected to. In the United States, our application to register “Driven by the Sun” as a trademark has been denied. In addition, we are in ongoing discussions with an American developer and manufacturer of audio products, who filed oppositions against various trademarks that were filed by us after a rebranding process. Furthermore, in Europe, a producer of telescopic sights has also filed oppositions against the same trademarks that were filed by us after the rebranding process, as well as an application for a declaration of invalidity against our registered trademark of our circle with a dot between the words Sono Motors. With both opponents, we are in negotiations to find an amicable solution. Therefore, for the oppositions that have been filed by these opponents, an extension of the cooling-off period has been filed, and in the case of the application for a declaration of invalidity, an extension of the response period has been requested. Any efforts to register a trademark may be subject to opposition and if a third-party were to register our trademarks, or similar trademarks, in a jurisdiction where we have not successfully registered such a trademark, it could create a barrier to the successful commercialization of our products. Failure to adequately protect our intellectual property rights could result in our competitors offering similar products, potentially resulting in the loss of some of our competitive advantage as well as a decrease in our revenue, which would adversely affect our business, prospects, financial condition and operating results.
Even if we hold valid and enforceable patents or other intellectual property rights, the legal systems of certain countries, including certain developing countries, may not favor the enforcement of these rights or otherwise offer the same degree of protection as do the laws in the EU or United States, which could make it difficult for us to stop the infringement, misappropriation, or other violation of our patents or other intellectual property rights. Further, policing the unauthorized use of our intellectual property in various jurisdictions around the world may be difficult and require significant resources.
We have applied for patent protection relating to our technological innovations in certain jurisdictions. While we generally consider applying for patents in those countries where we intend to make, have made, use, sell or license patented products, we may not accurately assess all the countries where patent protection will ultimately be desirable. In addition, due to the cost-intensive nature of the patent application process and in accordance with the change in our business model to focusing exclusively on integrating our solar technology into third-party vehicles, we plan to terminate and/or discontinue patents and patent applications that do not address our core products and markets and instead focus on our most promising applications and markets (mainly Europe). Should we decide to address additional markets or expand our product offerings at a later date, a prior decision to discontinue a patent or a patent application may result in lost opportunities with respect to protecting our intellectual property. If we fail to timely file a patent application in any such country, we may be precluded from doing so at a later date. Furthermore, our pending patent applications may be challenged by third parties or such applications may not eventually be issued by the applicable patent offices as patents. The denial of our key patent applications or of a substantial portion of our patent applications could have a substantial negative impact on the value and strength of our intellectual property rights, our ability to execute our business plans and compete with others in our industry. In addition, the patents issued as a result of our foreign patent applications may not have the same scope of coverage as our patents in the EU or United States.
Changes in the patent laws or their interpretation in the relevant jurisdictions may reduce our ability to protect or commercialize our inventions and enforce our intellectual property rights. More generally, these changes could affect the value of our patents and other intellectual property. Our efforts in seeking patent protection for our solar technology and other innovations could be negatively impacted by any such changes, which could have a material adverse effect on our existing patent rights and our ability to protect, enforce or commercialize our intellectual property rights in the future. In particular, our ability to prevent third parties from making, using, selling, offering to sell or importing products that infringe our intellectual property rights will depend in part on our success in obtaining and enforcing patent claims that cover our technology, inventions and improvements.
In some cases, we rely upon unpatented proprietary manufacturing expertise, continuing technological innovation, and other trade secrets to develop and maintain our competitive position. While we generally enter into confidentiality agreements with our employees and third parties to protect our intellectual property, our confidentiality agreements could be breached and may not provide meaningful protection against improper use of our trade secrets or other proprietary information. There can be no assurance that third parties will not seek to gain access to our trade secrets or other proprietary information. In addition, adequate remedies may not be available in the event of unauthorized use or disclosure of our trade secrets or other proprietary information. Violations by others of our confidentiality agreements and the loss of employees who have specialized knowledge and expertise could harm our competitive position and cause our sales and operating results to decline as a result of increased competition.
Our patent applications may not lead to the granting of patents or desired protection in time or at all, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.
We cannot be certain that we are the first inventor of the subject matter to which a particular patent application pertains. If another party has filed a patent application pertaining to the same subject matter as we have, we may not be entitled to the protection sought by our patent application. Patent applications in many jurisdictions are typically not published until several months after filing and we cannot be certain that we were the first to make the inventions claimed in any of our issued patents or pending patent applications, or that we were the first to file for protection of the inventions set forth in our patents or patent applications. As a result, we may not be able to obtain or maintain protection for certain inventions and may face similar risks in other jurisdictions should we expand our operations, including in significant markets such as the United States and China.
Further, the scope of protection of issued patent claims is often difficult to determine. As a result, we cannot be certain that the patent applications that we file will issue, or that our issued patents will afford protection against competitors with similar technology. In addition, our competitors may seek to bypass our issued patents, which may require costly and time-consuming litigation and adversely affect our business, prospects, financial condition or operating results. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patents or whether any issued patents will be found invalid or unenforceable or will be threatened by third parties.
We may not be able to reliably source our component supply within our projected costs and timelines.
Our asset-light business model partly provides for the sourcing of off-the-shelf sub-components from suppliers, as well as partly outsourced logistics and delivery management based on low inventories.
Even if we are successful in reliably sourcing our sub-component supply, we do not know whether we will be able to do so in a manner that avoids significant delays and cost overruns, including as a result of factors beyond our control such as problems with suppliers or logistics, or in time to meet our commercialization schedules or to satisfy the requirements of customers. Impacts of inflation, including an increase in energy costs, may negatively affect our cost base. Any failure to reliably source our sub-component supply within our projected costs and timelines could have a material adverse effect on our business, prospects, operating results and financial condition.
Furthermore, our relationships with business partners such as suppliers and logistics services providers may be negatively impacted by the former Self-Administration Proceedings. See also “Item 3. Key Information—D. Risk Factors—Risks Related to the Yorkville Investment—Despite our emergence from the Self-Administration Proceedings, the proceedings may materially and adversely affect our operations, including by consuming significant time and attention of our management team, adversely affecting our ability to maintain important relationships with creditors, customers, suppliers, service providers, employees and counterparties, and impacting our ability to pursue new customer arrangements and projects” and “Item 3. Key Information—D. Risk Factors—Risks Related to the Yorkville Investment—We are subject to risks and uncertainties associated with the Companies' Self-Administration Proceedings”.
We rely on a single supplier for certain components and other materials used in our solar solutions.
There are only a limited number of suppliers of solar technology components or raw materials. We currently depend on a single supplier for various raw materials or components required for the manufacturing of our solar technology products. This makes our supply chain and the production of our offering dependent on the performance of such suppliers and increases the risks of interruption. Our operations will be negatively affected if one of our suppliers experiences capacity constraints and is not in a position to deliver the required quantities of a certain raw material, component or part.
Our dependency on a limited number of suppliers also increases the bargaining power of the relevant suppliers with respect to certain materials or components, which may expose us to abusive conduct, may prevent us from entering into long-term supply agreements with guaranteed pricing or may require us to accept disadvantageous economic or legal conditions. The acquisition of any supplier could limit our access to relevant raw materials or components and require material redesigns of our solar technology and impair our business prospects. We may also be forced to stop production should a supplier fail to provide required certifications for its products or should the supplier be accused of infringing or misappropriating third-party intellectual property rights. If we need to replace a supplier or if a supplier terminates its relationship with us, there is no guarantee that we will be able to find adequate substitute products or suppliers in time or at all. In addition, global events such as pandemics, war or crude oil shortages may negatively affect the availability, price levels, delivery times or minimum order quantities of products, components and materials, such as polymers for solar cells or microelectronic chips for MCUs. The vast majority of supplies of raw materials for the solar industry come from China, which makes our supply chains particularly vulnerable to intensifying political tensions with or trade sanctions or comparable limitations concerning China. As a result, we may be required to find replacement suppliers, which may prove difficult, increase our production cost and could lead to a delay in the envisaged start of commercial production.
Furthermore, we may ask for product changes or amendments of certain specifications of components or raw materials to be delivered by suppliers, sometimes on short notice, due to new development results or the insufficiency of previous specifications, which may increase the costs for relevant components or raw materials or may render the relevant supplier unable to accommodate relevant requests. It is also possible that the supplier does not have the right to sell the relevant product to us, for example, because the supplier lacks the intellectual property rights to the design or because the supplier has an exclusivity agreement with another manufacturer, which we could force us to discontinue production or sales of our products, to replace the part or to change the design of our technology, which could result in significant delays and costs or make the production of our products impossible altogether. Suppliers may change their products or may go out of business, resulting in limited or no availability of relevant parts and materials for the production and maintenance of our products. All of our sourced components and raw materials are subject to typical transportation risks, such as delivery delays, damage or theft in the course of transportation or fines resulting from the violation of customs or other transportation regulations.
Furthermore, our relationships with our suppliers may be negatively impacted by the former Self-Administration Proceedings. See also “Item 3. Key Information—D. Risk Factors—Risks Related to the Yorkville Investment—Despite our emergence from the Self-Administration Proceedings, the proceedings may materially and adversely affect our operations, including by consuming significant time and attention of our management team, adversely affecting our ability to maintain important relationships with creditors, customers, suppliers, service providers, employees and counterparties, and impacting our ability to pursue new customer arrangements and projects” and “Item 3. Key Information—D. Risk Factors—Risks Related to the Yorkville Investment—We are subject to risks and uncertainties associated with the Companies' Self-Administration Proceedings”.
Increases in costs, disruption of supply or shortage of raw materials or certain products could harm our business.
The solar industry is frequently subject to significant disruptions and resulting shortages of components or raw materials may impair our ability to commercialize our products at attractive margins or at all. Suppliers may decide to allocate relevant components or raw materials, particularly the ones with high demand or insufficient production capacity, to more profitable or established customers and our supply may be reduced as a result. Once commercial production of our solar technology begins, our manufacturing partners who are expected to produce our solar modules, or any of our other suppliers, may experience increases in the cost or a sustained interruption in the supply or shortage of raw materials required for the manufacturing of our products or certain parts or components used in them. Our solar technology depends on various raw materials and products. The prices for these materials and products may fluctuate depending on market conditions, inflation levels, energy prices, macroeconomic factors, and political developments. Some products may not be available at all in the short term. In addition, the imposition of new government regulations, duties or taxes, such as taxes on imported materials and components that are used in our solar modules or are otherwise necessary for production of our solar technology, could also affect the prices for these materials and products. Substantial increases in the prices for raw materials and/or increases in freight charges would increase our operating costs and could reduce our margins if the increased costs cannot be recouped through increased product prices. There can be no assurance that we will be able to recoup increasing costs of raw materials by increasing product prices.
We have yet to enter into contractual agreements with many of our prospective suppliers and business partners and may have to renegotiate these agreements as we scale our business.
We have yet to finalize our contractual arrangements with some of our prospective suppliers and business partners. Negotiations with our prospective suppliers and business partners may consume significant resources and time and there is no guarantee that such negotiations will be concluded successfully. In the negotiations, we may agree to terms and conditions that are less favorable to us than expected. We may be subject to unfavorable rules on the transfer of risk with respect to our solar modules or supplied components or disadvantageous payment terms. Any failure to finalize our arrangement with our suppliers and business partners in a timely manner may lead to reduced volumes of our offering. Terms and conditions of any contractual arrangement, including any preliminary contractual arrangement, may have to be renegotiated due to a lapse of time or a change in material circumstances should we not be able to realize the anticipated timelines.
Prospective suppliers and business partners may end their relationship or negotiations with us for various reasons. Some of the suppliers we involve, or intend to involve, are well- known market players with significant bargaining power and whose position towards us is bolstered due to our dependency on such suppliers as there are only a limited number of suppliers for solar technology components and raw materials. We, on the other hand, are not an established business and have limited market power. Therefore, we may not be able to successfully assert our own interests and may have to enter into contracts with significantly disadvantageous terms and conditions, such as unfavorable prices, limitations on remedies in cases of breach of contract, unfair liquidated damages provisions or broad termination rights allowing our business partners to end their relationship with us at will. If we successfully market our solar technology on an industrial scale, we will seek to further scale our operations. We may have to renegotiate, amend or extend our relationships with our business partners and there is no guarantee that we will be successful in doing so. We may incur substantial additional costs and expenses should we have to amend our business model to scaled operations and we may even fail to do so.
Furthermore, our relationships with prospective suppliers and business partners may be negatively impacted by the former Self-Administration Proceedings. See also “Item 3. Key Information—D. Risk Factors—Risks Related to the Yorkville Investment—Despite our emergence from the Self-Administration Proceedings, the proceedings may materially and adversely affect our operations, including by consuming significant time and attention of our management team, adversely affecting our ability to maintain important relationships with creditors, customers, suppliers, service providers, employees and counterparties, and impacting our ability to pursue new customer arrangements and projects” and “Item 3. Key Information—D. Risk Factors—Risks Related to the Yorkville Investment—We are subject to risks and uncertainties associated with the Companies' Self-Administration Proceedings”.
We may not be able to obtain or agree on acceptable terms and conditions all or a significant portion of the government grants, loans and other incentives for which we may apply, which may negatively affect our ability to reach funding goals.
We may apply for federal and state grants, loans and tax incentives under various government programs designed to stimulate the economy or to support the development or production of solar integration solutions for the mobility industry. Our ability to obtain funds or incentives from these sources is subject to the availability of funds under applicable programs and approval of our applications to participate in such programs. The application process for these funds and other incentives will likely be highly competitive. We cannot assure you that we will be successful in obtaining any grants, loans and other incentives.
In addition, as a result of our termination of the Sion passenger car program in February 2023 and the recent employee terminations in light of our intention to focus in the short- to medium-term on our Solar Bus Kits and similar retrofit solar products, we are in the process of withdrawing from and terminating certain grants and other incentives that we were previously awarded but no longer align with our current business model and staffing. For example, we exited the SCALE project, which related to the mass deployment of electric vehicles and the accompanying smart charging infrastructure/V2G (vehicle-to-grid) to demonstrate how AC bi-directional charging can support the electric grid (e.g. by reducing peak loads) using open standards, and as a result were required to repay some of the funds received in connection therewith in accordance with the Subsidiary’s Plan. If we are not successful in obtaining any of these additional incentives and unable to find alternative sources of funding to meet our planned capital needs, our business and prospects could be materially adversely affected.
We depend on the acceptance of our brand and any negative publicity relating to any of our business partners and their products or services could have a significant negative impact on our business and reputation.
Our business and prospects depend on our ability to develop, maintain, and strengthen our brand. Potential competitors could have greater name recognition, broader customer relationships and substantially greater marketing resources than we do. We have a limited budget for marketing and publicity and we may not succeed in establishing, maintaining and strengthening our brand. In addition, our brand and reputation could be severely harmed by negative publicity with respect to us, our directors, officers, employees, shareholders, peers, business partners, customers or our industry in general. Any actual or alleged misconduct by, or negative publicity relating to, any of our business partners and their products or services could have a significant negative impact on our business and reputation whether or not such publicity is directly related to their collaboration with us. Our ability to successfully build our brand could also be adversely affected by any negative perception about the quality of our business partners’ products or services.
If our solar modules or any other of our solutions fail to perform as expected, our ability to market our products could be harmed.
Our solar modules or any other of our solutions, including our Solar Bus Kits, may not perform as expected or may require repair. Our solar modules will consist of, and their performance depends on, various complex components supplied by various suppliers and assembled by a third-party manufacturer. There is no guarantee that all product specifications of our solar modules, which partly reflect our current expectations and development targets, will actually be realized if and when the commercial production and delivery of our solar modules begins or at all. Our asset-light business model and the intended production of our solar modules by an external manufacturing partner pose particular challenges to our quality management processes. Our quality management system may not be effective or sufficient and the number of defective products may be substantially higher than anticipated. The risk that we do not detect defects before the commencement of large-scale sales of our products and that our products will not comport with previously defined product specifications is heightened by our limited experience in designing, developing and manufacturing solar modules. We may experience product recalls in the future, which could result in the incurrence of substantial costs relating to, for example, return shipping for defective products and costs associated with the repair of the underlying product defect. Any product recall may consume a significant amount of our resources. Any product defects or any other failure of our products to perform as expected could harm our reputation and result in adverse publicity, lost revenue, delivery delays, product recalls, product liability claims and significant warranty and other expenses, and could have a material adverse impact on our business, financial condition, operating results and prospects.
Our advertisements may not have complied in the past and may not comply in the future with all relevant legal requirements and may be subject to misperception.
We cannot guarantee that all of our public statements that qualify as advertisements, or whole advertising campaigns, comply with legal requirements under competition law or other laws, rules or regulations. Any non-compliance could lead to administrative fines and may result in us being required to discontinue a campaign. We may also be forced to publicly correct incorrect statements. In addition, our public communications also may have contained, or may contain in the future, incorrect information or statements or may be subject to misperception. We often advertise our products with rather general characteristics and specifications that are subject to interpretation, such as “green,” or “environmentally friendly” and any statement relating thereto may spark discussions, challenges or legal claims should any of our customers or other third party have an understanding of these characteristics and specifications that differs from ours. Any of the foregoing could adversely affect our reputation and brand and our business.
We intend to market and sell our products via direct business-to-business channels and will not maintain a network of physical presences.
If and when our products reach commercial production, we intend to sell them to our customers via customary business-to-business channels rather than through physical sales offices, company-owned retail stores or another form of physical presences. This distribution model subjects us to various risks as it requires, in the aggregate, significant expenditures and provides for slower expansion of our distribution and sales systems than may be possible by utilizing a network of physical presences. Moreover, we will be competing with other market players who may have well established distribution channels. Our success will depend in large part on our ability to effectively develop our own sales channels and marketing strategies and our inability to successfully implement such a distribution model could adversely affect our business, reputation, results of operations, financial condition and prospects.
If we are unable to establish a network for aftersales customer service or otherwise successfully address the service and maintenance requirements of our customers, our business, reputation, results of operations, financial condition and prospects will be materially and adversely affected.
If and when our products reach commercial production, we intend to offer our own aftersales service and also maintain our own network of cooperating service partners for the provision of aftersales customer service. We have entered into negotiations with several potential business partners maintaining a suitable network of physical workshops to implement our concept of installation and aftersales customer service for some industries but there can be no assurance that we will be able to achieve our goal of establishing a service network that offers installation, repair, servicing, maintenance and warranty service to our customers in time or at all. Even if we successfully manage to partner with relevant service partners, they will initially only have limited experience in installation and servicing our solar modules and solutions for our customers. If our cooperation partners do not render the desired results, we may need to find further suitable external partners and enter into installation and service arrangements with them on terms and conditions acceptable to us in order to offer our customers adequate service and maintenance offerings. If we are unable to successfully address the service and maintenance requirements of our customers, our business, reputation, results of operations, financial condition and prospects will be materially and adversely affected.
Product recalls or defects that subject us to warranty claims could materially adversely affect our business, prospects, operating results and financial condition.
Our solar module technology and other solutions are complex products, and because they are still in the developmental phase, their reliability and durability in the day-to-day wear and tear have not yet been proven over a full lifetime in real-life conditions. Despite testing conducted either by us or by our supplier partners that simulated lifetime conditions, there can be no assurances about how real-life conditions may vary from the test results. In the future, we may, voluntarily or involuntarily, initiate a recall if any of our products prove to be defective or noncompliant with applicable relevant regulatory or safety standards. Relevant defects may include, for example, a lack of durability of our solar modules, intense heat development as well as thermal expansion of our modules. Any product recall in the future may result in adverse publicity and damage our brand. Such recalls could involve significant expense and diversion of management attention and other resources and could adversely affect our business, prospects, financial condition and results of operations. Furthermore, defects could result in warranty claims from customers. Warranty claims from customers that exceed our provision for warranty costs could materially adversely affect our business, operating results and financial condition.
The solar modules and other components in our products could pose certain health and safety risks.
Solar modules, including the solar modules that are part of our Solar Bus Kits, may pose various risks to the environment. Solar modules include components and complex systems that can fail, such as switches, fuses and wiring feeding the solar modules’ power into a vehicle’s systems. In addition, chemical and potentially toxic materials are used in the production of solar cells, in a process that generates many toxic byproducts such as hexafluoride. These products are dangerous for the environment as well as for humans. Even if producers of our solar modules have implemented safety procedures related to the handling of such toxic materials, a safety issue, contamination or fire related to the solar modules could disrupt operations. Furthermore, solar modules may catch fire due to, for example, spontaneous combustion, either from the parts within the modules or in the surrounding environment, due to the high levels of heat produced by the device. In the case of vehicle-applied solar solutions, such as our Solar Bus Kit, solar modules or components attached thereto that come loose may cause accidents, which may result in damage to property or even bodily harm. In addition, in the event that solar modules overcharge the battery, there is a risk of damage to the vehicle. Furthermore, depending on the type of battery used in the vehicle, overcharging may lead to the production of oxyhydrogen or even fire. Solar modules that catch fire may produce heat, smoke and toxic byproducts, may lead to the destruction of the vehicle or may cause bodily harm. While we do not currently receive official certifications from our standard suppliers of photovoltaic (PV) modules, we conduct internal and external testing of the PV modules in accordance with ISO/ECE standards. Additionally, our MCU has achieved ECE R-10 certification and therefore complies with regulatory requirements for electromagnetic compatibility.
Interruption or failure of information technology and communications systems could disrupt our business and affect our ability to effectively provide our services.
We utilize information technology systems and networks as well as cloud computing services to process, transmit and store electronic information in connection with our business activities. We manage and maintain our applications and data utilizing a combination of on-site systems as well as externally managed data centers and cloud-based data centers. We utilize third-party security and infrastructure service providers to manage our information technology systems and data centers. These applications and data encompass a wide variety of business-critical information, including research and development information, commercial information, and business and financial information as well as personal data of customers, community members or employees. In addition, we also rely on independent third-party service providers, such as Google, which play an important role for our offering, marketing channels and overall presence. Our data of any kind stored on the cloud services and on individual devices could be lost due to improper handling, insufficient commissioning of third parties to create backup copies, or due to damage or accidental or intentional deletion by our employees. Our data could also fall into the hands of third parties, whether through espionage, hacking or due to incorrect operation of the systems. Any unauthorized access to our data or any asset could result in its leakage, loss, manipulation or fraud or materially impair our business operations.
Despite the implementation of security measures by us or our service partners, our or our service partners’ systems as well as any relevant third-party service provider will be vulnerable to damage or interruption from, among others, fire, terrorist attacks, natural disasters, power loss, telecommunications failures, computer viruses, computer denial of service attacks or other attempts to harm our systems. The relevant data centers could also be subject to break-ins, sabotage and intentional acts of vandalism causing potential disruptions. Some of our or our service providers’ systems will not be fully redundant, and our disaster recovery planning cannot account for all eventualities.
Any problems with or insufficiencies of our or our service providers’ data centers or services could result in lengthy interruptions of our or our service providers’ information technology systems. Cyber threats are persistent and constantly evolving. Such threats have increased in frequency, scope and potential impact in recent years. Information technology evolves rapidly and we or our service providers may not be able to address or anticipate all types of security threats, and may not be able to implement preventive measures effective against all such security threats. The techniques used by cyber criminals change frequently, may not be recognized until launched, and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations, or hostile foreign governments or agencies. There can be no assurance that we or our service providers, contractors or consultants will be successful in preventing cyberattacks or successfully mitigating their effects. Similarly, there can be no assurance that any third-party service provider will be successful in protecting our confidential and other data that is stored on their systems. In addition, we may suffer reputational harm or face litigation or adverse regulatory action as a result of cyberattacks or other data security breaches and may incur significant additional expense to implement further data protection measures. Any disruption of the networks and services of independent third-party service providers could also negatively affect our operations, accessibility or offering.
If we are able to successfully access the unfunded portion of the Yorkville Investment, we may face risks associated with international operations, including unfavorable regulatory, political, tax and labor conditions, which could harm our business.
If we are able to successfully access the unfunded portion of the Yorkville Investment, we expect that our initial market will be central Europe, but our geographic coverage could exceed these markets. As a result, we would face risks associated with such growth, including possible unfavorable regulatory, political, tax and labor conditions, which could harm our business, as well as incurring significant expenditures necessary for satisfying relevant regulatory requirements or obtaining product certification in such new markets. Our operations will be subject to the local legal, political, regulatory and social requirements and economic conditions in the relevant jurisdictions. There is no guarantee that we will obtain relevant certifications for our products in the relevant markets or at all. We have not yet checked the feasibility of a rollout of our products in all the markets we may tap in the future and may identify political, regulatory, operational or practical hurdles, which may render an expansion into such a market unfeasible.
We have no experience to date selling our products. Any international sales would require us to make significant expenditures, including the potential hiring of local employees and potential establishment of local offices or facilities, in advance of generating any revenues. We may become subject to a number of risks associated with international business activities that may increase our costs, impact our ability to sell our products as planned and require significant management attention. If we fail to successfully address such risks, our business, prospects, operating results and financial condition could be materially harmed.
If we are unable to attract and retain key employees and hire additional qualified management, technical and engineering personnel, our ability to compete could be harmed.
Our success and financial performance depend on technological innovation and resources. Our success in such an environment depends, to a large extent, on our management and the ability to retain our key personnel. We benefit from the expertise and knowledge of our research and development team and our competitiveness could be significantly impaired should we be unable to retain the key employees in our research and development team or any other team member. Any temporary or permanent unavailability or any unexpected loss of one or more of our management members or key employees could adversely affect our business and competitiveness. Changes in management may also have a significant impact on our operations and the loyalty and motivation of our employees.
Our success also depends, in part, on our continuing ability to identify, hire, attract, train and develop highly qualified personnel. In light of our decision to terminate the Sion program in February 2023, as of the end of March 2023, we had notified 254 employees about the termination of their employment with us and, in this context, additional employees decided to leave us. Thereafter, in connection with the corporate structure and future business model envisioned in the Yorkville Investment, including the streamlined initial business focus on the Solar Bus Kit and similar retrofit solar products, in September 2023, we terminated the contracts of 40 employees, including the contracts of the four managing directors of the Subsidiary. In addition, in late October 2023, we gave notice to all of our remaining employees in the interest of protecting the Subsidiary’s creditors during the Self-Administration Proceedings by ensuring that employee wages did not result in an additional liquidity burden. Following our agreement with Yorkville on the Yorkville Investment, we offered to reinstate those employees in November 2023. While more than 80% of these employees accepted our offer to stay, these events may have damaged our reputation as an employer and may significantly negatively affect our ability to hire and retain employees. Further, the significant reduction in headcount in 2023, as well as the change in management at both the Company and Subsidiary levels in connection with the Yorkville Investment, which in both cases resulted in smaller management teams, expose us to the risk that employees with relevant knowledge and know-how may have left us and that the remaining employees may not be able, or may not have the adequate skills or time, to successfully perform all of the functions that are necessary for us to manage, develop or grow our business.
We may have to hire additional employees in order to maintain our daily operations, corporate functions and be able to complete the development of our solar technology in order to start its commercial production according to our currently envisioned timelines. We may not succeed in hiring employees in sufficient numbers or at all, as our technological solutions are complex and innovative and individuals with sufficient experience with solar technology, particularly solar technology used in vehicles, are scarce, and as a result, we will need to expend significant time and money to train available employees. Competition for qualified employees is intense, and our ability to hire, attract and retain them depends, among others, on our ability to provide competitive compensation. Despite our emergence from the Self-Administration Proceedings, these proceedings and the events that lead up to them are likely to have damaged our reputation as an employer. Furthermore, we have a limited operating history and our brand and reputation as an employer are not as developed as that of established market players. We have not yet generated any material revenues, significantly depend on external financing and may not be able to offer potential employees attractive or competitive remuneration.
We may therefore not be able to attract, integrate, develop or retain qualified personnel in sufficient quantities or at all. Any failure to do so could adversely affect our business, including the execution of our global business strategy. Unqualified or unreliable personnel may also expose us to various risks not directly related to our operations, such as violations against insider trading laws, the misappropriation of trade and business secrets or personal data from our technology infrastructure, material incorrect entries in our accounting systems, weak management of our customer or supplier relationships or logistics management.
We are exposed to various liability risks resulting from past or existing employment relationships and labor laws.
In light of our decision to terminate the Sion program in February 2023 and our financial situation, we terminated the vast majority of our employees. Thereafter, in connection with the corporate structure and future business model envisioned in the Yorkville Investment, including the streamlined initial business focus on the Solar Bus Kit, in September 2023, we terminated the contracts of 40 employees, including the contracts of the four managing directors of the Subsidiary. We may also decide to terminate further employment relationships in the foreseeable future. In the event of any employee terminations, we face the risk of legal proceedings in which the former employees may challenge their termination, claim damages or other payments and benefits in relation to their employment relationship or seek ownership in intellectual property rights and other assets. Should employees be successful in challenging terminations, we may be exposed to substantial financial and other liabilities. As of December 1, 2023, 13 employees had initiated legal proceedings against us in connection with their termination due to our changes in business model, 11 of which have already been resolved as of the date of this Annual Report. In addition, despite their termination, former employees may still claim to be, fully or partially, entitled to certain benefits granted to them while they were still employed with us, such as, for example, certain incentives, bonuses or pension entitlements. We may also be liable for substantial social security contributions with respect to terminated employees for a prolonged time.
Workforce management poses various risks and challenges, particularly in the EU and Germany, where the vast majority of our workforce is located. The labor laws in Germany are complex and rather employee-friendly. For example, the German Working Time Act (Arbeitszeitgesetz) sets out a strict framework for, among others, the length of working shifts and resting breaks, the definition of working days and holidays, work on holidays, compensation and the obligation of employers to record working times of employees. There can be no assurance that we have complied or will comply in all material aspects with applicable labor laws, which may lead to the imposition of material fines or even criminal liability and may significantly negatively affect our reputation.
Regulations and stakeholder expectations relating to environmental, social and governance matters may impose additional costs and expose us to new risks.
We continue to closely monitor developments relating to environmental, social and governance (“ESG”) regulations. At the federal level in the United States, the SEC has approved new rules requiring public companies to disclose extensive climate-related information in their registration statements and periodic reports where material. The approved rules would mandate disclosures related to material climate-related risks and their impacts, greenhouse gas emissions and climate-related financial statement metrics. While the SEC has stayed these rules given current litigation challenging their authority, we are monitoring closely the SEC requirements to be in preparation for any final court rulings. As a result of new and approved climate-related regulatory requirements, we will develop robust systems, processes, and controls for assessing and reporting our material climate-related financial risks, as well as ensuring transparency and accuracy in our disclosures.
There is an increasing focus from stakeholders, including certain investors, customers and employees, concerning ESG matters. For example, some investors may use ESG performance factors to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our policies and actions relating to ESG are inadequate. In addition, we may face reputational damage in the event that we do not meet the ESG standards set by various constituencies.
As ESG best practices and regulations continue to evolve, we expect to incur increasing costs relating to ESG monitoring, reporting and compliance, and these efforts will require substantial time and attention of management. This could have a material adverse effect on our business, results of operations, value chain and financial condition.
Fluctuations in currency exchange rates may significantly impact our results of operations.
A substantial percentage of our operations are conducted in Europe. As a result, we are exposed to an exchange rate risk between the U.S. and the Euro. The exchange rates between these currencies in recent years have fluctuated significantly and may continue to do so in the future. An appreciation of the Euro against the U.S. dollar could increase the relative cost of our products outside of Europe, which could lead to decreased sales. Conversely, to the extent that we are required to pay for goods or services in U.S. dollars, the depreciation of the Euro dollar against the U.S. dollar would increase the cost of such goods and services.
We do not hedge our currency exposure and, therefore, we incur currency transaction risk whenever we enter into either a purchase or sale transaction using a currency other than the Euro. Given the volatility of exchange rates, we might not be able to effectively manage our currency transaction risks, and volatility in currency exchange rates might have a material adverse effect on our business, financial condition or results of operations.
Our operations could be adversely affected as a result of disasters or unpredictable events.
Our operations could be disrupted, among others, by natural disasters such as earthquakes, fires or explosions, pandemics and epidemics, power outages, terrorist attacks, cyberattacks, war or other critical events. This also applies to the operations of our suppliers and other business partners. Disruptions may also result from possible regulatory or legislative changes in the relevant jurisdictions of our, our suppliers’ or our business partners’ operations.
In February 2022, Russia invaded Ukraine across a broad front. In response to this aggression, governments around the world have imposed severe sanctions against Russia. These sanctions disrupted manufacturing, delivery and supply chains at a global scale. In addition, the recent war between Israel and Hamas may also disrupt or otherwise negatively impact manufacturing, delivery and supply chains at a global scale and may also have a material impact on business relationships with customers in the region. We cannot yet foresee the full extent of the impact that these wars and the sanctions imposed as a result thereof, as well as any future sanctions that may be imposed in connection with these wars, will have on our business and operations. Such impact will depend on future developments of the wars, which are highly uncertain and unpredictable. The wars could have a material impact on our results of operations, liquidity, and capital management. We will continue to monitor the situation and the effect of these developments on our liquidity and capital management. At the same time, we have taken actions to maintain operations and to secure our supply chain.
Regulatory, Legal and Tax Risks
We are subject to substantial regulation and unfavorable changes to, or failure by us to comply with, these regulations could substantially harm our business and operating results.
We are subject to substantial regulation under international, national, regional, and local laws. We expect to incur significant costs in complying with these regulations. In addition, additional regulatory costs or hurdles may materialize in the future as we expand our operations, as we have not yet assessed all relevant legal aspects of our operations and current business model with respect to the relevant legal framework of all jurisdictions we may conduct business in. Regulations related to the mobility and e-mobility industry and alternative energy are evolving and we face risks associated with changes to these regulations. We are unable to predict future legislative or regulatory changes, initiatives or interpretations and any such changes, initiatives or interpretations may increase costs and competitive pressure on us. To the extent laws change, our products may not comply with applicable international, national, regional or local laws, which would have an adverse effect on our business. Compliance with changing regulations could be burdensome, time consuming and expensive. To the extent compliance with new regulations is cost prohibitive, our business, prospects, financial condition and operating results would be adversely affected.
We are subject to various environmental laws and regulations that could impose substantial costs upon us.
Our operations, are or will be subject to international, national, regional and/or local environmental laws and regulations, including, in the jurisdictions in which we intend to sell our products, laws relating to the use, handling, storage, disposal and human exposure to hazardous materials (including the German Federal Soil Protection Act (Bundes-Bodenschutzgesetz), and Regulation (EC) no. 1907/2006 (REACH)). Furthermore, we will be affected by the Extended Producer Responsibility, an EU policy approach under which producers are given a significant responsibility - financial and/or physical - for the treatment or disposal of post-consumer products. We may be or become subject to various environmental, social and governance-related regulations in the future, such as the EU Corporate Sustainability Reporting Directive, EU Taxonomy for sustainable activities, the EU Corporate Sustainability Due Diligence Directive or the Act on Corporate Due Diligence Obligations in Supply Chains (“Lieferkettensorgfaltspflichtengesetz”, LkSG) including as a result of recent legislative or regulatory initiatives. Environmental and health and safety laws and regulations can be complex. We expect that we will be affected by future amendments to such laws or other new environmental and health and safety laws and regulations, which may require us to change our operations, potentially resulting in a material adverse effect on our business, prospects, financial condition and operating results.
These laws can give rise to liability for administrative oversight costs, cleanup costs, property damage, bodily injury, fines and penalties. Capital and operating expenses needed to comply with environmental laws and regulations can be significant, and violations may result in substantial fines and penalties, third-party damages, suspension of production or a cessation of our operations.
We may be involved in legal proceedings based on the alleged violation of intellectual property rights either by us or third parties, such as patent or trademark infringement claims, which may be time-consuming and cause us to incur substantial costs.
Technological innovation will be a crucial aspect of our potential success. We have been granted several patents for our technologies and intend to continue to file additional patent applications in the future. As the number of competitors in our market increases, and as the number of patents issued in the area of mobility grows, the possibility of patent infringement claims against us or by us increases. While we are not aware that our technologies infringe the proprietary rights of any third party or that technologies of a third party infringe our proprietary rights, we do not regularly conduct freedom to operate searches. Policing violations of our intellectual property rights or unauthorized use of our proprietary technology can be difficult and result in substantial costs. Litigation may be necessary to enforce our intellectual property rights or determine the validity and scope of our proprietary rights and of others. We cannot ensure that the outcome of such potential litigation will be in our favor, and such litigation may be costly and may divert management attention and other resources away from our business. We may not be able to manufacture or commercialize our technology as planned and our freedom to operate may be impaired, absent a license, which may not be available on reasonable terms or at all, should we fail to successfully identify or challenge any patents or patents applications that cover our technology or innovations. This risk is more pronounced against the background that it is difficult for industry participants, including us, to identify all third-party patent rights that may be relevant to our product candidates and technologies because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. We may in-license patents and other intellectual property from third parties, including suppliers and service providers, and we may face claims that our use of this in- licensed technology infringes the intellectual property rights of others. In such cases, we will seek indemnification from our licensors. However, our rights to indemnification may be unavailable or insufficient to cover our costs and losses.
We may be required to participate in interference, derivation or opposition proceedings that concern disputes regarding priority of inventions disclosed in our patents. Determining patent infringement by a product, as well as priority of inventions and other patent-related disputes, involves complex legal and factual issues and the outcome is often uncertain. We have not conducted any significant search of patents issued to third parties, and third-party patents containing claims covering our technology or methods that predate our patents may exist. Because of the number of patents issued and patent applications filed in our technical areas or fields (including some pertaining specifically to electric vehicles), we may identify third party technologies that infringe our patents or our competitors or other third-parties may assert that our technology and the methods we employ in the use of products incorporating our technology are covered by patents held by them. In addition, because patent applications can take many years to issue and because publication schedules for pending applications vary by jurisdiction, we may not be aware of certain patent applications that are currently pending, which applications may result in issued patents that our technology or other future products would infringe. Also, because the claims of published patent applications can change between publication and patent grant, there may be published patent applications that may ultimately issue with claims that we infringe.
Our ability to successfully commercialize our solar technology, and therefore our ability to potentially generate meaningful revenue streams, may be significantly impaired should it or any of its components violate third parties’ intellectual property rights. The scope of patent claims is subject to construction based on interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect. Established vehicle manufacturers, technology companies or other market players may invest significant resources and capital to protect their intellectual property and scan the market for potential violations. There is a heightened risk that inquiries or legal proceedings based on the alleged violation of intellectual property rights are initiated by established vehicle manufacturers or technology companies that develop and test technologies similar to ours and that have much more resources and funds than us. Other companies owning patents or other intellectual property rights relating to technologies relevant for us, such as solar modules or electronic power management systems may also allege infringement of such rights. In addition, we may also be exposed to claims from individuals who were or are engaged in the design and development of our technologies or previously developed vehicles. We initiated mass layoffs of former employees in connection with the change in our business model, which increases the risk for retaliatory actions. Former employees who left us or were terminated may seek to assert ownership in or otherwise challenge intellectual property rights that we claim or are crucial for our plans. The publicity interest we receive as a public company draws significant attention to us and likely generally increases the risks of such claims and legal proceedings, no matter whether such claims lack the required merits or not or are of merely fraudulent nature.
In addition, we may be required to indemnify our customers and distributors against claims relating to the infringement of intellectual property rights of third parties related to our products. Third parties may assert infringement claims against our customers or distributors. These claims may require us to initiate or defend protracted and costly litigation on behalf of our customers or distributors, regardless of the merits of these claims. If any of these claims succeed, we may be forced to pay damages on behalf of our customers or distributors, or may be required to obtain licenses for the products or services they use. If we cannot obtain all necessary licenses on commercially reasonable terms, our distributors may be forced to stop distributing our products or services, and our customers may be forced to stop using our products or services.
The outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance. Because of the substantial amount of discovery required in certain jurisdictions in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. If we are required to obtain a license from any third party in order to use the infringing technology and continue developing, manufacturing or marketing our products, we may not be able to obtain such required license on commercially reasonable terms or at all, including due to competitors being unwilling to provide us a license under any terms. A successful claim of infringement of intellectual property against us could therefore materially adversely affect our business, prospects, operating results and financial condition. Any litigation or claims, whether valid or invalid, could result in substantial costs and diversion of resources and we have not yet created any reserves for litigation related to intellectual property.
If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest, which may adversely affect our business.
Our trademark registrations and applications are valuable assets and may be challenged, infringed, circumvented or declared generic or determined to infringe a third party’s trademarks. In March 2022, we filed eight new trademarks with the European Union Intellectual Property Office, each of which has been opposed by two separate opponents. We are currently in negotiations with these opponents and are seeking an amicable solution. In addition, one of those opponents has also opposed our European registered trademark of our circle with a dot between the words Sono Motors. We may not be able to protect our rights to these trademark registrations or applications, which may be necessary to build name recognition among potential collaborators or customers in our markets of interest. For example, we have failed in some jurisdictions to obtain protection for our circle with a dot in the middle, if it is not combined with other distinctive elements. Equally, there can be no assurance that we will be successful in registering additional or replacement trademarks if we were to engage in a rebranding. At times, competitors may adopt trademarks or trade names similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trademark infringement claims brought by owners of other trademarks or trademarks that incorporate variations of our trademark registrations or applications. We have not conducted any availability searches for trademarks to assess whether our trademark registrations would not infringe a third party’s trademarks, or whether our trademark applications would be successfully registered. We can provide no assurance that our pending trademark applications will be approved. Successful third-party challenges to the use of any of our trademarks may require us to rebrand our business or certain products or services associated therewith.
Over the long term, if we are unable to establish name recognition based on our trademarks, then we may not be able to compete effectively and our business may be adversely affected. We may fail to adequately maintain the quality of our products and services associated with our trademarks, and any loss to the distinctiveness of our trademarks may cause us to lose certain trademark protection, which could result in the loss of goodwill and brand recognition in relation to our name and products. In addition, we may license our trademarks to third parties, such as distributors. Though these license agreements may provide guidelines for how our trademarks may be used, a breach of these agreements or misuse of our trademarks by these licensees may jeopardize our rights in or diminish the goodwill associated with our trademarks. Our efforts in enforcing or protecting our trademarks may be ineffective and could result in substantial costs and diversion of resources and adversely affect our business.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers or claims asserting ownership of what we regard as our own intellectual property.
Some of our employees were previously employed at other companies that may have proprietary rights related to our business. Some of these employees may have executed proprietary rights, non-disclosure and noncompetition agreements in connection with such previous employment. Although we try to ensure that such individuals do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of their former employers. We are not aware of any such disclosures, or threatened or pending claims related to these matters, but in the future, litigation may be necessary to defend against such claims. If we fail to defend any such claims, we may lose valuable intellectual property rights or personnel, and may be required to pay monetary damages and be enjoined from conducting our business as contemplated. Even if we are successful in defending against such claims, litigation can be expensive and time-consuming.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business or permit us to maintain our competitive advantage.
For example:
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others may be able to make products or processes that are identical or similar to any product or process we may develop and commercialize or utilize similar intellectual property or technologies that we now or may in the future own or have in-licensed; |
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we or our future licensors or collaborators might not have been the first to make the inventions covered by the patents or pending patent applications that we own or have in- licensed; |
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we or our future licensors or collaborators might not have been the first to file patent applications covering certain of our or their inventions; |
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others may independently develop similar or alternative intellectual property or technologies or duplicate any of our intellectual property or technologies without infringing our owned or in-licensed intellectual property rights; |
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it is possible that our pending patent applications or those that we may own or in-license in the future will not lead to issuance of patents; |
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patents that we own or have in-licensed may be held invalid or unenforceable, including as a result of legal challenges by our or our licensors’ competitors; |
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our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products or processes for sale in our major commercial markets; |
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we may not develop additional trade secrets or proprietary know-how that is patentable; |
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the patents of others may have an adverse effect on our business and/or our technology may infringe existing third party patents, leading to either loss of freedom to operate or the need to pay license fees; |
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we may choose not to file a patent in order to maintain certain trade secrets or proprietary know-how, and a third party may subsequently file a patent covering such trade secrets or proprietary know-how; and |
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a third party may infringe our patents resulting in the need for legal action, including potential litigation, to protect our patents, and there can be no guarantees that we would be successful in such legal actions in all jurisdictions. |
Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations and reputation.
We may be subject to various privacy laws, the violation of which could result in substantial fines and other negative consequences.
We collect, store and process substantial amounts of data in the course of our business operations, which may subject us to various data protection and privacy laws. The regulatory framework for data protection, privacy and security issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future.
The data and information we collect and manage in conducting our business may subject us to legislative and regulatory burdens and requirements in the European Economic Area (“EEA”) and the United States of America that could require notification of data breaches, restrict our use of such information and hinder our ability to acquire new customers or market to existing customers. We have not yet implemented a comprehensive set of internal- or external-facing written data protection and privacy policies, procedures and rules. Non-compliance or a major breach of our network security and systems could have serious negative consequences for our business and future prospects, including possible fines, penalties and damages, reduced customer demand for our products, and harm to our reputation and brand. For instance, Regulation (EU) 2016/679 of the European Parliament and of the Council of April 27, 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (the General Data Protection Regulation, “GDPR”) imposes strict limitations on the processing of personal data. The GDPR and other data privacy laws regulate when and how personal data may be collected, for which purposes it may be processed, for how long such data may be stored and to whom and how it may be transferred. The GDPR contains strict requirements for obtaining the consent of data subjects (i.e., the persons to whom personal data relates) to the use and processing of their personal data and also requires the implementation of appropriate technical and organizational measures, depending on the nature of the processing activities, and imposes certain documentation obligations relating to data processing activities. The GDPR also imposes various obligations in the context of processing of data, including, among others, far-reaching transparency, data minimization, storage limitations, privacy by design and privacy by default obligations, data security, integrity and confidentiality obligations. In addition, it may require data protection impact assessments where the data processing is likely to result in a high risk to the rights and freedoms of individuals. In case of a violation of the provisions of the GDPR, we could be subject to fines of up to €20,000,000 or up to 4% of our total worldwide annual turnover of the preceding financial year, whichever is higher, and other administrative penalties. We may also be liable should any individual who has suffered financial or non-financial damage arising from our infringement of the GDPR exercise their right to receive compensation against us. Furthermore, adverse publicity relating to our failure to comply with the GDPR could cause a loss of goodwill, which could have an adverse effect on our reputation, brand, business and financial condition. In addition, local authorities may construe new regulations in a way that is even more restrictive and there is no guarantee that we will be able to comply with such restrictive approaches.
There is a risk that personal data that we process could become public if there were a security breach in respect of such data and, if such security breach were to occur, we could face liability under data protection laws, including the GDPR, and lose the goodwill of our customers, which may have a material adverse effect on our reputation, brand, business and financial condition. Any risk of liability under data protection laws, including the GDPR, is more pronounced against the background of our mass terminations of employees that we implemented in connection with the change in our business model and which could subject us to retaliatory actions by former employees, including willful data leakages or the disclosure of confidential information.
We are exposed to the risk of litigation or other legal proceedings that could cause us to spend substantial resources and disrupt our business.
We are exposed to the risk of product liability claims, regulatory action and litigation if any defect of our solar technology solutions or other innovations is alleged to have caused loss or injury. We face the risk of significant monetary exposure to product liability claims in the event our products do not perform as expected or contain design, manufacturing, or warning defects, and to claims without merit, or in connection with malfunctions, resulting in personal injury or death. Product liability claims could arise, for example, from malfunctions, defects, quality issues, design flaws or structural weaknesses relating to, or abuse of, our solar technology solutions implemented in or offered with vehicles. Our risks in this area are particularly pronounced given the limited field experience of our products and because we are a new entrant into the market. Any product liability claims or corresponding regulatory actions against us could result in increased costs and could adversely affect our reputation and our perception by our customers. We may not be able to secure product liability insurance coverage on commercially acceptable terms, at reasonable costs when needed, or at all and insurance coverage might not be sufficient to cover all potential product liability claims.
In light of our decision to terminate the Sion passenger car program in February 2023, as of the end of March 2023, we had notified 254 employees about the termination of their employment with us. Thereafter, in connection with the corporate structure and future business model envisioned in the Yorkville Investment, including the streamlined initial business focus on the Solar Bus Kit and similar retrofit solar products, in September 2023, we terminated the contracts of 40 employees, including the contracts of the four managing directors of the Subsidiary. We may also decide to terminate further employment relationships in the future. In the event of any employee terminations, we face the risk of legal proceedings in which the former employees may challenge their termination, claim damages or other payments and benefits in relation to their employment relationship or seek ownership in intellectual property rights and other assets. Should employees be successful in challenging terminations, we may be exposed to substantial financial and other liabilities. As of December 1, 2023, 13 employees had initiated legal proceedings against us in connection with their termination due to our changes in business model, 11 of which have already been resolved as of the date of this Annual Report. We also terminated and settled relationships with several former business partners that became obsolete. Former business partners may assert substantial payment claims or sue us for damages.
Furthermore, we may also face litigation and legal proceedings based on advertisements or other public statements should such statements turn out to be unrealistic, unfeasible or false or should the overall advertised performance or specifications of our products deviate from such advertisements or public statements.
We may or will be, as the case may be, subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and our compliance systems may not be sufficient to adequately prevent or detect legal, financial and operational risks.
Our business may or will be subject to various laws and regulations relating to, among other things, prevention of illegal employment, bribery and corruption, and money laundering, as well as compliance with antitrust, data protection (particularly the GDPR), consumer protection, minimum wage regulations, various criminal as well as export control regulations and trade and economic sanctions and embargoes on certain countries, persons, groups and/or entities, projects and/or activities. We are reliant on the compliance of our employees and the members of our management board, our contractors, consultants, agents, vendors and (other) collaboration partners with applicable laws and compliance policies implemented by us.
However it cannot be excluded that our employees, the members of the management board, our contractors, consultants, agents, vendors and (other) collaboration partners have committed or will commit criminal, unlawful or unethical acts (including corruption) or that our compliance and risk management and its monitoring capabilities may prove insufficient to prevent or detect any breaches of the law. Any such acts or breaches of law could result in whistle-blower complaints, adverse media coverage, (criminal) investigations, significant civil, administrative, and criminal penalties and damage claims, disgorgement or other sanctions, (collateral) consequences, remedial measures and legal expenses, and cause considerable damage to our reputation, thereby negatively affecting our business, results of operations, financial condition and future business opportunities.
We may become subject to additional Dutch and German taxes, in particular, due to the statutory seat of the Company in the Netherlands.
There is a risk that the German tax authorities classify the Company as Dutch tax resident. If the German tax authorities conclude that the Company is not, has ceased, or ceases to be (also as a consequence of the change of facts or the law), a German tax resident, it could, inter alia, become subject to German exit taxation. This could have serious German tax consequences, including German exit taxes or the increase of German withholding taxes on dividends received by the Company. Such German exit taxes could lead to the taxation of the built-in gains in the assets (e.g., intellectual property or goodwill) of the Company.
If we do pay dividends, we may need to withhold tax on such dividends payable to holders of our shares in both Germany and the Netherlands.
We currently do not intend to pay any dividends to holders of our ordinary shares. However, if we do pay dividends, we may need to withhold tax on such dividends in both Germany and the Netherlands.
As an entity incorporated under Dutch law, any dividends distributed by us are subject to Dutch dividend withholding tax based on Dutch domestic law. However, on the basis of the 2012 Convention between the Federal Republic of Germany and the Kingdom of the Netherlands for the avoidance of double taxation with respect to taxes on income, or the “double tax treaty between Germany and the Netherlands,” the Netherlands will be restricted in imposing these taxes if we continue to be a tax resident of Germany and our place of effective management is located in Germany. This withholding tax restriction does, however, not apply, and Dutch dividend withholding tax is still required to be withheld from dividends, if and when paid to Dutch resident holders of our ordinary shares and non-Dutch resident holders of our ordinary shares that have a permanent establishment in the Netherlands to which their shareholding is attributable. As a result, upon a payment (or deemed payment) of dividends, we will be required to identify our shareholders in order to assess whether there are Dutch residents (or non-Dutch residents with a permanent establishment in the Netherlands to which the ordinary shares are attributable) in respect of which Dutch dividend tax has to be withheld. Such identification may not always be possible in practice. If the identity of our shareholders cannot be determined, withholding of both German and Dutch dividend tax may occur upon a payment of dividends.
Furthermore, the withholding tax restriction referred to above is based on the current choices and reservation made by Germany under the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI”). If Germany changes its MLI choices and reservation, we may not be entitled to any benefits of the double tax treaty between Germany and the Netherlands, including the withholding tax restriction, as long as Germany and the Netherlands do not reach an agreement on our tax residency for purposes of the double tax treaty between Germany and the Netherlands, and, as a result, any dividends distributed by us during the period no such agreement has been reached between Germany and the Netherlands may be subject to withholding tax both in Germany and the Netherlands.
We may become taxable in a jurisdiction other than Germany and this may increase the aggregate tax burden on us.
Since our incorporation we have had, on a continuous basis, our place of “effective management” in Germany (albeit that such management connection with Germany has been diluted). The German tax authorities may still deem the remaining management connection or other local presence sufficiently strong to assert taxing rights under German domestic law. As an entity incorporated under Dutch law, however, we also qualify as a tax resident of the Netherlands on the basis of Dutch domestic law. Yet, based on our current management structure and the current tax laws of the United States, Germany and the Netherlands, as well as applicable income tax treaties, and current interpretations thereof, if the German tax authorities would seek to assert taxing rights due to effective management from Germany, we should qualify solely as a tax resident of Germany for the purposes of the double tax treaty between Germany and the Netherlands due to the “effective management” tie-breaker included in Article 4(3) of the double tax treaty between Germany and the Netherlands and the current MLI choices and reservation, seeing that management ties with the Netherlands are entirely absent. Our sole tax residency in Germany for purposes of the above-mentioned tax treaty is subject to the application of the provisions on tax residency as stipulated in such treaty as amended from time to time. The MLI, Germany and the Netherlands entered into, among other countries, should not, as of this date, affect such tax treaty’s rules regarding tax residency.
The test of “effective management” is largely a question of fact and degree based on all the circumstances, rather than a question of law. Nevertheless, the relevant case law and OECD guidance suggest that our Company is unlikely to be regarded as a Dutch tax resident in a tax treaty context if, as our Company intends, (i) no management board meetings will be held in the Netherlands and management board members attending through video conferencing will not be present in the Netherlands for those meetings; (ii) at those meetings there are full discussions of, and decisions are made regarding, the key strategic issues affecting our Company and its subsidiaries; (iii) those meetings are properly minuted; (iv) none of our management board members, together with supporting staff, are based in the Netherlands; and (v) our Company does not have permanent staffed office premises in the Netherlands. We may, however, become subject to income tax liability in other countries with regard to the income generated in the respective other country, for example, due to the existence of a permanent establishment or a permanent representative in such other country.
The applicable tax laws, tax treaties or interpretations thereof may change, including the MLI choices and reservation. Furthermore, whether we have our place of effective management in Germany and are as such solely tax resident in Germany is largely a question of fact and degree based on all the circumstances, rather than a question of law, which facts and degree may also change. Changes to applicable tax laws or interpretations thereof, changes to applicable facts and circumstances (for example, a change of directors or the place where board meetings take place), or changes to applicable tax treaties, including a change to the application of the MLI, may result in a taxable presence in (an)other jurisdiction(s). See “Item 3. Key Information—D. Risk Factors—Regulatory, Legal and Tax Risks—If we do pay dividends, we may need to withhold tax on such dividends payable to holders of our shares in both Germany and the Netherlands.” As a consequence, our overall effective income tax rate and income tax expense could materially increase, which could have a material adverse effect on our business, results of operations, financial condition and prospects, which could cause our share price and trading volume to decline.
We may be or become a passive foreign investment company (“PFIC”), which could result in adverse United States federal income tax consequences to United States investors.
Based on the composition of our income and valuation of our assets, including goodwill, we believe that we were not a PFIC in our taxable year ended December 31, 2023. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, we will be classified as a PFIC for United States federal income tax purposes if either: (1) 75% or more of our gross income in a taxable year is passive income, or (2) the average percentage of our assets by value in a taxable year which produce or are held for the production of passive income (which includes cash) is at least 50%.
Our PFIC status is a factual determination that is made annually and thus may be subject to change. It is therefore possible that we could become a PFIC in our taxable year ending December 31, 2024 or in a future taxable year.
If we are or were to become a PFIC, such characterization could result in adverse United States federal income tax consequences and burdensome reporting requirements to a holder of ordinary shares if such holder is a United States investor. See “Item 10. Additional Information—E. Taxation—U.S. Federal Income Tax Considerations—PFIC Rules”.
Risks Related to Our Shares
Sales of substantial amounts of our ordinary shares in the public market, or the perception that these sales may occur, could cause the market price of our ordinary shares to decline.
Sales of substantial amounts of our ordinary shares in the public market, or the perception that these sales may occur, could cause the market price of our ordinary shares to decline. This could also impair our ability to raise additional capital through the sale of our equity securities. Under our articles of association, we are authorized to issue up to 320,000,000 ordinary shares. Although our articles of association provide that upon an increase of our issued share capital to at least €25,000,000 our authorized share capital will automatically increase to €102,000,000, divided into 1,500,000,000 ordinary shares and 8,000,000 high voting shares, in connection with the Yorkville Investment, shareholders at the EGM (as defined herein) approved a proposal to increase (in one or a series of amendments) our authorized share capital in order to cover conversions under the convertible debentures held by Yorkville. An issuance of new ordinary shares may also lead to substantial dilution of our then existing shareholders. We cannot predict the size of future issuances of our shares, or the effect, if any, that future issuances and sales of shares would have on the market price of our ordinary shares.
Our ordinary shares were delisted from Nasdaq, which has had and may continue to have a material adverse effect on our business and the trading and price of our ordinary shares.
Our ordinary shares were delisted from Nasdaq effective February 25, 2024. As at the date of the filing of this Annual Report, the Company’s securities are quoted on the OTC Markets Pink Open Market (“OTC Pink Market”) on an “unsolicited only” basis.
The OTC Pink Market is a regulated quotation service that displays real-time quotes, last-sale prices and volume information in the over-the-counter equity securities and provides significantly less liquidity than a listing on the Nasdaq Stock Markets or other national securities exchange. OTC Pink Market securities are traded by a community of market makers that enter quotes and trade reports. This market is limited in comparison to the national stock exchanges and any prices quoted may not be a reliable indication of the value of our securities. Quotes for securities included on the OTC Pink Market are not listed in the financial sections of newspapers as are those for the Nasdaq Stock Market or the NYSE. Therefore, prices for securities traded solely on the OTC Pink Market may be difficult to obtain.
Trading on the OTC Pink Market as opposed to a national securities exchange had resulted and may continue to result in a reduction in some or all of the following, each of which could have a material adverse effect on the price of our ordinary shares and our company:
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liquidity of our ordinary shares; |
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the market price of our ordinary shares; |
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more difficult and more expensive financings in the future; our ability to obtain financing to support our operations and the implementation of our business plan; |
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decreased ability to issue additional securities or obtain additional financing in the future; |
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loss of exemption under U.S. state securities registration requirements, which may require us to comply with applicable U.S. state securities laws; |
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the number of institutional and other investors that will consider investing in our ordinary shares; |
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the number of market markers in our ordinary shares; |
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the availability of information concerning the trading prices and volume of our ordinary shares; and |
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the number of broker-dealers willing to execute trades in our ordinary shares. |
In addition, the market price of our ordinary shares could be subject to wide fluctuations in response to:
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actual or anticipated fluctuations in our results of operations; |
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the sale by us of our ordinary shares or other securities, or the anticipation of sales of such securities; |
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the trading volume of our ordinary shares, particularly if such volume is light; |
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the introduction of new products or services, or product or service enhancements by us or our competitors; |
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announcements of significant acquisitions or other agreements by us or our competitors; |
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sales or anticipated sales of our ordinary shares by our officers and directors; |
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conditions and trends in our industry; |
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changes in our pricing policies or the pricing policies of our competitors; |
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changes in the estimation of the future size and growth of our markets; and |
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general economic conditions. |
The stock market in general, and the OTC Pink Market in particular, have experienced extreme price and volume fluctuations that in some cases may be unrelated or disproportionate to the operating performance of companies. These broad market and industry factors may materially harm the market price of our ordinary shares, regardless of our operating performance. In addition, this volatility could adversely affect an investor’s ability to sell our ordinary shares and/or the available price for such ordinary shares, at any given time.
We are currently applying to have our ordinary shares admitted for trading on the OTCQB, and in the future, we plan to seek to relist our ordinary shares on a national stock exchange through the normal relisting application process. However, we cannot assure you that we will list our ordinary shares successfully on Nasdaq or another national securities exchange, or that once listed, our ordinary shares will remain listed thereon. An active trading market for the Company’s ordinary shares may never develop or, if developed, it may not be sustained. You may be unable to sell your ordinary shares unless an active market for such ordinary shares can be established and sustained.
Following the delisting of our ordinary shares from Nasdaq in February 2024, we may not be able to meet the initial listing requirements for admission of our shares to trading on a stock exchange in the future or to pay for the costs associated with such an initial listing, and therefore may not be able to have our shares admitted to trading on a stock exchange in the future.
On December 11, 2023, the Company received a decision of the Panel advising the Company that the Panel had determined to delist the Company’s ordinary shares from Nasdaq. Nasdaq filed a Form 25 Notification of Delisting with the SEC on February 15, 2024 to complete the delisting.
On July 12, 2023, we received a delisting notice from Nasdaq stating that the staff of the Listing Qualifications Department (the “Staff”) has determined that our securities will be delisted from Nasdaq in accordance with Listing Rules 5101, 5110(b) and IM-5101-1 and notifying us of the suspension in trading of our common shares as of the opening of business on July 21, 2023. The delisting notice further stated that a Form 25-NSE was to be filed with the SEC, which would remove our securities from listing and registration on Nasdaq. The Staff’s determination was based on the following factors: the associated public interest concerns raised by our announcement of the applications for the Self-Administration Proceedings; concerns regarding the residual equity interest of the existing listed securities holders; and concerns about our ability to sustain compliance with all requirements for continued listing on Nasdaq. The delisting notice further stated that our failure (up to that time) to file our Annual Report on Form 20-F for the fiscal year ended December 31, 2022 with the SEC and Nasdaq and resultant failure to comply with Nasdaq’s filing requirement as set forth under Listing Rule 5250(c)(1) served as an additional and separate basis for delisting.
On August 28, 2023, we received an additional staff determination letter (the “Letter”) from the Staff stating that, for the 12 consecutive trading days prior to the Letter, the closing bid price of our ordinary shares had been below $0.10, which served as an additional basis for delisting our ordinary shares from Nasdaq pursuant to Listing Rule 5810(c)(3)(A)(iii). In addition, the Letter stated that the resignation in April 2023 of four out of five members of our supervisory board, including all of our independent members, and our resultant failure to meet the audit committee requirement for continued listing on Nasdaq set forth in Listing Rule 5605(c)(2), served as an additional basis for delisting our ordinary shares from Nasdaq. We appealed the delisting determination and appeared before the Panel on September 14, 2023.
Trading of our ordinary shares on Nasdaq was suspended on July 21, 2023. Since then, our ordinary shares have been quoted on the over-the-counter market, and we are currently applying to have our ordinary shares admitted to trading on OTCQB, which we expect to occur shortly after the filing of this Annual Report. Over-the-counter markets which are less visible, less accessible and less liquid markets. Furthermore, there can be no assurance that we will be able to meet the initial listing requirements for admission of our shares to trading on a stock exchange in the future and pay for the costs associated with an initial listing on a stock exchange. At our extraordinary general meeting of shareholders convened on January 31, 2024 (the “EGM”), shareholders approved a proposal to effect the Reverse Share Split (as defined herein) of the ordinary shares and high voting shares and, as part of the Reverse Share Split, to reduce the nominal value per ordinary share and high voting share. Our management board has been authorized by the shareholders at the EGM to determine the exchange ratio for the Reverse Share Split. The Reverse Share Split and the reduction of nominal value of ordinary shares and high voting shares is effected by means of an amendment of our articles of association. The purpose of such proposal is to increase the price of the Company’s ordinary shares and enable a potential application for admission of our ordinary shares to trading on a stock exchange in the future; however, such efforts may not be sufficient. As a result, there can be no assurance that we will be able to have our shares admitted to trading on a stock exchange in the future.
The market price of our ordinary shares could fluctuate significantly, which could result in substantial losses for purchasers of our ordinary shares.
The stock market in general and the market for smaller technology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may lose some or all of your investment. The market price of our ordinary shares is affected by the supply and demand for our ordinary shares, which may be influenced by numerous factors, many of which are beyond our control, including:
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fluctuation in actual or projected results of operations; changes in projected earnings or failure to meet securities analysts’ earnings expectations; the absence of analyst coverage; |
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negative analyst recommendations; |
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changes in trading volumes in our ordinary shares (including by the sale of shares granted to our employees under employee participation programs); |
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large-volume or targeted transactions by short-sellers; |
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changes in our shareholder and/or share structure; |
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the Reverse Share Split (as defined herein); |
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changes in macroeconomic conditions; |
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the activities of competitors and sellers; |
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changes in the market valuations of comparable companies; |
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our ability to successfully develop and refine our solar technology and business and reach market readiness; |
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the recruitment or departure of key management or other key employees; |
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significant lawsuits, including patent, shareholder or customer litigation; |
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the fact that our shares are not currently listed on a stock exchange; |
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changes in investor and analyst perception with respect to our business or the solar technology and automotive industries in general; and |
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changes in the statutory framework applicable to our business. |
As a result, our share price may be subject to substantial fluctuation.
In addition, general market conditions and fluctuation of share prices and trading volumes could lead to pressure on the market price of our ordinary shares, even if there may not be a reason for this based on our business performance or earnings outlook. Prices for companies with a limited operating history, particularly in industries with barriers such as the solar technology and mobility industries, may be more volatile compared to share prices for established companies or companies from other industries. The price of our shares has been volatile since our IPO.
If the market price of our ordinary shares declines as a result of the realization of any of these risks, investors could lose part or all of their investment in our ordinary shares.
Additionally, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the shares. If any of our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.
Our dual-class share structure with different voting rights will limit your ability as a holder of ordinary shares to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of ordinary shares may view as beneficial.
We have a dual-class share structure, which we currently intend to maintain, as our share capital consists of ordinary shares and high voting shares. In respect of matters requiring the votes of shareholders, holders of ordinary shares will be entitled to one vote per share, while holders of high voting shares will be entitled to 25 votes per share. Each high voting share is convertible into one ordinary share at any time by the holder thereof, while ordinary shares are not convertible into high voting shares under any circumstances.
As of the date of this Annual Report, all of the Company’s high voting shares are held by SVSE LLC, a Delaware limited liability company (“SVSE”). The sole member of SVSE is George O’Leary, the Company’s CEO, CFO and sole managing director. The current concentration of ownership, if so maintained, may discourage, delay or prevent a change in control of our Company, which could deprive our other shareholders of an opportunity to receive a premium for their ordinary shares as part of a sale of our Company and might ultimately affect the market price of our ordinary shares. Such concentrated control will limit your ability to influence corporate matters that holders of ordinary shares may view as beneficial. In addition, certain index providers, such as S&P Dow Jones or FTSE Russell, view multi-class shares critically and have amended their rules so that companies with multi-class shares will no longer be added to their indexes. For information about the percentage of voting rights held by our major shareholders, see “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders”.
Future offerings of debt or equity securities by us could adversely affect the market price of our ordinary shares, and future issuances of equity securities could lead to a substantial dilution of our shareholders.
We will require significant additional capital in the future to finance our business operations and growth. For example, we will require additional funding to reach commercial operation, and we may seek to offer new equity and/or debt in the future for such funding. The Company may seek to raise such capital through the issuance of additional equity or debt securities with conversion rights (e.g., convertible bonds and option rights) or preferred equity (e.g., preference finance shares). An issuance of additional equity or debt securities with conversion rights could potentially reduce the market price of our ordinary shares and the Company currently cannot predict the amounts and terms of such future offerings. We expect such funding to be in the form of, or at least include, additional equity fundraising, which will dilute existing shareholders.
If such offerings of equity or debt securities with conversion rights are made without granting preemptive rights to our existing shareholders, these offerings would dilute the economic and voting rights of our existing shareholders. Preemptive rights may be restricted or excluded by a resolution of the general meeting or by another corporate body designated by the general meeting. In accordance with market practice and our past practice, our management board has been authorized for a period of 18 months following the date of the Company’s annual general meeting which took place on December 29, 2023 (the “AGM”) or until the next annual general meeting of shareholders (whichever comes first) to issue shares or grant rights to subscribe for shares representing up to 10% of the nominal issued capital as per the AGM and to limit or exclude preemptive rights in connection therewith. In addition, in connection with the Yorkville Investment, at our EGM shareholders approved proposals to authorize our management board as the corporate body authorized to issue ordinary shares and/or high voting shares to effect the Reverse Share Split (as defined herein) and to limit or exclude preemptive rights in connection therewith. Furthermore, shareholders at the EGM approved additional proposals to (i) grant rights to subscribe for ordinary shares (the “Debenture Shares”) to the holder(s) of the Existing Convertible Debentures (as defined herein) or the new convertible debenture(s) issued to Yorkville in connection with the Yorkville Investment, (ii) effect the potential issuance of more than 20% of the Company’s outstanding shares upon the conversion of one or more of such debentures, and (iii) exclude any pre-emption rights in relation to such debentures and the granting of rights to subscribe for the Debenture Shares. All of the foregoing could cause existing shareholders to experience substantial dilution of their interest in us.
In addition, dilution may also arise from (i) the acquisition or investments in companies in exchange, fully or in part, for newly issued ordinary shares or high voting shares, (ii) convertible rights in connection with (a) the Existing Convertible Debentures and (b) the new convertible debenture issued to Yorkville on February 5, 2024 and the additional convertible debenture(s) expected to be issued to Yorkville in connection with the Yorkville Investment, (iii) stock options or conversion rights granted to our business partners or our customers as well as from the exercise of stock options or conversion rights granted to our employees in the context of existing or future stock option programs or (iv) the issuance of ordinary shares to employees in the context of existing or future employee participation programs.
Any future issuance of ordinary shares or high voting shares could reduce the market price of our ordinary shares and dilute the holdings of existing shareholders.
Future sales by major shareholders could materially adversely affect the market price of our ordinary shares.
For various reasons, shareholders may sell all or some of our ordinary shares, including in order to diversify their investments. Sales of a substantial number of our ordinary shares in the public market, or the perception that such sales might occur, could depress the market price of our ordinary shares and could impair our ability to raise capital through the sale of additional equity securities.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our ordinary shares and trading volume could decline.
The trading market for our ordinary shares depends in part on the research and reports that securities or industry analysts publish about us or our business. If securities or industry analyst coverage results in downgrades of our ordinary shares or publishes inaccurate or unfavorable research about our business, our share price will likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets and demand for our ordinary shares could decrease, which, in turn, could cause the market price or trading volume for our ordinary shares to decline significantly.
Shareholders may not be able to exercise preemptive rights and, as a result, may experience substantial dilution upon future issuances of ordinary shares.
In the event of an issuance of ordinary shares, subject to certain exceptions, each shareholder will have a pro rata preemptive right in proportion to the aggregate nominal value of the ordinary shares held by such holder. These preemptive rights may be restricted or excluded by a resolution of the general meeting or by another corporate body designated by the general meeting. Our management board, subject to approval of our supervisory board, has been authorized, for a period of 18 months from the AGM or until the next annual general meeting (whichever comes first) to issue shares or grant rights to subscribe for shares representing up to 10% of the nominal issued capital as per the AGM and to limit or exclude preemptive rights in connection therewith. In addition, in connection with the Yorkville Investment, at our EGM shareholders approved and adopted proposals to authorize our management board as the corporate body authorized to issue ordinary shares and/or high voting shares to effect the Reverse Share Split (as defined herein) and to limit or exclude preemptive rights in connection therewith. Furthermore, shareholders at the EGM approved additional proposals to (i) grant rights to subscribe for Debenture Shares to the holder(s) of the Existing Convertible Debentures (as defined herein) or the new convertible debenture(s) issued to Yorkville in connection with the Yorkville Investment, (ii) effect the potential issuance of more than 20% of the Company’s outstanding shares upon the conversion of one or more of such debentures, and (iii) exclude any pre-emption rights in relation to such debentures and the granting of rights to subscribe for the Debenture Shares. All of the foregoing could cause existing shareholders to experience substantial dilution of their interest in us.
We do not expect to pay any dividends in the foreseeable future.
We currently intend to retain our future earnings, if any, for the foreseeable future, to fund the change in our business model, the further development of our solar technology and start of its commercial production, as well as the growth of our business. Accordingly, we currently do not intend to pay any dividends to holders of our ordinary shares. As a result, capital appreciation in the price of our ordinary shares, if any, will be your only source of gain on an investment in our ordinary shares.
Risks Related to Our Company’s Status
We have and will continue to incur increased costs as a result of operating as a public company, and our management has and will continue to be required to devote substantial time to new compliance initiatives and corporate governance practices.
As a public company we have and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company, including, but not limited to, costs and expenses for management board members’ and supervisory board members’ fees, increased directors and officers insurance, investor relations, and various other costs of a public company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have and will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance.
We are required to comply with Sections 302 and 906 of the Sarbanes-Oxley Act. In addition, pursuant to Section 404(a) of the Sarbanes-Oxley Act, we are required to furnish a report by our management on our internal control over financial reporting annually. While we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm pursuant to Section 404(b).
To achieve compliance with Section 404(a) of the Sarbanes-Oxley Act, we are engaged in documenting and evaluating our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, have engaged outside consultants and are adopting a detailed work plan to assess and document the adequacy of internal control over financial reporting. We will continue to implement steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404(a) of the Sarbanes-Oxley Act. Such conclusion could adversely impact the market price of our shares due to a loss of investor confidence in the reliability of our reporting processes.
Once we are required to include an attestation report on internal control over financial reporting by our independent registered public accounting firm pursuant to Section 404(b) of the Sarbanes Oxley Act, there is a risk that such independent assessment of the effectiveness of our internal controls over financial reporting could identify material weaknesses that our management’s assessment pursuant to Section 404(a) does not identify.
The consequences of being a public company could have a material adverse effect on our business, financial condition, results of operations and prospects.
Investors may have difficulty enforcing civil liabilities against us or the members of our management and supervisory board or our other officers (functionarissen).
We are organized and existing under the laws of the Netherlands. As such, under Dutch private international law, the rights and obligations of our shareholders vis-à-vis the Company originating from Dutch corporate law and our articles of association, as well as the civil liability of our officers (functionarissen) (including our management board members, supervisory board members and executive officers are governed in certain respects by the laws of the Netherlands.
We are not a resident of the United States and our officers of Sono Motors GmbH are not residents of the United States. As a result, depending on the subject matter of the action brought against us and/or our officers, United States courts may not have jurisdiction. If a Dutch court has jurisdiction with respect to such action, that court will apply Dutch procedural law and Dutch private international law to determine the law applicable to that action. Depending on the subject matter of the relevant action, a competent Dutch court may apply another law than the laws of the United States.
Also, service of process against non-residents of the United States can in principle (absent, for example, a valid choice of domicile) not be effected in the United States. Furthermore, substantially all of our assets are located outside the United States.
As of the date of this Annual Report, (i) there is no treaty in force between the United States and the Netherlands for the reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters and (ii) both the Hague Convention on Choice of Court Agreements (2005) and the Hague Judgments Convention (2019) have entered into force for the Netherlands, but have not entered into force for the United States. Consequently, a judgment rendered by a court in the United States will not automatically be recognized and enforced by the competent Dutch courts. However, if a person has obtained a judgment rendered by a court in the United States that is enforceable under the laws of the United States and files a claim with the competent Dutch court, the Dutch court will in principle give binding effect to that United States judgment if (i) the jurisdiction of the United States court was based on a ground of jurisdiction that is generally acceptable according to international standards, (ii) the judgment by the United States court was rendered in legal proceedings that comply with the Dutch standards of proper administration of justice including sufficient safeguards (behoorlijke rechtspleging), (iii) binding effect of such United States judgment is not contrary to Dutch public order (openbare orde) and (iv) the judgment by the United States court is not incompatible with a decision rendered between the same parties by a Dutch court, or with a previous decision rendered between the same parties by a foreign court in a dispute that concerns the same subject and is based on the same cause, provided that the previous decision qualifies for recognition in the Netherlands. Even if such a United States judgment is given binding effect, a claim based thereon may, however, still be rejected if the foreign judgment is not or no longer formally enforceable. Moreover, if the United States judgment is not final (for instance when appeal is possible or pending) a competent Dutch court may postpone recognition until the United States judgment will have become final, refuse recognition under the understanding that recognition can be asked again once the United States judgment will have become final, or impose as a condition for recognition that security is posted.
A competent Dutch court may deny the recognition and enforcement of punitive damages or other awards. Moreover, a competent Dutch court may reduce the amount of damages granted by a United States court and recognize damages only to the extent that they are necessary to compensate actual losses or damages. Thus, United States investors may not be able, or experience difficulty, to enforce a judgment obtained in a United States court against us or our officers.
The United States and Germany currently do not have a treaty providing for the reciprocal recognition and enforcement of judgments, in civil and commercial matters. Consequently, a final judgment for payment or declaratory judgments given by a court in the United States, whether or not predicated solely upon U.S. securities laws, would not automatically be recognized or enforceable in Germany. German courts may deny the recognition and enforcement of a judgment rendered by a U.S. court if they consider the U.S. court not to be competent or the decision to be in violation of German public policy principles. For example, judgments awarding punitive damages are generally not enforceable in Germany. A German court may reduce the amount of damages granted by a U.S. court and recognize damages only to the extent that they are necessary to compensate for actual losses or damages.
In addition, actions brought in a German court against us, our management board members, our supervisory board members, our senior management and the experts named herein to enforce liabilities based on U.S. federal securities laws may be subject to certain restrictions. In particular, German courts generally do not award punitive damages. Litigation in Germany is also subject to rules of procedure that differ from the U.S. rules, including with respect to the taking and admissibility of evidence, the conduct of the proceedings and the allocation of costs. German procedural law does not provide for pre-trial discovery of documents, nor does Germany support pre-trial discovery of documents under the 1970 Hague Evidence Convention. Proceedings in Germany would have to be conducted in the German language and all documents submitted to the court would, in principle, have to be translated into German. For these reasons, it may be difficult for a U.S. investor to bring an original action in a German court predicated upon the civil liability provisions of the U.S. federal securities laws against us, our management board members, our supervisory board members, our senior management and the experts named in this Annual Report.
Based on the foregoing, there can be no assurance that U.S. investors will be able to enforce against us or management board members, supervisory board members, executive officers, our other officers (functionarissen) or certain experts named herein who are residents of or possessing assets in the Netherlands, Germany and or other countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.
We are a Dutch public company. The rights of our shareholders may be different from the rights of shareholders in companies governed by the laws of U.S. jurisdictions and may not protect investors in a similar fashion afforded by incorporation in a U.S. jurisdiction.
We are a public company (naamloze vennootschap) organized under the laws of the Netherlands. Our corporate affairs are governed by our articles of association, the rules of our management board and those of our supervisory board and by the laws governing companies incorporated in the Netherlands. However, there can be no assurance that Dutch law will not change in the future or that it will serve to protect investors in a similar fashion afforded under corporate law principles in the United States, which could adversely affect the rights of investors.
The rights of shareholders and the responsibilities of management board members and supervisory board members may be different from the rights and obligations of shareholders and directors in companies governed by the laws of U.S. jurisdictions. In the performance of their duties, our management board members and supervisory board members are required by Dutch law to consider the interests of our Company, its shareholders, its employees and other stakeholders, in all cases with due observance of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder.
Our articles of association stipulate that the planet, humankind and society are important stakeholders of us and the highest principle pursued by us as part of our objects is the protection of the environment, nature and humankind. Under our articles of association, this principle shall form the foundation of our actions and the decisions of our management board and the supervisory board. On the basis of that premise, among other matters, our management board and the supervisory board may let the interests of the planet, humankind and society outweigh the interests of other stakeholders, provided that the interests of the latter stakeholders are not unnecessarily or disproportionately harmed. A resolution to amend the text or purport of these provisions of our articles of association shall require a unanimous vote in a general meeting where all of our shareholders are present or represented.
Our articles of association contain exclusive forum provisions for certain claims, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or the members of our management or supervisory board.
Our articles of association provide that unless we consent in writing to the selection of another forum, the federal district courts of the United States of America will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act or the Exchange Act (the “Federal Forum Provision”). Moreover, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all claims brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Our decision to adopt the Federal Forum Provision followed a decision by the Supreme Court of the State of Delaware holding that such provisions are facially valid under Delaware law. While there can be no assurance that federal or state courts will follow the holding of the Delaware Supreme Court or determine that the Federal Forum Provision should be enforced in a particular case, application of the Federal Forum Provision means that suits brought by our shareholders to enforce any duty or liability created by the Securities Act must be brought in federal court and cannot be brought in state court.
Section 27 of the Exchange Act creates exclusive federal jurisdiction over all claims brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder and our articles of association confirm that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Exchange Act. Accordingly, actions by our shareholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder must be brought in federal court.
We may argue that any person or entity purchasing or otherwise acquiring or holding any interest in any of our securities will have, or will be deemed to have, notice of and consented to our exclusive forum provisions, including the Federal Forum Provision. Additionally, our shareholders cannot waive compliance with the federal securities laws and the rules and regulations thereunder. These provisions may limit our shareholders’ ability to bring a claim in a judicial forum they find favorable for disputes with us or the members of our management or supervisory board, or employees and agents, which may discourage lawsuits against us and the members of our management or supervisory board or employees and agents.
Alternatively, if a court were to find the choice of forum provision contained in our articles of association to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which may have an adverse effect on our business, financial condition and results of operations.
Provisions of our articles of association or Dutch corporate law might deter acquisition bids for us that might be considered favorable and prevent, delay or frustrate any attempt to replace or remove our management board members or supervisory board members.
Under Dutch law, various protective measures are possible and permissible within the boundaries set by Dutch law and Dutch case law. In this respect, certain provisions of our articles of association may make it more difficult for a third party to acquire control of us or effect a change in our management board and supervisory board. These include:
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a dual-class share structure which consists of ordinary shares and high voting shares, with ordinary shares carrying one vote per share and high voting shares carrying 25 votes per share; |
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the high voting shares are not listed ; |
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a provision that our management board members and the supervisory board members are appointed on the basis of a binding nomination prepared by our supervisory board which can only be overruled by a two-thirds majority of votes cast representing more than half of our issued share capital; |
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a provision that our management board members and the supervisory board members may only be dismissed by the general meeting by a two-thirds majority of votes cast representing more than half of our issued share capital (unless the dismissal is proposed by the supervisory board in which case a simple majority of the votes cast would be sufficient); |
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a provision allowing, among other matters, the former chairperson of our supervisory board to manage our affairs if all of our supervisory board members are removed from office and to appoint others to be charged with the supervision of our affairs, until new supervisory board members are appointed by the general meeting on the basis of the binding nominations discussed above; and |
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a requirement that certain matters, including an amendment of our articles of association, may only be brought to our general meeting for a vote upon a proposal by our management board with the approval of our supervisory board. |
In addition, Dutch law allows for staggered multi-year terms of our management board members and supervisory board members, as a result of which only part of our management board members and supervisory board members may be subject to appointment or re-appointment in any one year.
Our management board, with the approval of our supervisory board, can – in accordance with Dutch law – invoke a cooling-off period of up to 250 days when shareholders, using their right to have items added to the agenda for a general meeting or their right to request a general meeting, propose an agenda item for our general meeting to dismiss, suspend or appoint one or more management board members or supervisory board members (or to amend any provision in our articles of association dealing with those matters) or when a public offer for our Company is made or announced without our support, provided, in each case, that our management board believes that such proposal or offer materially conflicts with the interests of our Company and its business. During a cooling-off period, our general meeting cannot dismiss, suspend or appoint management board members and supervisory board members (or amend the provisions in our articles of association dealing with those matters) except at the proposal of our management board. During a cooling-off period, our management board must gather all relevant information necessary for a careful decision-making process and at least consult with shareholders representing 3% or more of our issued share capital at the time the cooling-off period was invoked, as well as with our Dutch works council (if we or, under certain circumstances, any of our subsidiaries would have one). Formal statements expressed by these stakeholders during such consultations must be published on our website to the extent these stakeholders have approved that publication. Ultimately one week following the last day of the cooling- off period, our management board must publish a report in respect of its policy and conduct of affairs during the cooling-off period on our website. This report must remain available for inspection by shareholders and others with meeting rights under Dutch law at our office and must be tabled for discussion at the next general meeting. Shareholders representing at least 3% of our issued share capital may request the Enterprise Chamber of the Amsterdam Court of Appeal (the “Enterprise Chamber”) (Ondernemingskamer), for early termination of the cooling-off period. The Enterprise Chamber must rule in favor of the request if the shareholders can demonstrate that:
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our management board, in light of the circumstances at hand when the cooling-off period was invoked, could not reasonably have concluded that the relevant proposal or hostile offer constituted a material conflict with the interests of our Company and its business; |
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our management board cannot reasonably believe that a continuation of the cooling-off period would contribute to careful policy-making; or |
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other defensive measures, having the same purpose, nature and scope as the cooling-off period, have been activated during the cooling-off period and have not since been terminated or suspended within a reasonable period at the relevant shareholders’ request (i.e., no ‘stacking’ of defensive measures). |
We do not comply with all the best practice provisions of the Dutch Corporate Governance Code.
We are subject to the Dutch Corporate Governance Code (“DCGC”). The DCGC contains both principles and best practice provisions on corporate governance that regulate relations between the management board, the supervisory board and the general meeting and matters in respect of financial reporting, auditors, disclosure, compliance and enforcement standards. The DCGC is based on a “comply or explain” principle. Accordingly, companies are required to disclose in their annual reports, filed in the Netherlands, whether they comply with the provisions of the DCGC. If they do not comply with those provisions (for example, because of a conflicting securities exchange requirement), the company is required to give the reasons for such noncompliance. The DCGC applies to Dutch companies listed on a government-recognized stock exchange, whether in the Netherlands or elsewhere. We do not comply with all the best practice provisions of the DCGC and we are not reporting or accounting the best practice provisions that we do comply with. See “Item 16G. Corporate Governance”. This may affect your rights as a shareholder and you may not have the same level of protection as a shareholder in a Dutch company that fully complies with the DCGC.
We are eligible to be treated as an emerging growth company, as defined in the Securities Act, and we cannot be certain whether the reduced disclosure requirements applicable to emerging growth companies will make our ordinary shares less attractive to investors, given that we may rely on these exemptions.
We are eligible to be treated as an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including not being required to comply with the independent auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act in our annual reports filed on Form 20-F. As a result, our shareholders may not have access to certain information that they may deem important. We could be an emerging growth company for up to five years from the date of our IPO, although circumstances could cause us to lose that status earlier, including if our total annual gross revenue exceeds $1.235 billion, if we issue more than $1.00 billion in non-convertible debt securities during any three-year period, or if we are a large accelerated filer and the market value of our ordinary shares held by non-affiliates exceeds $700 million as of the end of any second quarter before that time.
As a foreign private issuer, we are not subject to U.S. proxy rules and are only subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.
We report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act and although we are subject to Dutch laws and regulations with regard to such matters, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (1) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (2) the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time and (3) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information. In addition, foreign private issuers are required to file their annual report on Form 20-F within four months after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year and U.S. domestic issuers that are large accelerated filers are required to file their annual report on Form 10-K within 60 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation FD, which is intended to prevent issuers from making selective disclosures of material information. As a result of all of the above, holders of our ordinary shares may not have the same protections afforded to shareholders of a company that is not a foreign private issuer. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Company’s Status—We may lose our foreign private issuer status in the future, which may result in additional costs and expenses”.
We may lose our foreign private issuer status in the future, which may result in additional costs and expenses.
As discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to us on June 30, 2024.
We will lose our foreign private issuer status if, on the date of determination, among others, (1) more than 50% of our outstanding voting securities, which we intend to determine based on the voting power of our ordinary shares and high voting shares on a combined basis are directly or indirectly held of record by U.S. residents and (2) a majority of our directors or executive officers are U.S. citizens or residents, more than 50% of our assets are located in the United States or our business is administered principally in the United States. As of the date of this Annual Report, more than 50% of our outstanding voting securities, based on voting power of our ordinary shares and high voting shares on a combined basis are directly or indirectly held of record by U.S. residents, and our managing director as well as the members of our supervisory board are U.S. citizens or residents. If we lose our foreign private issuer status, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms including consolidated financial statements prepared under U.S. GAAP, and which are more detailed and extensive than the forms available to a foreign private issuer. We currently apply IFRS , and would be required to continue to do so for the filings required under Dutch law. If the SEC reports are prepared under U.S. GAAP, application of both accounting principles will lead to additional cost. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. As a U.S. listed public company that is not a foreign private issuer, we may incur additional legal, accounting and other expenses that we would not incur as a foreign private issuer. These expenses would relate to, among other things, the obligation to present our financial information in accordance with U.S. GAAP in the future.
Additionally, a loss of our foreign private issuer status would divert our management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
Our ability to use our net operating loss carryforwards and other tax attributes may be limited.
Our ability to utilize our net operating loss carryforwards is currently limited, and may be limited further, under Section 8c of the German Corporation Income Tax Act (Körperschaftsteuergesetz) (“KStG”) and Section 10a of the German Trade Tax Act (Gewerbesteuergesetz) (“GewStG”). These limitations apply if a qualified ownership change, as defined by Section 8c KStG, occurs and no exemption is applicable.
Generally, a qualified ownership change occurs if more than 50% of the share capital or the voting rights are directly or indirectly transferred to a shareholder or a group of shareholders within a period of five years. A qualified ownership change may also occur in case of a transaction comparable to a transfer of shares or voting rights or in case of an increase in capital leading to a respective change in the shareholding.
In the case of such a qualified ownership change tax loss carryforwards expire in full. To the extent that the tax loss carryforwards do not exceed the built-in gains (stille Reserven) in the assets and liabilities taxable in Germany, they may be further utilized despite a qualified ownership change. In case of a qualified ownership change within a group, tax loss carryforwards will be preserved if certain conditions are satisfied. In case of a qualified ownership change, tax loss carryforwards will be preserved (in the form of a “fortführungsgebundener Verlustvortrag”) if the business operations have not been changed and will not be changed within the meaning of Section 8d KStG.
According to an appeal filed by the fiscal court of Hamburg dated August 29, 2017, Section 8c, paragraph 1, sentence 1 KStG is not in line with the German constitution. The appeal is still pending. It is unclear when the Federal Constitutional Court will decide this case.
As of December 31, 2023, there were net operating loss carryforwards of the Subsidiary for German corporate tax purposes of €30.8 million and for German trade tax purposes of €29.9 million available. The contribution of 100% of the Subsidiary’s shares into Sono Group N.V. was qualified as an ownership change within the meaning of Section 8c KStG and Section 10a GewStG. Furthermore, the termination of the Sion passenger car program in February 2023 was considered a harmful event within the meaning of Section 8d para. 2 KStG. As a result, the available tax loss carryforwards of the Subsidiary would generally expire in full. However, the net operating loss carryforwards would not be forfeited to the extent that the Subsidiary has built-in gains in its assets that are fully taxable in Germany. The built-in gains are determined by comparing the Fair Market Value of the respective entity with the entity’s tax book equity. The built-in gains as of December 31, 2023 have not yet been determined. Therefore it is currently unclear whether all tax losses can still be carried forward.
Future changes in share ownership may also trigger an ownership change and, consequently, a Section 8c KStG or a Section 10a GewStG limitation. Any limitation may result in the expiration of a portion or the complete tax operating loss carryforwards before they can be utilized. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards to reduce German income tax may be subject to limitations, which could potentially result in increased future cash tax liability to us.
ITEM 4. INFORMATION ON THE COMPANY
| A. |
We have historically conducted our business through the Subsidiary, which became a wholly-owned subsidiary of the Company after a corporate reorganization described as follows: We were incorporated pursuant to the laws of the Netherlands as Sono Motors Finance B.V. on October 23, 2020 as a wholly-owned subsidiary of the Subsidiary. As part of the corporate reorganization that was completed on November 27, 2020, the Subsidiary’s then-existing shareholders contributed all of their shares in the Subsidiary to Sono Motors Finance B.V. in exchange for newly issued ordinary shares of Sono Motors Finance B.V. In addition, the sole issued and outstanding common share in Sono Motors Finance B.V. at that time, which was held by the Subsidiary, was canceled (ingetrokken). As a result, the Subsidiary became a wholly-owned subsidiary of Sono Motors Finance B.V. and the then-existing shareholders of the Subsidiary became the shareholders of Sono Motors Finance B.V. Also on November 27, 2020, Sono Motors Finance B.V. was converted into a public company with limited liability under Dutch law (naamloze vennootschap), and changed its legal name from Sono Motors Finance B.V. to Sono Group N.V.
On November 17, 2021, our ordinary shares commenced trading on the Nasdaq Global Market under the symbol “SEV.” We received approximately US$156.1 million in net proceeds from our IPO, after deducting underwriting commissions and discounts and the offering expenses payable by us.
The Company is incorporated in the Netherlands, and a majority of its outstanding securities is owned by non-U.S. residents. Under the rules of the SEC, the Company is currently eligible for treatment as a “foreign private issuer.” As a foreign private issuer, we are not required to file periodic reports and consolidated financial statements with the SEC as frequently or as promptly as domestic registrants whose securities are registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Company’s Status—We may lose our foreign private issuer status in the future, which may result in additional costs and expenses”.
Our business address is Waldmeisterstraße 93, 80935 Munich, Germany. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers, such as us, that file electronically with the SEC at www.sec.gov. Our website address is https://ir.sonomotors.com/. The information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report, and you should not consider any information contained on, or that can be accessed through, our website as part of this Annual Report or in deciding whether to purchase our shares.
On May 15, 2023, each of the Company and the Subsidiary applied for their respective Self-Administration Proceedings. The Subsidiary withdrew its application for Preliminary Self-Administration Proceedings on January 31, 2024, and the Subsidiary exited its Self-Administration Proceedings on February 29, 2024. For more information on the Self-Administration Proceedings, see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings—The Self-Administration Proceedings”.
On July 12, 2023 and August 28, 2023, we received notices from Nasdaq stating that the Staff had determined that our securities will be delisted from Nasdaq in accordance with Nasdaq’s Listing Rules and notifying us of the suspension in trading of our ordinary shares as of the opening of business on July 21, 2023. Following the Company’s appeal of the Nasdaq staff’s determination to the Panel, on October 13, 2023, the Panel granted our request for the continued listing of our ordinary shares on Nasdaq, subject to our regaining compliance with the periodic filing requirement on or before November 30, 2023 and providing an update to the Panel including detailed financial projections and the progress of our withdrawal from the Self- Administration Proceedings on or before November 30, 2023. On December 11, 2023, we received a decision of the Panel advising us that the Panel had determined to delist our ordinary shares from Nasdaq, and on February 15, 2024, Nasdaq filed a Form 25 Notification of Delisting with the SEC to complete the delisting. We are currently applying to have our ordinary shares admitted to trading on OTCQB, which we currently expect to occur shortly after the filing of this Annual Report. See “Item 3. Key Information—D. Risk Factors—Risks Related to the Yorkville Investment—The Company’s visibility, credibility, stock price, and trading volume, as well as investor confidence, may further decrease as a result of the delisting of the Company’s securities from Nasdaq” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Shares—Following the delisting of our ordinary shares from Nasdaq in February 2024, we may not be able to meet the initial listing requirements for admission of our shares to trading on a stock exchange in the future or to pay for the costs associated with such an initial listing, and therefore may not be able to have our shares admitted to trading on a stock exchange in the future”.
| B. |
Overview
We believe we are a pioneer in the field of solar-powered mobility applications. We envision a world that no longer relies on the burning of fossil fuels. After terminating our Sion passenger car program due to a lack of available funding at the end of February 2023, we pivoted our business model to focus exclusively on retrofitting and integrating our proprietary solar technology onto third party vehicles, with an initial focus in the short- to medium-term on our Solar Bus Kit. We believe that our solar technology is suitable for different uses, such as buses, trucks and trailers, and has the potential to accelerate the transition towards sustainable transportation. We have started to market, and are already generating limited revenues from, our proprietary solar technology.
Following the decision to change the Subsidiary’s business model, we continued to face challenges to obtain financing and, after other financing options failed to materialize, our management ultimately concluded that the Subsidiary was over-indebted and faced impending illiquidity (drohende Zahlungsunfähigkeit), with the Company, in turn, becoming over-indebted and also facing impending illiquidity. On May 15, 2023, based on management’s conclusion, the Company applied to the Court, to permit the opening of self-administration proceedings (Eigenverwaltung) with respect to the Company pursuant to Section 270 (b) of the German Insolvency Code (Insolvenzordnung). On the same day and for the same reason, the Subsidiary applied to the Court to permit the opening of self-administration proceedings in the form of a protective shield proceeding (Schutzschirmverfahren) pursuant Section 270 (d) of the German Insolvency Code. The applications, in each case, were made with the goal of sustainably restructuring the business of both Companies. On May 17, 2023 and May 19, 2023, the Court admitted the opening of the Preliminary Self-Administration Proceedings with respect to the Company and the Subsidiary, respectively. On September 1, the Court opened the Subsidiary Self-Administration Proceedings. For more information on the Self-Administration Proceedings, see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings—The Self-Administration Proceedings”.
Yorkville, the Company’s main creditor in its Preliminary Self-Administration Proceedings apart from the Subsidiary, commenced negotiations regarding a new investment in the Company during the course of the Self-Administration Proceedings. As a result of those negotiations, the Company and Yorkville entered into the Yorkville Agreements, pursuant to which Yorkville has committed to provide financing to the Company subject to the Companies’ continued compliance with the terms of the Yorkville Agreements. The Yorkville Agreements provided for the restructuring of the Company and the Subsidiary, with the intention of enabling the Company to withdraw its application for its Preliminary Self-Administration Proceedings and enabling the Subsidiary to exit the Subsidiary Self-Administration Proceedings via the Plan, which set out how the Subsidiary planned to restructure its debt and procure the inflow of new cash, including in connection with the First Commitment, and subsequently exit the Subsidiary Self-Administration Proceedings. The Plan was filed with the Court on December 7, 2023 for approval by the Subsidiary’s creditors and subsequent confirmation by the Court. Approval by the creditors and confirmation by the Court was obtained in the creditors meeting on December 21, 2023, and the Court confirmed on January 26, 2024 that the Plan became legally binding. On January 31, 2024, the Company withdrew its application for its Preliminary Self-Administration Proceedings with the Court. The Subsidiary exited its Self-Administration Proceedings on February 29, 2024. On April 30, 2024, the Company and Yorkville entered into an amendment to the Funding Commitment Letter in connection with the Second Commitment.
The Companies expect the Yorkville Investment to position them to obtain sufficient funding for their business operations, with an initial focus on the Solar Bus Kit and similar retrofit solar products, through June 30, 2025. Under the terms of the Yorkville Agreements, the financing will be provided by Yorkville by way of new interest-bearing convertible debenture(s) that will be convertible into ordinary shares of the Company. The new convertible debenture issued to Yorkville on February 5, 2024 in connection with the funding of the First Tranche will mature on July 1, 2025, and each subsequent new convertible debenture will mature on the earlier of (i) July 1, 2025 or (ii) 12 months from the issuance date of such new debenture. The funding of the First Tranche occurred on February 6, 2024 for €4.0 million. Yorkville is the Company’s main creditor under the Existing Convertible Debentures (as defined herein), see “Item 10. Additional Information—C. Material Contracts—Existing Convertible Debentures”. For more information on the Transactions and the Yorkville Investment, see “Item 4. Information on the Company—B. Business Overview—Overview—The Yorkville Investment”.
Despite the Companies’ emergence from their respective Self-Administration Proceedings, the Yorkville Investment remain subject to a number of contingencies and risks, including, among others, (i) whether the Companies are able to successfully comply with the terms of the Yorkville Agreements so as to gain access to the unfunded portion of the Yorkville Investment, and (ii) the absence of any Termination Event or any event of default. For more information see “Item 3. Key Information—D. Risk Factors—Risks Related to the Yorkville Investment” and “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings—The Self-Administration Proceedings”.
Following our emergence from the Self-Administration Proceedings, we intend to continue to pursue our disruptive solar technology, with an initial focus in the short- to medium-term on our Solar Bus Kit and similar retrofit solar products. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings—The Self-Administration Proceedings”. Our solar technology allows for full solar integration in all kinds of vehicles, and we plan to continue pursuing other solar integration projects, with a planned increase in time and energy devoted to such other solar integration projects in the medium- to long-term, depending on the success of future capital raising efforts. In the process of developing the Sion, we soon realized that the solar technology that was available at the time was not well-suited for mobility applications. Traditional solar technology relies on glass to cover the solar cells. Glass is, however, heavy, relatively inflexible, expensive and dangerous in crash situations. Our polymer technology solves these issues. It is lightweight, allows for flexible surface integration via our patented injection molding process, is affordable due to fast and lean production, avoids the risk of bodily harm caused by broken glass and has proven to meet our expectations in crash tests. We have also developed other critical components for the use of solar technology in mobility applications. Solar cells mounted on different parts of a vehicle’s exterior receive uneven exposure to sunlight, which, in turn, can result in lost solar energy production. Through rapid adaptation and the multi-channel approach of our MCU, certain parts of the vehicle can be turned on or off for power production – despite quickly changing shading conditions. This technology enables us to produce a high-efficiency system to deliver solar energy to vehicle batteries.
Our technology allows for the seamless integration of solar cells into the full body of a vehicle and the charging of its battery through the power of the sun. However, solar technology has many other potential applications, and its use cases extend far beyond passenger cars, allowing for grid-independent charging and a reduction of running costs or total costs of ownership in a variety of transport-related use cases, such as trucks, buses and recreational vehicles. Fleet operators may use our technology to retrofit existing vehicles, to extend the range of battery electric vehicles, or BEVs, or to comply with emission regulations. The transport and logistics industries, in particular, are very focused on total cost of ownership. We believe our solar integration can reduce their running costs significantly. Manufacturers may also use our technology for new production vehicles. We have several patents granted or pending that protect our proprietary technology.
We have already generated limited revenues from our proprietary solar technology, having shipped prototypes and solar retrofits to customers. We have also been developing a customer base by signing non-binding letters of intent and purchase orders. We expect the Yorkville Investment to position us to obtain sufficient funding for our business operations, with an initial focus on the Solar Bus Kit and similar retrofit solar products, through June 30, 2025. Our available cash and cash equivalents, together with financing under the Yorkville Investment, will not be sufficient to secure our funding needs until such point in time when we expect the monetization of our solar technology to reach sufficient scale. Our ability to meet our ongoing operational obligations, continue as a going concern and grow our business is dependent upon, among other things: (i) our ability to access the unfunded portion of the Yorkville Investment, and (ii) our ability to raise additional external funding in the short term. See “Item 3. Key Information—D. Risk Factors—Risks Related to the Yorkville Investment—If the Company is not able to access the unfunded portion of the Yorkville Investment, in the absence of substantial additional sources of external funding, we would be required to curtail our operations, which could adversely affect our business, results of operations, financial position and cash flows and may ultimately lead to insolvency and liquidation.”
For the year ended December 31, 2023 we had a loss for the period of €53.6 million, compared to a loss for the year ended December 31, 2022 of €183.7 million. We have incurred net losses since our inception in March 2016, resulting in an accumulated deficit of €384.3 million as of December 31, 2023 compared to an accumulated deficit of €330.8 million as of December 31, 2022.
The following table sets forth the amount and percentage of our revenues for the years presented by customer location:
| Year ended December 31, |
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| 2023 |
2022 |
2021 |
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| (in €, except percentages) |
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| By country |
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| Germany |
12,106 | 28.8 | % | 88,945 | 38.8 | % | 7,000 | 43.8 | % | |||||||||||||||
| UK |
19,920 | 47.4 | % | — | — | — | — | |||||||||||||||||
| Belgium |
9,960 | 23.7 | % | — | — | — | — | |||||||||||||||||
| France |
— | — | 65,000 | 28.4 | % | — | — | |||||||||||||||||
| Sweden |
— | — | 51,480 | 22.5 | % | — | — | |||||||||||||||||
| Switzerland |
— | — | 21,824 | 9.5 | % | — | — | |||||||||||||||||
| Italy |
— | — | 2,000 | 0.9 | % | — | — | |||||||||||||||||
| USA |
— | — | — | 0.0 | % | 9,000 | 56.3 | % | ||||||||||||||||
| Revenues |
41,986 | 100.0 | % | 229,249 | 100.0 | % | 16,000 | 100.0 | % | |||||||||||||||
The Yorkville Investment
In mid-November 2023, the Companies entered into the Yorkville Agreements in connection with the First Commitment. In addition to the Restructuring Agreement between the Company and Yorkville, which was amended on February 2, 2024 and February 5, 2024, there is (i) an agreement between the Company and the Subsidiary pursuant to which a settlement amount was agreed for intercompany claims (the “Settlement Agreement”), (ii) an agreement between the Company and the Subsidiary relating to the satisfaction of intercompany claims, the further financing of the Subsidiary by the Company and key aspects of the Subsidiary Self-Administration Proceedings and the Plan (the “Continuation Agreement”), (iii) the Funding Commitment Letter, which was subsequently amended on February 5, 2024 and April 30, 2024, between the Company and Yorkville to provide the Company with sufficient financial resources to fund the business operations of the Companies pursuant to an agreed upon budget with Yorkville (the “Budget”), (iv) an agreement between the Company and Yorkville Advisors to postpone the repayment date of the Existing Convertible Debentures to July 1, 2025, with the possibility of further extensions at Yorkville’s discretion (the “Prolongation Agreement”), (v) an agreement between our Founders, the Company and the Subsidiary pursuant to which the Companies were entitled to request that each of the Founders enters into a share sale and transfer agreement (the “Sale and Transfer Agreements”) under the terms of which the respective Founder would sell and transfer, if so requested, a portion of their ordinary shares of the Company to a trustee to be appointed for the benefit of the Subsidiary’s creditors and a portion of their ordinary shares of the Company and all of their high voting shares in the Company to the new members of the management board to be appointed for the Company (the “Shareholders Commitment Letter”), (vi) Sale and Transfer Agreements executed by each of the Founders to carry out the transfers contemplated in the Shareholders Commitment Letter, and (vii) a back-to-back letter of comfort from the Company to the Subsidiary, which was subsequently amended on May 8, 2024, to provide funding for the Subsidiary’s business operations, with an initial focus on the Solar Bus Kit and similar retrofit solar products, which the Companies currently expect to be sufficient at least until, and including, June 30, 2025 (as amended from time to time, the “Back-to-Back Letter of Comfort”). The funds to be provided under the Back-to-Back Letter of Comfort will be provided by way of intercompany loan(s).
Pursuant to the Yorkville Agreements and following the satisfaction of certain conditions precedent (the “Closing Conditions”), Yorkville funded the First Tranche of €4.0 million, or USD 4,317,600, on February 6, 2024. On April 30, 2024, the Company and Yorkville entered into an amendment to the Funding Commitment Letter in connection with the Second Commitment, which increased Yorkville’s funding commitment to the Company by EUR 2.0 million and extended the date upon which the obligation of Yorkville to commit any fundings automatically lapses from December 31, 2024 to May 1, 2025. Under the Funding Commitment Letter, Yorkville has committed to secure the financing of the Companies’ expected operational costs through the end of the second quarter of 2025 (the “Funding Period”). The financing is provided by Yorkville by way of new interest-bearing convertible debenture(s). The new convertible debenture issued to Yorkville on February 5, 2024 in connection with the funding of the First Tranche will mature on July 1, 2025, and each subsequent new convertible debenture will mature on the earlier of (i) July 1, 2025 or (ii) 12 months from the issuance date of such new debenture. Pursuant to the Funding Commitment Letter, a second funding of €3.0 million is to be made in accordance with the Budget as required upon the funds provided in the First Tranche having been applied in accordance with the Budget, and third and fourth tranches of €1.0 million each are to be made in the first week of January 2025 and in the first week of April 2025, respectively. Up to a maximum total of €11.0 million minus €2.048 million of cash left-over at the Company as of December 1, 2023 would be callable by the Company and evidenced by new convertible debentures. Cash available at the Company in excess of €2.048 million cash left-over as of December 1, 2023 was or will be used to satisfy claims of creditors, with the exception of the amounts payable to Yorkville under the Existing Convertible Debentures (as defined herein), and pay for services related to the Subsidiary Self-Administration Proceedings. Under the terms of the Continuation Agreement and the Back-to-Back Letter of Comfort, funds are paid by the Company to the Subsidiary by way of intercompany loan(s). In the event of a shortfall during the Funding Period, Yorkville will provide additional funds to the Company, provided that agreements are reached in good faith on an adjusted budget for the Funding Period.
In accordance with the Settlement Agreement, the Company transferred or will transfer funds to the Trustee (as defined herein) in settlement of the intercompany claims owed by the Company to the Subsidiary. In turn, the Subsidiary waived all claims that the Subsidiary had or may have against the Company arising from intercompany claims or from either of two hard comfort letters issued by the Company for the benefit of the Subsidiary. Payment of the settlement amount, as well as payments of funds that belong to the Company’s creditors are ultimately processed by Bambino 255. V V UG, an entity established to serve as a trustee for the benefit of the Subsidiary’s creditors (the “Trustee”).
Under the Yorkville Agreements, starting December 1, 2023, the Subsidiary became obligated to finance its business operations in accordance with the agreed Budget. Following satisfaction of the Closing Conditions, Yorkville became obligated to pay the First Tranche to the Company at the Closing. The Company, in turn, became obligated to reimburse the Subsidiary’s insolvency estate for the continuation costs incurred for the period from December 1, 2023 to the date of Closing and to finance the business operations of the Subsidiary until the end of the fiscal year 2024, both in accordance with the Budget. Pursuant to the terms of the Back-to-Back Letter of Comfort, the Company must provide funds to the Subsidiary (subject to the availability of such funds at the Company level) of up to approximately €7.2 million by way of intercompany loan(s). The first funding under the Back-to-Back Letter of Comfort amounted to €3.0 million and occurred immediately after the Closing.
In connection with the Yorkville Investment, the Founders entered into respective Sale and Transfer Agreements, pursuant to which they agreed to cumulatively transfer 13,306,249 ordinary shares of the Company to the Trustee. Following the transfer of the shares, the Trustee shall be entitled to sell such shares following expiration of a lock-up agreement and subject to certain volume restrictions agreed with Yorkville. The proceeds from such sales will be used to satisfy claims of the Subsidiary’s creditors. Whether and to what extent such sale proceeds can be realized will depend on a number of factors, including, among others, the performance of the Company's share price. Currently, it is not possible to reliably forecast whether and to what extent such sale proceeds can be expected. In addition, under the terms of their respective Sale and Transfer Agreements, the Founders agreed to cumulatively transfer 17,306,251 ordinary shares of the Company and all of their cumulative 3,000,000 high voting shares of the Company to SVSE, whose sole member is George O’Leary, the Company’s sole Managing Director. The transfers of the high voting shares and the ordinary shares to SVSE were reflected in the Company’s share register on February 1, 2024 and March 25, 2024, respectively. The transfer of the ordinary shares to the Trustee was reflected in the Company’s share register on June 5, 2024.
Under the terms of the Yorkville Agreements, cash available to the Subsidiary and the proceeds from any sale of the Subsidiary’s assets that do not belong to the Subsidiary’s third-party vehicle solar integration business, including any proceeds from a future sale of the Sion program, may be used to cover the costs of the Subsidiary Self-Administration Proceedings and to satisfy claims of the Subsidiary’s creditors.
Yorkville’s obligation to provide funding pursuant to the terms of the Funding Commitment Letter and the continued execution of the Transactions contemplated in connection with the Yorkville Investment are subject to our compliance with certain covenants and other obligations set forth in the Yorkville Agreements, including the terms of the new convertible debenture(s) to be issued to Yorkville in connection with the Yorkville Investment. In addition, Yorkville’s funding commitment is subject to the following Termination Events:
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The Budget is exceeded as a result of incorrect or misleading work. |
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The Budget is exceeded and Yorkville and the Company cannot agree on an adjustment, or Yorkville requests information regarding the Budget and the Company fails to provide it within ten business days. |
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An event of default occurs with regard to the convertible debentures. |
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The Companies fail to materially comply with the Yorkville Agreements and fail to rectify their noncompliance within ten business days following a request from Yorkville to such effect. |
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Other than with regard to the Self-Administration Proceedings, the Companies are unable or admit inability to pay their debts as they fall due, suspend making payments on any of their debts, or, by reason of actual or anticipated financial difficulties, commence negotiations with one or more of their creditors (excluding any finance party in its capacity as such) with a view to rescheduling any of their indebtedness. |
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An entity incorporated in Germany is unable to pay its debts as they fall due (zahlungsunfähig) within the meaning of section 17 of the German Insolvency Code (Insolvenzordnung) or is over-indebted within the meaning of section 19 of the Germany Insolvency Code (Insolvenzordnung). |
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Except in relation to the Self-Administration Proceedings, any corporate action, legal proceedings or other procedure or step is taken in relation to, amongst others, the suspension of payments, an arrangement with a creditor of the Company, the appointment of a liquidator or administrative receiver or the enforcement of a security over any asset of the Company or the Subsidiary. |
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It is or becomes unlawful for the Company to perform any of its obligations under the Yorkville Agreements. |
In accordance with the Yorkville Agreements, the Company convened the AGM and the EGM to submit certain agenda items for shareholder votes. Under the terms of the Shareholders Commitment Letter, each Founder in his respective capacity as a shareholder of the Company agreed (i) to attend the AGM, either in person or represented by proxy, (ii) not to transfer any shares and/or voting rights such Founder holds in the capital of the Company prior to the AGM and (iii) to exercise the voting rights on all the shares in the capital of the Company held by such Founder in favor of all proposed resolutions. In addition, in the event that one or more subsequent general meetings are convened or deemed necessary to give full effect to the Yorkville Agreements and/or certain required agenda items, each Founder further agreed to comply with the requirements of (i) - (iii) above with respect to such subsequent general meeting(s) and to exercise his voting rights at such subsequent general meeting(s) so as to give effect to the Yorkville Agreements and/or certain required agenda items in the fullest possible manner. The following agenda items, among others, were proposed and approved at the EGM: (1) a proposal to effect a reverse share split of the ordinary shares of the Company and the high voting shares of the Company at an exchange ratio to be determined and established by the Company’s management board (the “Reverse Share Split”); (2) a proposal to reduce the nominal value per ordinary share to €0.01 per ordinary share (after giving effect to the Reverse Share Split) without repayment or any other payment by the Company to the shareholders; (3) a proposal to reduce the nominal value per high voting share to €0.25 per High Voting Share (after giving effect to the Reverse Share Split) without repayment or any other payment by the Company to shareholders; and (4) a proposal to authorize one or more amendments to the Company’s articles of association, in such a manner that, with each amendment, the authorized capital of the Company is amended to facilitate the issue shares under the Existing Convertible Debentures and the new convertible debentures held by Yorkville. The measures identified in items (1) - (3) above have not yet been implemented and may be implemented in the future at the discretion of the Company’s management board.
In the event of a Termination Event, Yorkville would have the right, at its sole discretion, to cancel any unfunded portion of the Yorkville Investment , meaning that the Company would no longer be able to draw down on the unused portion of the Yorkville Investment , and to exercise all of its rights under any of the new convertible debentures as if an event of default had occurred.
If we are not able to successfully access the unfunded portion of the Yorkville Investment as planned, in the absence of substantial additional sources of external funding, we would be required to curtail our operations, which could adversely affect our business, results of operations, financial position and cash flows and may ultimately lead to insolvency and liquidation. See “Item 3. Key Information—D. Risk Factors—Risks Related to the Yorkville Investment—If the Company is not able to access the unfunded portion of the Yorkville Investment, in the absence of substantial additional sources of external funding, we would be required to curtail our operations, which could adversely affect our business, results of operations, financial position and cash flows and may ultimately lead to insolvency and liquidation”.
Our Market Opportunity
We believe that more action must be taken to mitigate climate change and that new technologies are essential to reducing CO2 emissions. Through the planned integration of our proprietary solar technology, we intend to continue to assist the world in achieving these goals.
For the solar application market, we believe that our solar technology is a solution to making combustion engine and battery electric vehicles more climate friendly. By integrating our solar technology, fleet operators can reduce energy consumption in a variety of vehicles including, among others, buses, trailers and trucks, and thereby significantly reduce the total cost of ownership. Sustainability goals have and will continue to lead to environmental regulations requiring vehicle manufacturers to meet increasingly challenging regulatory targets. For example, more and more municipalities have announced that they intend to set stringent emission targets for vehicles driving in their municipal area. Further, an increase in the number of battery electric vehicles may result in grid overload and destabilization. In parallel, we anticipate an increase in demand for sustainable energy. Concurrently, energy prices are expected to remain elevated, with further increases possible due to the taxation on carbon dioxide emissions.
Other users, such as building owners, already see the power of solar integration to reduce energy consumption and, accordingly, total cost of ownership. As more means of transportation, including ships, trucks, vans and buses, switch over to electric engines in the coming years, the benefit of solar integration will, we believe, become increasingly clear and important to market participants. In addition to using our technology for solar retrofitting, we also believe that solar integration will be the logical next step for pure electric vehicles. Solar production prices declined relatively consistently over the last ten years, with some marginal increases since the beginning of 2020 resulting partly from supply chain issues in connection with the global COVID-19 pandemic. The current solar production prices as well as the increase in efficiency of solar cells enable solar integration to have a meaningful impact on energy consumption, ranges and autonomy of electric vehicles. Additionally, the continuing growth of electric vehicle sales and the relatively slower increase in charging stations is expected to create a bottleneck for the adoption of electric vehicles on a larger scale. We believe that, within the next few years, people living in locations without private access to charging stations will be reluctant to buy BEVs due to uncertainty as to whether they will be able to find relevant charging options. This will put even more focus on electric vehicles with solar integration.
Operations
Our Technology
We consider our technological achievements to be at the core of our business activities and key to our future success. We have developed several innovative technologies for use in the mobility area and have been approached by a number of companies, such as manufacturers of trucks, commercial vehicle equipment and public transport operators to provide them with access to our technology. We believe these technologies will offer users a unique experience and increased practicability of their vehicles.
Traditional Solar Modules - Vehicle Applied Modules
Vehicle applied modules, or VaPV, are a core part of our solar integration business. This approach aims at using solar technology for large flat surfaces on the top or sides of vehicles - which are especially abundant in commercial vehicles. Additionally VaPV can be mounted easily on vehicles in series production processes or even after they have been fully built. The application of these semi-flexible, light-weight modules on the exterior of vehicles has little influence on the substructure, design and homologation and type approval process, which eases an integration of solar technology. We currently intend to focus in the short- to medium-term on one such use case for our VaPV products, our Solar Bus Kit.
A VaPV approach uses different types of semi-flexible solar modules, which are mounted onto the vehicle. The relevant solution is developed and tested based on the needs of the specific customer, taking into account the expected lifetime of the vehicle, weights and costs specifications, installation times and synergies between solutions for different vehicle types. In 2022 and 2023, we equipped several prototypes for customers such as VBR Verkehrsbetriebe und Servicegesellschaft mbH, Scania CV AB, Koegel Trailer GmbH and Jean CHEREAU S.A.S, Hofbus GmbH and Stadtwerke Muenchen GmbH. Also during 2022 and 2023, we improved our technologies significantly, for example, by reducing system costs, improving installation methods to reduce installation times and by increasing system uptimes by eliminating software bugs and telematics problems. In addition, we gained experience in various commercial vehicle applications, including trailers, diesel buses, hybrid buses, electric buses as well as electric vans. We equipped all of those vehicle types on a prototype stage with various customers. Continuous technical and cost improvements are being implemented through our technology and operations departments.
Our novel Solar Bus Kit is a scalable business-to-business retrofit solution that reduces energy consumption and inner-city greenhouse gas emissions, thereby contributing to climate protection. The Solar Bus Kit is a versatile and straightforward solution, optimized for the most common 12-meter public transport bus types on the European market, including Mercedes-Benz Citaro and MAN Lion City. We plan to offer a complete and efficient retrofit solution for bus fleet operators who have a compelling need to reduce diesel and energy consumption and CO2 emissions to meet their sustainability goals.
The Solar Bus Kit allows subsystems like heating, ventilation and air conditioning to be partially powered by renewable energy thereby reducing fuel consumption, CO2 emissions and costs. The Solar Bus Kit can gain an energy yield of up to 2,000kWh per bus per year from the approximately 1.4 kW peak installation with a total size of about eight square-meters of solar panels. That energy gain leads to a reduction of diesel consumption by approximately 3%. Bus fleet operators are expected to see a potential payback time of approximately 3 to 6 years, depending on generated solar yield (influenced, for example, by days in operation, geographical location) and energy prices. Further reductions in material costs, economies of scale as well as local subsidies for sustainable energies might further reduce the payback time. We intend to cooperate with ÖPNV-Service Hagen (“ÖPNV-Service”) with respect to installation of the kit and after-sales and logistics services.
Although our initial focus in the short- to medium-term is expected to be on our Solar Bus Kit and similar retrofit solar products, our solar technology allows for full solar integration in all kinds of vehicles. We intend to continue pursuing such other applications, and subject to the success of future capital raising efforts, we anticipate increasing the time and resources devoted to such other solar integration projects in the medium- to long-term.
Maximum Power Point Tracker
The integration of solar modules into energy systems for transport-related use cases requires power electronics that fit the vehicle powertrain or auxiliary systems. Our MCU is the central piece of our power electronics. Our MCU is a multichannel, dynamic system that is both conversion and tracking efficient. Our power electronics optimize the power output through the use of intelligent algorithms and energy earnings for solar modules mounted on, or integrated into, moving objects by a multichannel approach that considers quickly changing sun radiation conditions and differently oriented solar modules. Our MCU and algorithms allow for fast adaptation to changing sun conditions, resulting in high energy yields. Our multi-channel architecture allows for individual tracking of differently oriented solar panels. We test and certify our technology according to automotive standards and specific use cases. For example, our MCU has achieved ECE R-10 certification and therefore complies with regulatory requirements for electromagnetic compatibility. Our MCU is able to communicate with controlled area networks (CAN), a standard communication protocol in the automotive industry that enables intelligent integrations in the vehicle architectures to perform clever tasks like preconditioning (heating/air-conditioning) a bus when a surplus of solar power is given. In addition, multiple MCUs can be connected to work with systems with higher power, such as eBuses and Trailers.
We are currently focusing on two variants of our MCU:
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High Voltage System: The high voltage system was originally developed and tested in our Sion pre-series vehicles. While the Sion architecture was designed to operate at 400V, the high voltage system has been developed further to also comply with 800V architectures. 400V and 800V architectures currently dominate the BEV market. Our high voltage MCU can be used for electric vehicles, including buses, vans, trucks and passenger vehicles or electrified reefer trailers. Pre-series versions of the high voltage MCU have been and are expected to be installed and tested in vans, reefers and passenger cars of big OEMs. |
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Low Voltage System: Our low voltage system is designed to be integrated in all architectures operating at 24V, which is the standard for commercial vehicles such as buses and trucks. Generated solar power will be provided directly to the 24V battery and 24V system to power auxiliary units like ventilation or air conditioning. By doing so, energy consumption will be reduced. The MCU is designed with eight input channels to improve efficiency in dynamic shading conditions. Additionally, the multi-channel architecture ensures that vehicles stay below 60V DC to comply with low voltage directives allowing, for example, an easy integration in a vehicle’s architecture and retrofitting. |
Customer Arrangements
The Company has consistently and steadily expanded its solar integration business since its launch, engaging with a diverse range of customers. To date, we have signed a total of 13 non-binding letters of intent (LOIs) and 21 purchase orders, contracts, or delivered products, resulting in active relationships with 28 distinct customers, some of whom have engaged with us through both LOIs and contractual agreements. Following the discontinuation of the Sion program and our pivot to a solar-integration business model, we further refined our strategy during our emergence from the Self-Administration Proceedings. This refinement has sharpened our focus on continuing collaborations with 20 customers who best align with our current business strategy and product offerings. Of these 20 customers, six have entered into non-binding LOIs and 17 have entered into purchase orders and contracts with us.
The former Self-Administration Proceedings have had a negative impact on our ability to pursue new customer arrangements. In several cases, the signing of contracts related to new projects had been postponed until the conclusion of the Subsidiary Self-Administration Proceedings. Following our emergence from the Self-Administration Proceedings, we now are able to pursue and execute on those projects. We have resumed active customer development efforts, which are aimed at signing new clients and growing our pipeline of projects and orders, thereby reinforcing our commitment to our refined business model and the evolving needs of our market.
In 2022 and 2023, we signed purchase orders or contracts with, amongst others, Koegel Trailer GmbH, VBR Verkehrsbetriebe und Servicegesellschaft mbH, Scania CV AB, The Reefer Group/Jean CHEREAU S.A.S, pepper motion GmbH, ALTRA S.p.A., Mitsubishi Heavy Industries Thermal Transport Europe GmbH, Hofbus GmbH and Stadtwerke Muenchen GmbH. This list includes purchase orders or contracts for both pilot installations of our Solar Bus Kit as well as for prototype projects in the refrigerated vehicle and e-transporter industries. While we intend to focus in 2024 on the bus industry and our Solar Bus Kit product, our solar technology allows for full solar integration in all kinds of vehicles, and we believe the other industries are valuable for long-term business opportunities. We intend to continue pursuing such other applications, and subject to the success of future capital raising efforts, we increase the time and resources devoted to such other solar integration projects in the medium- to long-term.
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VBR Verkehrsbetriebe und Servicegesellschaft mbH is one of the largest fleet bus operators in Bavaria, Germany. We installed our Solar Bus Kit on two prototype buses to be used for finalizing and refining our product. The buses are part of the Munich Transport and Tariff Association bus fleet and currently drive through Munich on their daily routes. |
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In partnership with the Munich Transport Company, MVG (Münchner Verkehrsgesellschaft) we launched our Solar Bus Kit for public transport for the first time. The novel solar bus trailer has been in operation in the Munich metropolitan area since April 2022, testing the energy yields as well as the potential of the technology in daily operation with promising results. |
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On September 7, 2022, we announced that we started a project with Scania, a subsidiary of Volkswagen, and LLT, a Swedish public transport authority, to test the Solar Bus Kit in real-life conditions in the northern hemisphere. The objective of the project is to optimize the efficiency of the solar technology for buses in northern climates. The Solar Bus Kit has been installed on six buses since then and is successfully running on the streets. |
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In June 2023, we installed our Solar Bus Kit on a Bus of HofBus GmbH, which to date has proved to be a well working product. |
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The Reefer Group is a global leader in refrigerated bodies. As part of our collaboration with The Reefer Group, we started to build a first trailer vehicle with the Reefer Group’s French subsidiary Jean CHEREAU S.A.S. for extensive testing to further evaluate the technical and economic feasibility of integrating a customized solar solution for a high volume series vehicle. The partially completed trailer was shown at the IAA Transportation 2022, and we currently plan to finalize the trailer together with the customer in the future. |
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Koegel Trailer GmbH was founded in 1934 and is one of the largest European manufacturers of commercial vehicles, including trailers and semi-trailers today. The partially completed trailer was shown at the IAA Transportation 2022, we currently plan to finalize the trailer together with the customer in the future. |
Polymer Solar Modules - Vehicle Integrated Solutions
With respect to buses, our solar integration provides power that can be used to run auxiliary systems and charge low voltage and/or high voltage vehicle batteries (in case of a BEV), thereby helping bus operators to reduce CO2 emissions and total cost of ownership. For electric buses, power provided by our solar technology may also be used to charge high-voltage batteries. For refrigerated vehicles, our solar technology allows for longer operating hours and reduces the risk that cooled goods go to waste. In addition, we offer customers the option to benefit from our solar know-how and our project management skills as well as access to our MCU. For recreational vehicles, our technology can be used to generate power for auxiliary systems, increasing independence from traditional charging infrastructure. In addition to knowledge sharing and project management services, customers may benefit from our MCU and infotainment system. Vehicle manufacturers may leverage our solar technology to increase the range and grid independence of their vehicles, reduce total cost of ownership and provide their customers with a more convenient product. We mainly intend to license our technology to vehicle manufacturers.
Solar technology offers a broad variety of use cases and we have already received purchase orders or entered into several letters of intent for partnerships, including with manufacturers of trailers, autonomous electric shuttles, trucks and buses, all of whom may enter into agreements with us to use solar technology in their own products.
We believe our solar technology is the most efficient and most affordable solar technology currently available for consumer usage. According to our own data, it is the most efficient in terms of watts generated per square meter.
Although we intend to focus in the short- to medium-term on our Solar Bus Kit and similar retrofit solar products, we have several patents granted or within the filing-process protecting our proprietary technology and, subject to the success of future capital raising efforts, we currently intend to work in the long- term towards entering into co-development projects with established vehicle manufacturers or tier 1 suppliers, with a view to having our solar technology used in series production vehicles of established vehicle manufacturers.
Development
We believe that keeping pace with advances and changes in electric vehicle technology is and will be crucial to our success. Our development activities have historically focused on the finalization of the development of the Sion. Following our decision to terminate the Sion program and instead focus on our solar technology business, we have significantly reduced the personnel in our development department.
Our development strategy focuses on developing our key technologies and innovations in-house where we benefit from the expertise of our highly-qualified development team. This allows us to ensure that the key technologies and innovations reflect our core values and vision of sustainable and affordable electric mobility. We cooperate, or intend to cooperate, with renowned research institutions to combine our expertise in selected areas. For example, we are continuing our participation in public funding projects and collaborations with renowned research institutes like Fraunhofer and Tecnalia.
Manufacturing Concept
Production of the Solar Bus Kit will follow our lean approach with regards to capital expenditures. The semi-flexible solar modules will be supplied by selected suppliers that are closely involved in the development of the product to meet our specific needs. This approach aims to optimize both costs and performance. The low voltage MCU is produced by an external production manufacturer according to Sono Motor’s owned design. The development of and rights, including intellectual property rights, related to the Solar Bus Kit are fully owned by us.
Marketing
We focus on providing multiple online and offline touchpoints with our customers. We want to maintain our thought leadership in the space of solar mobility. Through publishing whitepapers, blog posts, and case studies, we aim to educate our target groups of politicians, fleet operators and OEMs.
In addition, we will focus on public relations announcements concerning new customers, new patents granted and new funding secured. In the online marketing area, we will target business customers with industry specific videos on social media platforms.
To expand our reach, we plan to partner with other industry players to create new business opportunities. In addition, attending industry events, like IAA Transportation and BusWorld Brussels, proved to be successful in 2022 and 2023 as it led to several new customer leads and confirmed the interest in our solar technology. In April 2024, we showcased our Solar Bus Kit and solar power electronics at BUS2BUS, a popular mobility trade show in Berlin, Germany. Meeting with potential customers showcases our solutions and positions us to stay up-to-date with the latest trends and developments in the market.
Sales
We are focused in 2024 on sales of our Solar Bus Kit in the bus industry. We intend to sell our Solar Bus Kit directly to fleet operators and OEMs located primarily in Europe. In addition, we plan to organize a partnership program to scale up our solution more quickly. We intend to enable key, long-term partners to sell, install and service the Solar Bus Kit in specific regions - helping to reduce CO2 consumption on a larger scale and positioning us to grow our business more quickly. For example, in the beginning of 2024, we entered into an agreement with Nova-Papír Zrt, who will act as the first reseller for the Solar Bus Kit, that sets forth a sales target of 81 kits by the end of 2025. We expect the relationship with Nova-Papír Zrt to lead to market entry in Hungary and to open up Eastern Europe as a promising potential market for our solar technology. We intend to sign agreements with additional resellers in other European countries in the near future.
In addition, we intend to continue to offer our solar technology to the refrigerated vehicles, trucks and electric transporters industries. While we are focused in 2024 on the bus industry and our Solar Bus Kit, our solar technology allows for full solar integration in all kinds of vehicles, and we believe the refrigerated vehicles and electric transporters industries are valuable for long- term business opportunities. We intend to continue pursuing such other applications, subject to the success of future capital raising efforts.
The following graphic presents our current focus and provides an overview of potential products and additional business opportunities, our full pursuit of which remains subject to the success of future capital raising efforts past 2024:
Information Technology
We use a number of standard software programs for our business operations. In addition, we deploy our own proprietary software and applications. To help secure data that we handle and protect against outages, we have implemented a number of protective measures, including duplicate systems, firewalls, antivirus software, patches, data encryption, log monitors, routine backups, system audits, data partitioning, routine password modifications and disaster recovery procedures. See “Item 16K. Cybersecurity”.
Seasonality
We generally experience the same effects of seasonality as other companies in our sector in Germany, realizing a slow down of business activities during the summer holiday season in August, at year end and the start of the new year as a result of holidays.
Competition
While there are a large number of providers of solar technology solutions for all kinds of stationary applications, the competitive landscape for vehicle solar solutions is less competitive. Based on a survey conducted by our business intelligence team, we have identified a few competitors particularly relevant to us, including, KRSolar B.V. (d/b/a wattlab), Im Efficiency B.V., Green Energy Solutions and TRAILAR, with regards to retrofit solutions like our Solar Bus Kit, and Victron Energy B.V., with regards to our solar power electronics.
We believe that the following factors differentiate us and our product from these competitors:
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The high efficiency of our solar integration product, which results from our in-house developed maximum power point tracker solution and our reliance on cell technology that provides high energy density at a reasonable cost and allows our technology to harvest a high amount of solar yield in relation to installed power; and |
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The convenience and safety of our solar integration product, which result from a standardized, low-effort street approval procedure, the product’s modular and flexible system, our installation service that eliminates the need for customer self-installation, the system’s predictive maintenance capabilities and our over-the-air-update capabilities. |
Intellectual Property
Our intellectual property, including trade secrets, patents, trademarks and copyright, is important to our business. We hold several patents in different jurisdictions relating to our solar module technology, ventilation system and energy management system for vehicles, have filed several patent applications, including relating to our solar technology. We have registered trademarks in the EU or other relevant jurisdictions for “Sono Motors”. Our intellectual property portfolio includes domain names for websites that we use in our business.
We control access to, use and distribution of our intellectual property through confidentiality procedures, non-disclosure agreements with third parties and our employment and contractor agreements. Under the German Employee Invention Act (Arbeitnehmererfindungsgesetz) we generally have a claim on work-related inventions by our employees. We rely on contractual provisions with our business partners to protect our intellectual property and proprietary technology, brand and creative assets. We seek to maintain and protect our intellectual property portfolio, including by pursuing any infringements by third parties.
The following graphic provides an overview of our granted patents and filed patent applications as of April 30, 2024:
(1) Patent Cooperation Treaty – the international patent system
(2) Integrated photovoltaic
(3) Solar electric vehicle systems
(4) Vehicle applied photovoltaic
There are 45 patent families (i.e. independent inventions) which include six granted patents and two patents with intention to grant confirmed by the EPO, 24 international (PCT) applications and 57 regional or national applications.
The content of the patent families can be categorized by integrated photovoltaic components or manufacturing processes (IPV), Solar electric vehicle systems (SEV), MPPT charging central unit (MCU), Vehicle applied PV and Sion-related non-PV inventions. As presented above, most of the applications are related to IPV and SEV.
Due to the cost-intensive nature of the patent application process and in accordance with the change in our business model to focusing exclusively on integrating our solar technology into third-party vehicles, we plan to terminate and/or discontinue patents and patent applications that do not address our core products and markets and instead focus on our most promising applications and markets (mainly Europe). See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Operations—We depend on the adequate protection of our intellectual property, which can be difficult and costly”.
Insurance Coverage
We have taken out insurance policies that we believe to be customary in our industry. We believe that our insurance policies contain market-standard exclusions and deductibles. We regularly review the adequacy of our insurance coverage and consider the scope of our insurance coverage to be customary in our industry.
Regulatory Environment
Overview
Our industry and business operations are subject to various laws, rules and regulations at international, national, state and municipal levels, which may affect, directly or indirectly, our operations or our industry. Also taking into account the fact that we expect our prospective customers to be mainly fleet operators and automotives suppliers or manufacturers, such laws, rules and regulations include laws on vehicle approval and homologation, laws on vehicle road safety, environmental laws, laws on vehicle emissions and renewable energies, consumer protection laws, product warranty and product liability laws, intellectual property and copyright laws, labor and employment protection laws, export control regulations, trade and economic sanctions and embargoes on certain countries, persons, groups and/or entities, projects and/or activities, competition and antitrust laws, tax laws, and criminal laws (e.g. anti-money laundering and anti-corruption laws). Within the EU the legal environment is also characterized by a set of political initiatives and legal frameworks under the so-called European green deal, which seeks to serve the overarching goal of eliminating greenhouse gas emissions and reaching climate neutrality by 2050. These initiatives and legal frameworks have had and will continue to have a significant influence on our industry and business operations as well as the overall adoption rate of electric mobility within the EU.
An overview of the laws, rules and regulations that are or are expected to be most relevant for our business operations or industry, broken down by general category of regulation, is provided below. Any reference in this section to any legislation or regulation is deemed to refer to such legislation or regulation as amended, supplemented or otherwise modified, and all further rules and regulations promulgated thereunder, unless the context requires otherwise.
Vehicle Approval/Road Safety
Depending on the exact use of our products and solutions by prospective customers, which we expect to consist primarily of fleet operators and automotive suppliers and/or manufacturers, our solar modules and other solar technology solutions may be covered by compliance requirements applicable to these customer groups under product-related regulatory frameworks and approval by the relevant government authorities. Vehicles and vehicle components are required to comply with substantial licensing, certification, approval, permit and other homologation requirements in all relevant markets in which they operate, as well as numerous and continually increasing technical product requirements.
General Product Safety Liability
Our solar modules and other solar technology solutions will also have to comply with product-specific or general, non-specific product safety and product liability legislation and associated regulations.
The EU has passed a directive on general product safety that applies in the absence of specific provisions among the EU regulations governing the safety of the products concerned or if legislation applicable to the sector is insufficient. Under this directive, manufacturers and distributors may only market products that comply with a general requirement of consumer safety. Taking into account certain points specified in the Directive, a product is considered to be safe if, under normal or reasonably foreseeable conditions of use, it does not present any risk or only the minimum risks compatible with the product’s use, considered to be acceptable and consistent with a high level of protection for the safety and health of persons. In addition to compliance with the safety requirement, manufacturers and distributors must provide consumers with the information necessary to assess a product’s inherent risks and take the measures necessary to avoid such threats (for example, withdraw products from the market, inform consumers and recall products). Strict liability applies for defective products throughout the EU in addition to any consumer protections at the national level.
In Germany, the EU requirements have been implemented via the Product Safety Act (Produktsicherheitsgesetz) and the Product Liability Act (Produkthaftungsgesetz), which are accompanied by more general provisions under tort laws codified in the German Civil Code § 823 (Bürgerliches Gesetzbuch).
Vehicle Emissions and Regulatory Incentives
The protection of air quality and reduction of greenhouse gas emissions is a priority in the EU and vehicle manufacturers relying on internal combustion engines must comply with increasingly stringent standards on vehicle emissions. The current environment of the EU and regulatory initiatives strongly support the development, production and sale of alternative fuel vehicles and their overall market adoption. In line with the international climate agreement signed at the 2015 United Nations Framework Convention on Climate Change in Paris by nearly 200 nations (commonly referred to as the “Paris Agreement”), which became effective in November 2016 and consists of two elements (a commitment by each participating country to set a voluntary emissions reduction target (referred to as “nationally determined contributions” or “NDCs”), with a review of the NDCs that could lead to updates and enhancements every five years beginning in 2023, and a transparency commitment requiring participating countries to disclose their progress), as well as based on emission legislation, the EU is taking a progressive stance in reducing carbon dioxide emissions, thereby deliberately driving increasing demand for electric vehicles.
Furthermore, the EU has implemented mandatory CO2 emissions targets. At present, all car manufacturers must meet a fleet-wide average emission target of 95g CO2/km for their new passenger vehicles that are registered in the EU. Light commercial vehicles are subject to an EU fleet-wide target of 147g CO2/KM for average emissions. Car manufacturers are given additional incentives to produce zero- or low-emission cars emitting less than 50g CO2/km through a fleet-wide credits system. The regulation also provides for fleet-wide average CO2/km emissions targets for the years 2025, 2030 and 2035, which are defined as a percentage reduction from the current applicable values: cars are subject to fleet-wide CO2 reductions of 15% in 2025, 55% in 2030 and 100% in 2035, while vans are subject to fleet-wide reductions of 15% in 2025, 50% in 2030 and 100% in 2035. The regulation also allows for pooling arrangements among several manufacturers of passenger cars or vans, based on which these manufacturers will be treated as a single “pool” and their compliance with emission limits will be assessed on an aggregated basis at the pool level. Car manufacturers are subject to penalty payments if a car manufacturer’s fleet-wide average emission of CO2/km exceeds the defined target values in a given year. The monetary penalty is calculated based on a predetermined euro amount (currently €95) for each gram of CO2/km that exceeds the relevant target value multiplied by the number of vehicles produced by the car manufacturer.
The adoption of electric mobility is further promoted on the national level within the EU. The vast majority of member states of the EU provide purchase grants, tax benefits or other incentive schemes to buyers of electric vehicles.
Renewable Energy Requirements
The laws and regulations within the EU and various other jurisdictions impose energy source requirements for the transportation sector, which also aim to reduce the emission of greenhouse gases and promote the adoption of alternative fuel or electric vehicles. A directive adopted in 2018, and amended in 2023, establishes a common system for the promotion of energy from renewable sources (such as wind, solar (both solar thermal and solar solar) and geothermal energy, tide, wave and other ocean energy, hydropower or biomass) in electricity, heating and cooling, and transport and provides a framework for the promotion of the use of renewable energy sources in the EU until 2030. The directive defines a binding overall target of at least 42.5% of energy from renewable sources for the EU’s gross final energy consumption by 2030 (calculated as the sum of the member states’ gross final consumption of electricity and energy in various sectors) and promotes the use of renewable energy in transport, particularly prioritizing electricity, with a target of at least 29% renewables in the final energy consumption mix by 2030 or a greenhouse gas intensity reduction of at least 14.5% by 2030. The directive envisages electric mobility to constitute a substantial part of the renewable energy mix in the transport sector by the year 2030 and is a cornerstone for the adoption and integration of electric mobility within the EU, as it also supports incentive schemes for the swift development of electric mobility with respect to the sector’s growth potential and role for the EU employment market. In addition, the directive seeks to boost the use of renewable electricity in the transport sector by applying augmented multipliers in the context of the calculation of the relevant energy mix under the directive.
Industrial Environmental Control
All member states of the EU control the manufacture, use and disposal of pollutants by means of regulations on air pollutants, chemicals, heavy metals, persistent organic pollutants, soil contamination and biocides. The operations of manufacturers, particularly production, logistics and transport processes, as well as end products, must comply with these regulations.
The most relevant legal frameworks are the Regulation for Registration, Evaluation, Authorization and Restriction of Chemicals (“REACH”) and the Regulation on Classification, Labeling and Packaging of Substances and Mixtures (“CLP”). REACH requires manufacturers and importers of chemicals to identify and manage risks linked to the substances they manufacture and market. Companies need to register substances placed on the market in the EU in quantities of one tonne or more a year, and the type of information required for registration will depend on the amount manufactured or imported in the EU. There are information sharing obligations for different actors in the supply chain to ensure proper application and use of such substances. In addition, substances which are considered hazardous could be subject to authorization or restrictions in the future, any of which may delay or increase the costs of operations if there is a need to obtain authorization or find an alternative substance. CLP complements REACH by requiring suppliers of substances and mixtures, including manufacturers, downstream users and distributors, to apply harmonized criteria to their classification and labeling.
Substance restrictions under REACH in some cases prohibit the marketing in the EU of articles containing certain substances. This is particularly relevant in relation to spare parts for products, which were designed before a relevant restriction was adopted and which are no longer in mass production (“legacy parts”). Similar problems may arise if a substance is placed under an authorization requirement under REACH and may, therefore, not be used for the production of legacy parts without a corresponding authorization. REACH does not include general exemptions with regard to legacy parts (so-called “repair as produced” clauses).
Emissions from Production
Emissions from production, such as air pollutants, noise, odors, vibrations and greenhouse gasses (such as CO2), are governed by specific laws and regulations, and, if the operation of a facility is subject to a permit, by specific conditions set forth therein. Some laws and regulations require the submission of emission reports on a regular basis. Non-compliance with maximum emission levels may result in administrative fines.
International, as well as European and national regulations, may have repercussions on the operation of the relevant production facilities. For example, stricter regulation of CO2 emissions could cause manufacturers to incur significant capital expenditures to upgrade production plants by installing or improving technical equipment to comply with maximum emission levels that may become applicable in the future, which may also affect their ability to sell their products at predetermined price levels.
Emission trading systems for emissions from industrial production exist on the European and national level. These systems are based on “cap and trade” principles designed to reduce carbon dioxide emissions by limiting the number of emission allowances (cap) required for certain facilities and allowing the purchase for shortfall or the sale of surplus emission allowances (trade). A new EU Carbon Border Adjustment Mechanism (“CBAM”) is being introduced gradually for imports of certain goods such as steel, iron, electricity and fertilizers seen as at most significant risk of carbon leakage. CBAM will ensure the carbon price of imports is equivalent to the carbon price of domestic production to avoid any undermining of the EU’s climate objectives. Importers of in-scope goods are required, during this transitional period, to submit reports on direct and indirect greenhouse gas emissions; however, overtime the obligations will increase and require “CBAM certificates” to be purchased. It is intended that CBAM will extend to other sectors from 2026. The gradual introduction of CBAM is aligned with the phase-out of the allocation of free allowances under the EU Emissions Trading System (ETS) to support the decarbonization of EU industry.
Reuse, Recycling and Recovery
Manufacturers may also be obligated to assist customers with the disposal, recovery and recycling of certain underlying components of their products once they have reached their end- of-life/disposal stage.
An EU directive on batteries (the “Batteries Directive”) governs the recovery of batteries within the EU. The Batteries Directive requires manufacturers and distributors of batteries to bear a significant amount of the costs associated with proper collection and disposal of end-of-life batteries.
The new EU regulation on batteries (the “Batteries Regulation”) will repeal and replace the Batteries Directive in 2025. The Batteries Regulation aims to ensure that batteries have a low carbon footprint, use minimal harmful substances, need less raw materials from non-EU countries, and are collected, reused and recycled to a high degree in Europe. Targets for recycling efficiency, material recovery and recycled content will be introduced gradually from 2025 onwards. All collected waste batteries will have to be recycled and high levels of recovery will have to be achieved, in particular of critical raw materials such as cobalt, lithium and nickel. In addition, under the new law’s due diligence obligations, companies must identify, prevent and address social and environmental risks linked to the sourcing, processing and trading of raw materials such as lithium, cobalt, nickel and natural graphite contained in their batteries.
Furthermore, an EU directive on end-of-life vehicles (the “ELV Directive”) and an EU directive on waste from electrical and electronic equipment (the “WEEE Directive”) each govern the recovery of motor vehicles and electrical and electronic equipment within the EU, providing for ambitious recovery, reuse and recycling rates. The directives require that manufacturers cover all, or a significant part, of the costs associated with recovery, reuse and recycling measures. The aforementioned directives, including the Batteries Directive, as well as an EU directive on the restrictions of the use of certain hazardous substances in electrical and electronic equipment and the Batteries Regulation, limit manufacturing options because they also contain prohibitions on the use of certain identified substances and materials. The Batteries Regulation also introduces performance classes and maximum limits on the carbon footprint of electric vehicles.
Cross-border Import and Export of Products
Sales of our products and solutions may be subject to export control and sanction regulations, as well as trade policy measures, such as tariffs. We may be required to comply with export control regulations, trade and economic sanctions restrictions and embargoes imposed by multiple authorities, such as the United Nations, the EU and the United States. In addition, the EU, United States and other applicable sanctions and embargo laws and regulations vary in their application (and may be inconsistent): they do not all apply to the same covered countries, persons, groups and/or entities, projects and/or activities, and such sanctions and embargo laws and regulations may be amended or strengthened from time to time.
Within our primary target market, the EU’s internal market, the principle of free movement of goods applies. When importing goods from, and exporting goods to, non-EU countries, we will have to comply with national and European foreign trade and customs regulations.
Data Protection and Privacy
The GDPR applies to the processing of personal data in the context of activities of establishments in the EEA, regardless of whether the processing takes place in the EEA or not. The GDPR and other data privacy laws regulate when and how personal data may be collected, for which purposes it may be processed, for how long such data may be stored and to whom and how it may be transferred. The GDPR contains strict requirements for obtaining the consent of data subjects (i.e., the persons to whom personal data relates) to the use and processing of their personal data. The GDPR also requires the implementation of appropriate technical and organizational measures, depending on the nature of the processing activities. It also imposes various obligations in the context of processing of data, including, among others, far-reaching transparency, data minimization, storage limitations, privacy by design and privacy by default obligations, data security, integrity and confidentiality obligations. In addition, it may require so-called data protection impact assessments, at least in cases where the data processing is likely to result in a high risk to the rights and freedoms of individuals. In Germany, operators of online platforms have to comply with the specific requirements of the German Tele Media Act (Telemediengesetz), which takes into consideration particular aspects of online communication. For example, the German Tele Media Act provides for additional information obligations which are stricter than the general requirements of the Data Protection Act (e.g., a requirement to include an imprint on websites and apps).
An EU directive on the processing of personal data and the protection of personal data in the electronic communications sector adopted in 2002 sets out rules to ensure security in the processing of personal data, the notification of personal data breaches and confidentiality of communications through public electronic communication services such as the internet and mobile telephony. Providers of such electronic communication services must, among others, ensure that personal data are accessed by authorized persons only, are protected from being destroyed, lost or accidentally altered and from other unlawful or unauthorized forms of processing and ensure the implementation of a security policy on the processing of personal data. The e-Privacy Directive also contains several provisions aimed at ensuring the confidentiality of electronic communications and sets forth strict (consent) requirements for the use of cookies and for unsolicited communication as part of direct marketing efforts. The e-Privacy Directive has been implemented in the Netherlands by the Dutch Telecommunications Act (Telecommunicatiewet) and in Germany by the German Telecommunications Act (Telekommunikationsgesetz). On January 10, 2017, the European Commission released a proposal for a regulation of the European Parliament and of the Council of the EU concerning the respect for private life and the protection of personal data in electronic communications (the e-Privacy Regulation), which would repeal the e-Privacy Directive. The proposal is still subject to legislative procedure and debate.
In March 2021, the United Nations announced UN R155 – a regulation on cybersecurity and cybersecurity management systems. The regulation requires that, from July 2022, all new vehicle types and, from July 2024, all registered vehicles must prove that their product development is based on a systematic approach to risks associated with cyber threats to their cars. The regulations have been adopted by the EU as well as jurisdictions such as Japan and South Korea. The UN regulations are not expected to be adopted in the United States or China where similar regulations are expected to be adopted.
Antitrust Law
Competition and antitrust laws and regulations are designed to preserve free and open competition in the marketplace to enhance competitiveness and economic efficiency. Provisions on merger control, the prohibition of anticompetitive agreements, collusive behavior, the prohibition of abuse of a dominant position and the receipt of advantages in violation of state aid rules within the market are of particular relevance for manufacturers. National and supranational competition and antitrust authorities may initiate investigations and proceedings for alleged infringements of competition or antitrust laws, which may result in significant fines or other forms of liability or impose certain limitations or conditions regarding acquisitions and certain business practices.
Within the EU, compliance with applicable European and national competition laws is monitored by the European Commission and in some cases the national competition authorities. The EU’s antitrust rules are set out in Articles 101 and 102 of the Treaty on the Functioning of the European Union (“TFEU”). Article 101(1) of the TFEU prohibits anticompetitive agreements to the extent they are not otherwise exempted by Article 101(3) of the TFEU. Article 102 TFEU prohibits the abuse of a dominant position. Article 107 (1) TFEU prohibits the granting of state aid.
Class Actions to Enforce Regulations
In the EU and certain of its member states, there is or has been an increasing prevalence of legislation governing class actions and their use to enforce regulations. As a result of these developments, consumers have increasingly powerful legal mechanisms at their disposal to collectively sue manufacturers of consumer products.
In the EU, under the banner of “A New Deal for Consumers,” the European Commission is facilitating a trend towards the increasing availability and use of collective redress mechanisms in areas in which EU law grants rights, including in particular consumer protection rules and regulations. The European Commission made a non-binding recommendation for EU member states to adopt collective redress procedures in June 2013, subsequently consulted on progress in 2017 and published a report on the subject in January 2018. A proposal for a new directive regarding “better enforcement and modernization of EU consumer protection rules” has been put forward by the European Commission. EU member states have also been developing their own rules in this regard. In Germany a law introducing a declaratory model action (Musterfeststellungsklage) came into force on November 1, 2018. With this new declaratory model action, certain persons are entitled to seek a legal declaration concerning factual or legal matters regarding consumer claims. Consumers can then opt in to be bound by a judgment (and under certain circumstances also a settlement) issued in the declaratory model proceedings.
In the Netherlands, in the event a third party is liable to a Dutch company, as a general principle only the company itself can bring a civil action against that party. The individual shareholders do not have a general right to bring an action on behalf of the company. However, in the event that the cause for the liability of a third party to the company also constitutes a tortious act directly against a shareholder, that shareholder may have an individual right of action against such third party in its own name. Dutch law provides for the possibility to initiate such actions collectively, in which a foundation or an association can act as a class representative and has standing to commence proceedings and claim damages if certain criteria are met. The court will first determine if those criteria are met. If so, the case will go forward as a class action on the merits after a period allowing class members to opt out from the case has lapsed. All members of the class who are residents of the Netherlands and who did not opt out will be bound to the outcome of the case. Residents of other countries must actively opt in in order to be able to benefit from the class action. The defendant is not required to file defenses on the merits prior to the merits phase having commenced. It is possible for the parties to reach a settlement during the merits phase. Such a settlement can be approved by the court, which approval will then bind the members of the class, subject to a second opt-out. This regime applies to claims brought after January 1, 2020 and which relate to certain events that occurred prior to that date. For other matters, the old Dutch class actions regime will apply. Under the old regime, no monetary damages can be sought. Also, a judgment rendered under the old regime will not bind individual class members. Even though Dutch law does not provide for derivative suits, directors and officers can still be subject to liability under U.S. securities laws.
| C. |
Sono Group N.V., or the Company, has a single, wholly-owned Subsidiary, Sono Motors GmbH. The Subsidiary became the wholly-owned subsidiary of the Company upon conclusion of a corporate reorganization that was completed on November 27, 2020. The Subsidiary has its country of residence and incorporation in Germany, with its company address in Waldmeisterstraße 93, 80935 Munich, Germany.
| D. |
Our headquarters is located at Waldmeisterstraße 93, 80935 Munich, Germany. We have leased this 1,455-square meter property for use as office, workshop, electronics lab and warehouse space for a fixed term until April 30, 2026. We then have the option to extend this fixed term by five years.
In addition, in February 2024 we signed a lease for a 900-square foot property at 10101 Lantana Rd., Suite N, Lake Worth, Florida 33449 for use as an office space for a fixed term of one year until February 28, 2025. The lease will automatically renew for periods of one year unless either party to the lease agreement gives written notice of its intent to terminate the lease at least 90 days before the termination of the lease or any extension thereof.
Our former headquarters was located at Waldmeisterstraße 76, 80935 Munich, Germany. We leased this 2,547-square meter property as office space, show room and electronics lab for an initial fixed term until March 31, 2022. In connection with corporate measures implemented in connection with the Subsidiary’s exit from the Subsidiary Self-Administration Proceedings, we terminated this lease effective as of January 31, 2024.
We also previously leased a 1,095 square meter storage building at Waldmeisterstraße 99, 80935 Munich, Germany. The lease started on September 1, 2022, and runs for an indefinite period. In connection with our commitment to focus exclusively on our solar business for business customers, we terminated this lease at the end of February 2023, with such termination becoming effective on November 30, 2023.
As of the date of this Annual Report, we do not own any real estate property and only lease real estate property as described above.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis should be read in conjunction with the information included under “Item 4. Information on the Company” and “Item 18. Financial Statements.” The following discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in “Item 3. Key Information—D. Risk Factors.” Actual results could differ materially from those contained in any forward-looking statements. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
For a discussion of the year ended December 31, 2022 compared to December 31, 2021, refer to the section contained in our Annual Report on Form 20-F for the year ended December 31, 2022, “Item 5: Operating and financial review and prospects”. Our consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB.
Overview
For an overview of our business, see “Item 4. Information on the Company—B. Business Overview—Overview”.
For the year ended December 31, 2023, we had a loss for the period of €53.6 million, compared to a loss for the period for the year ended December 31, 2022 of €183.7 million. We have incurred net losses since our inception in March 2016, resulting in an accumulated deficit of €384.3 million as of December 31, 2023 compared to an accumulated deficit of €330.8 million as of December 31, 2022.
Following our emergence from the Self-Administration Proceedings, our business was restructured, which included the release of significant liabilities, and will likely entail significant changes to our consolidated balance sheet and consolidated statement of operations. As a result, our financial information going forward may in many respects not be comparable to our historical financial information. In addition, the financial information for the years ending December 31, 2022 and 2023 mainly include expenses related to the Sion project, which was terminated in February 2023. Accordingly, the financial information contained in this Annual Report is likely not indicative of any future financial information and has only limited value for purposes of assessing our solar-only business.
Our Business Model
Following our emergence from the Self-Administration Proceedings, we expect to generate revenue from monetization of our solar technology in the future. The potential scope of application of our solar technology goes significantly beyond passenger cars. While our initial focus in the short- to medium-term is expected to be on our Solar Bus Kit and similar retrofit solar products, we believe that our solar technology has the potential to be used in existing markets, such as the truck and trailer markets. We may also produce and sell certain selected solar components, license our patents to third parties and seek to generate service revenue from providing engineering services to third parties. We have shipped prototypes or solar retrofits to customers, generating revenue of approximately €42 thousand in 2023.
Through February 2023, we also worked on, and incurred significant expenses for, the development of the Sion, which we had envisaged to become an affordable solar electric vehicle. Due to a lack of available funding, we decided to terminate the development of the Sion and focus on our solar technology. The Sion project is currently being offered for sale, potentially together with our car-sharing and ride-pooling application. Any proceeds from the sale of the Sion project will be used to satisfy claims of the Subsidiary’s creditors in the Subsidiary Self- Administration Proceedings.
Factors Affecting Our Financial Condition and Results of Operation
We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including those set forth in “Item 3. Key Information—D. Risk Factors”.
Self-Administration Proceedings
Following our emergence from the Self-Administration Proceedings, our business was restructured, which included the release of significant liabilities, and entailed significant changes to our consolidated balance sheet and consolidated statement of operations. In addition, due to the opening of the Self-Administration Proceedings, the Company lost control of the Subsidiary on May 19, 2023. The effect of this loss of control is that in 2023, the results of the Subsidiary are consolidated up until the loss of control and the assets and liabilities of the Subsidiary will be derecognized from the consolidated statement of financial position for the period following the loss of control in the consolidated financial statements. In accordance with IFRS, the Company derecognized the assets and liabilities of the Subsidiary from the consolidated statement of financial position, which led to significant movements in the assets and liabilities. The asset and liability balances that the Company had with the Subsidiary were previously intercompany and therefore eliminated on consolidation. These balances were reinstated. Due to a hard comfort letter between the Company and the Subsidiary, the Company. then recognized a parental guarantee provision. Control was regained when the Subsidiary exited the Subsidiary Self-Administration Proceedings on February 29, 2024 and was consolidated again with the Company. As a result, our financial information going forward may in many respects not be comparable to our historical financial information. In addition, the financial information for years ending December 31, 2022 and 2023 mainly include expenses related to the Sion project, which was terminated in February 2023. Accordingly, the financial information contained in this Annual Report is likely not indicative of any future financial information and has only limited value for purposes of assessing our solar-only business.
Yorkville Investment
The financing provided by Yorkville in connection with the Yorkville Investment is in the form of interest-bearing convertible debentures. The new convertible debenture issued to Yorkville on February 5, 2024 in connection with the funding of the First Tranche will mature on July 1, 2025, and each subsequent new convertible debenture will mature on the earlier of (i) July 1, 2025 or (ii) 12 months from the issuance date of such new debenture. These instruments are similar to the Existing Convertible Debentures (as defined herein) issued to Yorkville in December 2022. In accordance with the applicable accounting standards, the new convertible debentures are likely to be fair valued upon recognition and have an impact on the profit and loss of the Company. It is expected that the instrument will be converted over time, resulting in the issuance of new shares of the Company.
Reservations
Through February 2023, we worked on developing the Sion and accepted reservations and advance payments from customers for the Sion. Until we terminated the Sion passenger car program, an advance payment liability was recognized at the time the cash was collected by the Company. Given that the Sion will not be delivered, advance payments are due back to customers. On February 24, 2023, Sono Group proposed a payment plan to reimburse reservation holders for advance payments in three installments (May 2023, June 2024 and January 2025) over the next two years. Reservation holders who accepted the payment plan would have received a one-time bonus of 5% on the amount of the advance payment to be paid with the third installment. Reservation holders could also waive repayment. Approximately 2% of the total advance payments waived repayments. Upon applying for the Self-Administration Proceedings, we became generally prohibited from paying any pre-petition debt. As a result, the payment plan for reservation holders could not be implemented. Following the Subsidiary Self-Administration proceedings, the payment plan for reservation holders is no longer relevant and all outstanding advance payments will be handled in accordance with the Plan. For information on the accounting treatment of the advance payments for historical periods and following our decision to change our business model, see “Notes to the Consolidated Financial Statements—4. Significant accounting policies—4.8 Advance payments received from customers”.
Intellectual Property
As of April 30, 2024, we had 6 patents granted and 60 patents or patent/utility model applications filed, deriving from 45 patent families. Patents relating to the same technology, but filed in different jurisdictions, are counted separately. In addition 26 international (PCT) applications were filed as of April 30, 2024. Due to the cost-intensive nature of the patent application process and in accordance with the change in our business model to focusing exclusively on integrating our solar technology into third-party vehicles, we plan to terminate and/or discontinue patents and patent applications that do not address our core products and markets and instead focus on our most promising applications and markets (mainly Europe). See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Operations—We depend on the adequate protection of our intellectual property, which can be difficult and costly”.
Our patent applications mainly relate to our solar technology.
Ability to Control Cost of Sales
Provided we are able to launch the commercialization of our solar technology, we would expect that our cost of sales will be affected by fluctuations in certain raw material prices.
Development Expenses
Following our emergence from the Self-Administration Proceedings, we continue to incur expenses related to the refinement of our technology and our development expenses will constitute a substantial part of our expenses in future periods. We plan to only incur development expenses to the extent we believe that we are able to secure necessary financing, since we would expect to continue to depend on significant external financing for additional development activities. In addition, elevated inflation levels, should they persist, may lead to an increase in our development costs and financing needs.
Capital Expenditure
Prior to the change in our business model, our capital expenditure in the years ending December 31, 2022 and 2023 related to property, plant and equipment concerning the discontinued Sion program. Following our pivot to solar-only in February 2023, we operated on an asset-light basis, which meant that our capital expenditure was very limited, until we applied for Self-Administration Proceedings on May 15, 2023.
Unused Tax Loss
We have substantial carried-forward tax losses resulting from our negative taxable income in 2023, 2022, 2021 and prior fiscal years. Given that our estimated taxable income for the foreseeable future will not be sufficient to recover these carried-forward losses we have not recognized deferred tax assets on the balance sheet as of December 31, 2021, December 31, 2022 or December 31, 2023. Our unused tax losses as of December 31, 2023, for which no tax asset has been recognized, were €32.7 million (corporate income tax) and €31.6 million (trade tax). Assuming a total tax rate of 32.98%, our unused corporate income and trade tax losses correspond to a potential undiscounted tax benefit of €10.6 million. Only up to 60% of our annual taxable income, to the extent such taxable income exceeds €1 million, may be offset against tax loss carry forwards. The remaining 40% of the taxable income is subject to corporate income and trade tax under the so-called minimum taxation rules. Annual taxable income for corporate income tax and trade tax purposes of up to €1 million could fully be offset against tax loss carry-forwards. However, due to the termination of the Sion program, existing tax loss carry forwards may be forfeited to the extent no built-in gains (stille Reserven) exist as of December 31, 2023. The built-in gains as of December 31, 2023 have not yet been determined. Therefore, it is currently unclear whether all tax losses can still be carried forward. For more information see “Notes to the Consolidated Financial Statements—4. Significant accounting policies—4.12.6. Recoverability of deferred tax assets in relation to loss carryforwards” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Company’s Status—Our ability to use our net operating loss carryforwards and other tax attributes may be limited”.
Conversion Stock Option Program (CSOP) and Employee Stock Option Program (ESOP)
In the first half of 2018, we established two similar employee participation programs for our staff members and selected managers of the Subsidiary based on virtual shares. In December 2020, we offered all participants of the aforementioned employee participation programs as well as six additional members of our staff to exchange their virtual shares for actual stock options under a newly organized employee participation program, our conversion stock option program (the “CSOP”), which is equity settled. As of December 31, 2023, 88 employees, including all those participating in the original employee participation program but one, have joined the CSOP. We recorded expenses in the amount of €0.1 million in 2023 and €0.7 million in 2022 for the CSOP.
In 2022, we intended to implement a new employee stock option program (the “ESOP”) for the years 2021, 2022 and 2023. In February 2023, we offered our employees, including those who will depart the Company in connection with our strategy shift towards a solar-only business model, the right to participate in the ESOP with a grant value of approximately 10% of their annual salary on a pro rata basis for their periods of employment during those years. We recorded incomes of €0.3 million in 2023 for the ESOP.
Following the restructuring of the Companies as a result of the Self-Administration Proceedings and the corporate measures implemented in connection therewith, there is uncertainty over the future of the remuneration based on shares (share-based payment) programs, which may result in share options not being formally granted or, in some cases, cancellation of unexercised options, which may be done without compensation. Further, the Reverse Share Split and the exchange ratio to be determined by our management board may have a significant impact on options or awards granted.
War in Ukraine and Conflict in the Middle East
In February 2022, the government of Russia invaded Ukraine across a broad front. In response to this aggression, governments around the world have imposed severe sanctions against Russia. These sanctions disrupted the manufacturing, delivery and overall supply chain of vehicle manufacturers and suppliers. We cannot yet foresee the full extent of the sanction’s impact on our business and operations and such impact will depend on future developments of the war, which is highly uncertain and unpredictable. The war has also negatively impacted suppliers located in the Ukraine, which negatively affected the availability of car components. The war could have a material impact on our results of operations, liquidity, and capital management. We will continue to monitor the situation and the effect of this development on our liquidity and capital management.
In addition, the Israel-Hamas conflict also has the potential to disrupt the world economy. An escalation of the conflict, including the involvement of other countries, could cause disruption, instability and volatility in global markets, supply chains and logistics operations. Any adverse impact on our current or potential customers in this region could adversely affect our operations or financial performance.
Components of Our Results of Operations
Following our emergence from the Self-Administration Proceedings, our business was restructured, which included the release of significant liabilities, and entailed significant changes to our consolidated balance sheet and consolidated statement of operations. In addition, due to the opening of the self-administration proceedings, the Company lost control of the Subsidiary on May 19, 2023. The effect of this loss of control is that in 2023, the results of the Subsidiary are consolidated up until the loss of control and the assets and liabilities of the Subsidiary is derecognized from the consolidated statement of financial position, which led to significant movements in the assets and liabilities. Control was obtained again when the Subsidiary exited the Subsidiary Self-Administration Proceedings on February 29, 2024 and was consolidated again with the Company. As a result, our financial information going forward may in many respects not be comparable to our historical financial information. In addition, the financial information for the years ending December 31, 2022 and 2023 mainly include expenses related to the Sion project, which was terminated in February 2023. Accordingly, the historical financial information contained in this Annual Report is likely not indicative of any future financial information and has only limited value for purposes of assessing our solar-only business.
Revenues
We recognize revenues, which have historically been overall insignificant, primarily from the sale and installation of our Solar Bus Kit.
Cost of Sales
In 2021, 2022 and 2023, we recorded a marginal amount of cost of sales relating to monetization of our solar technology and launch of the Sono app.
Operating Expenses
Our operating expenses consist of research and development expenses and selling, general and administrative expenses.
There were no research expenses included in our profit and loss in 2021, 2022 and 2023, as we did not perform research. Our development expenses consist of (i) personnel expenses for our development staff, including salaries and bonuses and the relevant share of expenses relating to the CSOP, (ii) development cost for prototypes, our car-sharing and ride-pooling application and solar integration, (iii) professional services and (iv) other expenses. Development costs are expensed as incurred. As the recognition criteria for the capitalization of development cost have not been met, all development expenses were recognized in profit or loss as incurred in all periods.
Selling and Distribution Expenses
Our selling and distribution expenses consist of (i) employee compensation for employees responsible for marketing activities, such as social media, e-mail marketing, trade shows and other channels, including salaries and bonuses and the relevant share of expenses relating to the CSOP, (ii) marketing and promotional expenses, (iii) expenses for professional services and (iv) other expenses.
General and Administrative Expenses
Our general and administrative expenses consist of (i) personnel expenses for employees responsible for areas such as finance, human resources, business development, administration, including salaries and bonuses and the relevant share of expenses relating to the CSOP, (ii) expenses for professional services, such as accounting, tax, legal and other external services, (iii) expenses without sufficient supporting documentation, including underlying invoices, and (iv) other expenses.
Other Operating Income/Expenses
Our other operating income primarily consists of parental guarantee expenses (due to a hard comfort letter between the Company and the Subsidiary), agency fees, donations, statutory reimbursements for personnel expenses, government grants and other operating income. Our other operating expenses primarily relate to foreign exchange losses resulting from the conversion from USD to EUR.
Deconsolidation gain
Our deconsolidation gain relates to the loss of control of the Subsidiary on May 19, 2023 as a result of the opening of the Self-Administration Proceedings. The Company derecognized the assets and liabilities of the Subsidiary from the consolidated statement of financial position. The interest in the Subsidiary is accounted for as a financial instrument with a fair value of zero. The asset and liability balances that the Company had with the Subsidiary were previously intercompany and therefore eliminated on consolidation. These balances were reinstated. All these effects resulted in a gain largely driven by the large balances of liabilities derecognized.
Interest and Similar Income
Interest and similar income relates to interest income from VAT taxes.
Interest and Similar Expenses
Interest and similar expenses largely consist of interest expenses related to the compounding effect for advance payments received from customers and financial liabilities.
| A. |
The following table presents information taken from our consolidated statement of income (loss) and statements of comprehensive income (loss) for the years ended December 31, 2023 and 2022:
| For the year ended December 31, |
||||||||
| 2023 | 2022 | |||||||
| (in € millions) |
||||||||
| Revenue |
0.0 | 0.2 | ||||||
| Cost of goods sold |
(0.1 | ) | (0.4 | ) | ||||
| Gross loss |
(0.0 | ) | (0.2 | ) | ||||
| Cost of development expenses |
(15.8 | ) | (158.5 | ) | ||||
| Selling and distribution expenses |
(1.1 | ) | (3.6 | ) | ||||
| General and administrative expenses |
(13.2 | ) | (20.0 | ) | ||||
| Other operating income/expenses |
(61.8 | ) | 0.8 | |||||
| Deconsolidation gain |
40.1 | - | ||||||
| Impairment losses on financial assets |
0.0 | 0.0 | ||||||
| Operating loss |
(51.8 | ) | (181.4 | ) | ||||
| Interest and similar income |
8.4 | 1.0 | ||||||
| Interest and similar expense |
(10.1 | ) | (3.3 | ) | ||||
| Loss before tax |
(53.6 | ) | (183.7 | ) | ||||
| Taxes on income and earnings |
- | - | ||||||
| Deferred taxes on expense |
- | - | ||||||
| Loss for the period |
(53.6 | ) | (183.7 | ) | ||||
| Other comprehensive income (loss) that will not be reclassified to profit or loss |
- | - | ||||||
| Total comprehensive loss for the period |
(53.6 | ) | (183.7 | ) | ||||
Revenue
Revenue decreased from €229 thousand in 2022 to €42 thousand in 2023 primarily due to the deconsolidation of the Subsidiary and therefore revenue was consolidated up to May 19, 2023. Revenue relates to the order of prototypes for testing integration of the Companies’ solar technology onto vehicles produced or sold by these customers.
Cost of Goods Sold
Cost of sales decreased from €392 thousand in 2022 to €70 thousand in 2023 following the change in revenue, relating to the monetization of our solar technology.
Gross Loss
In 2023, we incurred a gross loss of €28 thousand relating to the monetization of our solar technology as compared to a gross loss of €163 thousand in 2022. As most of our revenues are currently generated from prototype projects, our gross loss reflects our planned and expected higher cost of sales in proportion to revenues at this stage of development as we prepare for market entry.
Cost of Development Expenses
Cost of development expenses decreased from €158.5 million in 2022 to €15.8 million in 2023. In 2022, due to an expansion in efforts on the development of the new prototype generation, leading to development costs for prototypes of €83.2 million, and due to recognition of impairment on Sion-related assets of €41.2 million, the development costs were significant. In 2023, the Sion passenger car program was terminated which led to decreased Sion development cost and headcount reductions, and, due to the Self-Administration Proceedings, development activities related to solar technology decreased. In addition, the Subsidiary results were only consolidated up to May 19, 2023.
Selling and Distribution Expenses
Selling and distribution expenses decreased from €3.6 million in 2022 to €1.1 million in 2023, primarily due to a decrease in advertising expenses from €1.3 million in 2022 to €0.4 million in 2023 and a decrease in personnel expenses from €1.8 million in 2022 to €0.6 million in 2023. The decrease is related to reduced activity due to the self-administered insolvency proceedings and decrease in headcount. In addition, the Subsidiary results were only consolidated up to May 19, 2023.
General and Administrative Expenses
General and administrative expenses decreased from €20.0 million in 2022 to €13.2 million in 2023, due to lower personnel expenses, which decreased from €6.0 million in 2022 to €2.5 million in 2023, as well as a decrease in insurance expenses from €3.5 million in 2022 to €2.7 million in 2023 and software fees and subscriptions from €1.2 million in 2022 to €0.3 million in 2023. The decreases are related to reduced activity due to the self-administered insolvency proceedings and decrease in headcount. In addition, the Subsidiary results were only consolidated up to May 19, 2023.
Other Operating Income/Expenses
In 2023, other operating income decreased slightly from €1.6 million in 2022 to €1.3 million resulting largely from a €0.9 million decrease of income from currency revaluations and €0.2 decrease in government grant funding, which were partially offset by non-recurring donations received in 2023 of €0.9 million.
Other operating expenses increased from €0.7 million in 2022 to €63.1 million in 2023. In 2022, the majority of the other operating expenses mainly related to foreign exchange losses. In 2023, the significant other operating expenses were the customer advance repayment plan bonus of €2.2 million, a VAT expense due in connection with the termination of the Sion passenger car program of €7.8 million, and a parental guarantee expense of €52.2 million resulting from the Company’s obligation to provide the Subsidiary with financial resources so that the Subsidiary is able to meet all its current and future obligations as they become due for payment.
Operating Loss, Loss for the Period
Operating loss decreased from €181.4 million in 2022 to €51.8 million in 2023, primarily due to a decrease in cost of development and general and administrative expenses. Including the impact of interest and similar income, of interest and similar expenses and tax on income, loss for the period decreased from €183.7 million in 2022 to €53.6 million in 2023.
| B. |
As of December 31, 2023, cash and cash equivalents were at €7.4 million compared to €30.4 million as of December 31, 2022 and €132.9 million as of December 31, 2021. Cash and cash equivalents consist of cash in bank accounts and deposits.
We currently do not generate any material revenue from our operations. We incur, however, significant expenses related to refinement of our solar technology and general and administrative functions. Until February 2023, we also incurred significant expenses related to the development of the Sion. Following our decision to terminate the Sion passenger car program, we are faced with substantial additional costs and cash outflows associated with the change in our business model, including reimbursements of advance payments to our reservation holders. When financing options failed to materialize following our termination of the Sion program, we decided to apply for the Self-Administration Proceedings on May 15, 2023.
In the past, we mainly raised capital in the form of equity or equity-linked debt. We also raised capital through advance payments on reservations for the Sion. In the context of equity or equity-linked debt, we raised funds through the placement of pre-IPO mandatory convertible bonds in November 2020, as well as through our IPO in November 2021, our follow-on offering in May 2022, the committed equity financing entered into in June 2022 and pursuant to the Securities Purchase Agreement (as defined herein) entered into with Yorkville in December 2022. Finally, we have received limited grants from government agencies and similar bodies like the EU for participation in specific research and development projects.
Our obligations that existed prior to the Companies’ application for their respective Self-Administration Proceedings, including with respect to advance payments made for Sion reservations, were settled in the context of the Self-Administration Proceedings. From the date of its application for Self-Administration Proceedings through its exit from the proceedings, the Subsidiary was prohibited from paying pre-petition debt, subject to certain exceptions. On December 7, 2023, in connection with its Self- Administration Proceedings, the Subsidiary submitted its Plan to the Court and set out how the company intends to restructure its debt and procure the inflow of new cash. Approval by the creditors and confirmation by the Court was obtained in the creditors meeting on December 21, 2023, and the Court confirmed on January 26, 2024 that the Plan became legally binding. On January 31, 2024, the Company withdrew its application for its Preliminary Self-Administration Proceedings with the Court. The Subsidiary exited its Self-Administration Proceedings on February 29, 2024. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings—The Self-Administration Proceedings”.
Following our emergence from the Self-Administration Proceedings and the commitments made by Yorkville in connection with the Yorkville Investment, we expect to require external financing to cover our expenses and cash needs beyond June 30, 2025. As in the past, we would expect that our ability to raise external financing would continue to be highly dependent on further progress in the development and refinement of our solar technology and successful communication to potential external investors. While the Yorkville Investment, if we are able to successfully access the unfunded portion of the investment as planned , should enable us to resume our operations with a focus on our Solar Bus Kit and similar retrofit solar products through June 30, 2025, we expect additional financing to be necessary to undertake additional development activities for our Solar Bus Kit and other retrofitting and solar integration solutions, to pay overhead costs, and possibly to also repay convertible debentures. Following our emergence from the Self- Administration Proceedings, risks and uncertainties related to the supply chain, negative cost development, technical challenges and the war in Ukraine may negatively affect our business, liquidity and financial position going forward.
Consolidated Statements of Cash Flows
The following table shows selected information taken from our consolidated cash flow statements for the years ended December 31, 2023 and 2022:
| For the year ended December 31, |
||||||||
| 2023 |
2022 |
|||||||
| (in € millions) |
||||||||
| Net cash used in operating activities |
(11.2 | ) | (139.6 | ) | ||||
| Net cash used in investing activities |
(11.3 | ) | (47.2 | ) | ||||
| Net cash from (used in) financing activities |
(0.3 | ) | 83.0 | |||||
| Net decrease in cash and cash equivalents |
(22.8 | ) | (103.8 | ) | ||||
| Cash and cash equivalents at the beginning of the period |
30.4 | 132.9 | ||||||
| Cash and cash equivalents at end of the period |
7.4 | 30.4 | ||||||
Net cash used in operating activities
Net cash used in operating activities decreased from €139.6 million in 2022 to €11.2 million in 2023. This change was mainly due to an overall decrease in operating costs, especially for development costs of prototypes, other development costs, professional services, and lower advance payments received from customers .
Net cash used in investing activities
Net cash used in investing activities decreased from €47.2 million in 2022 to €11.3 million in 2023, primarily due to the deconsolidation of the Subsidiary cash balances and decreased purchases of property, plant and equipment.
Net cash from (used in) financing activities
Net cash from (used in) financing activities decreased from a cash inflow of €83.0 million in 2022, which mainly included proceeds from a follow-on offering, a committed equity facility and borrowings, to net cash used in financing activities of €0.3 million in 2023, which mainly consisted of payment of lease liabilities.
Financial Liabilities
The table below summarizes the maturity profile of our financial liabilities based on contractual undiscounted payments as of December 31, 2023:
| Carrying amount |
Less than 1 year |
1 – 5 years |
More than 5 years |
|||||||||||||
| (in € millions) |
||||||||||||||||
| Trade and other payables |
1.2 | 1.2 | - | - | ||||||||||||
| Loans and participation rights |
23.2 |
19.7 |
- | - | ||||||||||||
| Lease liabilities |
1.1 | 0.2 | 0.7 | 0.4 | ||||||||||||
| Total |
25.5 | 21.1 | 0.7 | 0.4 | ||||||||||||
| C. |
For a description of our development policies, see “Item 4. Information on the Company—B. Business Overview—Operations—Development”. For a description of our intellectual property, see “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”
| D. |
Other than as disclosed elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events since December 31, 2023 that are reasonably likely to have a material adverse effect on our revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
| E. |
Our consolidated financial statements are prepared in accordance with IFRS, as issued by the IASB. In preparing our consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on amounts reported in our consolidated financial statements. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. We regularly re-evaluate our assumptions, judgments and estimates. Our critical accounting estimates and judgments are described in “Note 4.12 “Significant accounting judgements, estimates and assumptions” to our consolidated financial statements as of and for the year ended December 31, 2023.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
We have a two-tier board structure consisting of a management board (bestuur) and a separate supervisory board (raad van commissarissen). There are no family relationships among any of our management board members and supervisory board members.
Management Board
Current Management Board
The following table sets forth information concerning our current management board member as of the date of this Annual Report. Under Dutch law, the management board is the executive board of the Company.
| Name |
|
Age | Term Served |
|
Year in which Term Expires |
Position |
||||
| George G. O’Leary |
61 | 2024 – Present |
2025 | Chief Executive Officer and Chief Financial Officer |
Mr. O’Leary was suggested as a candidate for the Company’s management board by Yorkville, as contemplated under the terms of the Yorkville Agreements. Mr. O’Leary’s appointment to the management board was approved by shareholders at the EGM, following his nomination by the Company’s former supervisory board.
The following is a brief summary of the business experience of our management board member.
George G. O’Leary has served as the Chief Executive Officer and Chief Financial Officer of the Company on a full-time basis since April 8, 2024. He was appointed to the management board with effect as of February 1, 2024. Mr. O’Leary is currently a Member of the Board of Directors of HealthLynked Corporation (“HLYK”) (OTCQB: HLYK) and served as HLYK’s Chief Financial Officer from August 6, 2014 through April 5, 2024. In addition, Mr. O’Leary was the Vice Chairman of the Board of Directors of Timios Holdings Corp. from March 2014 to January 2021, when it was sold to Ideanomics Inc. (NASDAQ: IDEX), and has served as Vice Chairman of the Board of Directors of Referrizer, LLC since October 2017. Mr. O’Leary is the founder and President of SKS Consulting of South Florida Corp. since June 2006, where he works with public and private companies in board representation and/or under consulting agreements providing executive-level management expertise, as well as helping the implementation and execution of their companies strategic and operational plans. From 1996 to 2000, Mr. O’Leary was Chief Executive Officer and President of Communication Resources Incorporated (“CRI”), where annual revenues grew from $5 million to $40 million during his tenure. Prior to CRI, Mr. O'Leary was Vice President of Operations of Cablevision Industries, where he ran $125 million of business until it was sold to Time Warner. Mr. O’Leary started his professional career as a senior accountant with Peat Marwick and Mitchell (now KPMG). Mr. O’Leary holds a B.B.A. degree in accounting with honors from Siena College.
Former Management Board
| Name |
|
Age |
|
Term Served |
|
Year in which Term Expires |
Position |
||||||
| Laurin Hahn(1) |
29 | 2020 –2024 | - | Co-Chief Executive Officer and Co-Founder |
|||||||||
| Jona Christians(1) |
30 | 2020 –2024 | - | Co-Chief Executive Officer and Co-Founder |
|||||||||
| Torsten Kiedel(1) |
45 | 2021 –2024 | - | Chief Financial Officer |
|||||||||
| Markus Volmer(1) |
49 | 2021 –2024 | - | Chief Technology Officer |
|||||||||
| Thomas Hausch(2) |
58 | 2021 –2023 | - | Chief Operating Officer |
| (1) |
On January 30, 2024, as contemplated in the Yorkville Agreements, all of the Company’s former managing directors – Laurin Hahn, Jona Christians, Torsten Kiedel and Markus Volmer (collectively, the “Pre-Restructuring Managing Directors”) – resigned from the Company’s management board with effect as of January 31, 2024. |
| (2) |
In the context of the termination of the Sion passenger car program, Thomas Hausch resigned as chief operating officer and member of the management board on March 21, 2023, with immediate effect. |
Supervisory Board
Our supervisory board is currently composed of two members who were appointed at the EGM. Our supervisory board may adjust the number of supervisory board members from time to time. Our supervisory board members do not have a retirement age requirement under our articles of association. In connection with the selection of our current supervisory board members, our Founders each waived their right under our articles of association to make a binding nomination for the appointment of one supervisory board member. At the EGM, shareholders approved a proposal to amend the Company’s articles of association to delete the binding nomination of the Founders to appoint members of the Supervisory Board. Such amendment was effected and implemented on February 1, 2024.
Current Supervisory Board
The current members of the Company’s supervisory board are:
| ● |
David Dodge: chairperson of the supervisory board; chairperson, independent member and financial expert of the audit committee; member of the compensation committee; and member of the nomination and corporate governance committee; and |
| ● |
Christopher Schreiber: vice-chairperson of the supervisory board, independent member of the audit committee; chairperson of the compensation committee; and chairperson of the nomination and corporate governance committee. |
The following table sets forth information concerning our current supervisory board members:
| Name |
|
Age | Term Served |
|
Year in which Term Expires | ||||
| David Dodge |
49 | 2024 – Present |
2025 | ||||||
| Christopher Schreiber |
59 | 2024 – Present |
2025 |
Unless otherwise indicated, the current business address for each supervisory board member is the same as our business address: Waldmeisterstraße 93, 80935 Munich, Germany. The following is a brief summary of the prior business experience of the members of our supervisory board:
David A. Dodge was appointed as an independent member of our supervisory board on January 31, 2024. Mr. Dodge is an independent financial consultant providing corporate finance, accounting and SEC compliance services to public and private companies around the globe. Since 2007, Mr. Dodge has acted as a chief financial officer and provided financial accounting, reporting and compliance services for multiple public and private companies in the U.S., Canada, England, and China. Mr. Dodge also supervised and authored dozens of forensic due diligence investigative reports on Chinese companies in a variety of industries. He has also provided expert witness and expert consultant services in nearly 40 separate litigation proceedings on a variety of financial topics including due diligence standard of care for underwriters (in transactions including IPOs, equity follow-on offerings and debt offerings), mergers & acquisitions, and private equity and venture capital investments; customary practices in the investment banking industry; and customary practices in the private equity and venture capital businesses. Mr. Dodge previously served as Chief Financial Officer of NeoMedia Technologies, Inc. from 2002 through 2007, and held various finance-related positions with NeoMedia from 1999 to 2002. Before NeoMedia, he was an auditor with Ernst & Young LLP from 1997 to 1999. Mr. Dodge holds a B.A. in Economics from Yale University and an M.S. in Professional Accounting from the University of Hartford (CT).
Christopher Schreiber was appointed as an independent member of our supervisory board on January 31, 2024. Mr. Schreiber has over three decades of experience in the securities industry. His expertise is demonstrated by his previous executive roles, notably as Executive Chair of the Board of Directors at Akers Bio and as a Board Member at MyMD Pharmaceuticals, Inc. (NASDAQ: MYMD). His role as Managing Director of Capital Markets at Taglich Brothers, Inc. highlights his extensive experience in capital markets, deal structuring, and syndication. Prior to his engagement at Taglich Brothers, Mr. Schreiber served on the board of directors of Paulson Investment Company, an investment banking firm. In addition to his financial career, Mr. Schreiber contributes to athletic and youth development as a director and partner at Long Island Express North, an elite lacrosse training organization, and as a volunteer board member for Fox Lane Youth Lacrosse. He is a graduate of Johns Hopkins University with a Bachelor’s Degree in Political Science.
Former Supervisory Board Compositions
On April 21, 2023, four members of our then five-member supervisory board resigned from their roles as members of the Company’s supervisory board and as members of the supervisory board committees, as applicable, with immediate effect. The members of the Company’s supervisory board who resigned were:
| ● |
Martina Buchhauser, chairperson of the supervisory board, independent member of the audit committee and chairperson of the nomination and corporate governance committee; |
| ● |
Sebastian Böttger, independent member of the audit committee, and chairperson of the compensation committee; |
| ● |
Robert A. Jeffe, vice chairperson of the supervisory board, chairperson, independent member and financial expert of the audit committee, and member of the compensation committee; and |
| ● |
Arnd Schwierholz, member of the supervisory board, member of the audit committee and member of the nomination and corporate governance committee. |
As a consequence of the resignations described above, we did not have any supervisory board committees until three new candidates were identified and appointed. During such time, the Company also was not in compliance with Nasdaq Listing Rule 5605(c)(2)(A), which requires a listed company to have an audit committee composed of at least three members, who each meet the criteria for independence set forth in Rule 10A-4(b)(1) under the Exchange Act. This deficiency served as an additional ground for delisting according to a letter we received from Nasdaq staff on August 28, 2023.
On September 11, 2023, we appointed three new acting members of the Company’s supervisory board on a provisional basis, and reestablished our compensation committee and our nomination and corporate governance committee. On September 22, 2023, we reestablished our audit committee. The provisional appointment of the new supervisory board members was effective until their formal appointment at the AGM . On January 30, 2024, as contemplated in the Yorkville Agreements, all of the Company’s then-serving supervisory board members resigned from their positions on the Company’s supervisory board with effect as of the end of January 31, 2024.
From September 11, 2023 through January 31, 2024, the members of our supervisory board were:
| ● |
Sandra Vogt-Sasse: chairperson of the supervisory board; and chairperson, independent member and financial expert of the audit committee |
| ● |
Martin Sabbione: independent member of the audit committee; and chairperson of the compensation committee |
| ● |
Thomas Wiedermann: independent member of the audit committee; chairperson of the nomination and corporate governance committee; and member of the compensation committee |
| ● |
Johannes Trischler: member of the compensation committee; and member of the nomination and corporate governance committee |
| B. |
Remuneration and Other Benefits to Management Board Members for the Year Ended December 31, 2023
As a foreign private issuer, we comply with home country compensation requirements and certain exemptions thereunder. Dutch law does not provide for limitations with respect to the aggregate annual compensation paid to our management board members or supervisory board members, provided that such compensation is consistent with our compensation policy. Our compensation policy was adopted by a general meeting. Changes to our compensation policy require a vote of our general meeting by a simple majority of votes cast. At our EGM on January 31, 2024, an amendment to the compensation policy for members of the Management Board was approved by our shareholders, which effectively raised the cap on cash compensation for each member of the Management Board. The supervisory board determines the remuneration of individual management board members with due observance of the compensation policy. A proposal with respect to remuneration schemes in the form of shares or rights to shares in which management board members may participate is subject to approval by our general meeting by simple majority of votes cast. Such a proposal must set out at least the maximum number of shares or rights to subscribe for shares to be granted to the management board members and the criteria for granting or amendment. The compensation for our supervisory board members is set by the general meeting within the limit of our remuneration policy.
Our compensation policy authorizes our supervisory board to determine the amount, level and structure of the compensation packages of our management board members at the recommendation of our compensation committee. These compensation packages may consist of a mix of fixed and variable compensation components, including base salary, short-term incentives, long-term incentives, fringe benefits, severance pay and pension arrangements, as determined by our supervisory board. We do not separately set aside amounts from pensions, retirement or other benefits for members of our management board, other than pursuant to relevant statutory requirements.
Compensation of Management Board Members
On January 30, 2024, as contemplated in the Yorkville Agreements, all of the Pre-Restructuring Managing Directors resigned from the Company’s management board with effect as of January 31, 2024. At the Company’s EGM on January 31, 2024, George O’Leary was appointed to the management board of the Company as of the close of the EGM. For the year ended December 31, 2023, Mr. O’Leary did not receive any compensation from the Company. In addition, Mr. O’Leary did not own any shares of the Company as of December 31, 2023.
In connection with the Yorkville Investment our Founders entered into respective Sale and Transfer Agreements, pursuant to which they agreed to cumulatively transfer 17,306,251 ordinary shares of the Company and all of their cumulative 3,000,000 high voting shares of the Company to SVSE. The sole member of SVSE is George O’Leary, our chief executive officer and chief financial officer and the sole member of the Company’s management board. The transfers of the high voting shares and the ordinary shares to SVSE were reflected in the Company’s share register on February 1, 2024 and March 25, 2024, respectively. Yorkville has been granted a security interest in all the ordinary shares and high voting shares of the Company that SVSE currently holds or at any time acquires. For more information, see “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Relationships with Other Related Parties”.
Compensation of Former Management Board Members
For the year ended December 31, 2023, the aggregate compensation accrued or paid to our former management board members for services in all capacities was €745,871. The following table sets forth the aggregate compensation and benefits provided to our management board members in the year ended December 31, 2023.
| Name | Salary (€) |
|
Bonus (€) |
|
All Other Compensation (€)(1) |
|
Total Compensation (€) |
|||||||||
| Laurin Hahn(2) |
36,080 | - | - | 36,080 | ||||||||||||
| Jona Christians(2) |
56,000 | - | 504 | 56,504 | ||||||||||||
| Torsten Kiedel(2) |
236,923 | - | 8,786 | 245,709 | ||||||||||||
| Thomas Hausch(3) |
187,497 | - | - | 187,497 | ||||||||||||
| Markus Volmer(2) |
220,000 | - | 81 | 220,081 |
| (1) |
All other compensation includes other monetary benefits and contributions to social security insurance, if any. |
| (2) |
On January 30, 2024, as contemplated in the Yorkville Agreements, all of the Pre-Restructuring Managing Directors resigned from the Company’s management board with effect as of the end of January 31, 2024. |
| (3) |
In the context of the termination of the Sion passenger car program, Thomas Hausch resigned as chief operating officer and member of the management board on March 21, 2023 with immediate effect, however he remained employed by Sono Motors GmbH until September 30, 2023. |
Option Ownership of Management Board Members
On January 30, 2024, as contemplated in the Yorkville Agreements, all of the Pre-Restructuring Managing Directors resigned from the Company’s management board with effect as of the end of January 31, 2024. At the Company’s EGM on January 31, 2024, George O’Leary was appointed to the management board of the Company as of the close of the EGM. Mr. O’Leary did not own any options for shares of the Company as of December 31, 2023.
Option Ownership of Former Management Board Members
The following table sets forth the option ownership of our former management board members as of December 31, 2023.
| Name |
Number of Options |
Exercise Price (in €) |
||||||
| Laurin Hahn(1) |
- | - | ||||||
| Jona Christians(1) |
- | - | ||||||
| Torsten Kiedel(1) |
132,350 | 0.06 | ||||||
| Thomas Hausch(2) |
134,350 | 0.06 | ||||||
| Markus Volmer(1) |
- | - | ||||||
| (1) |
On January 30, 2024, as contemplated in the Yorkville Agreements, all of the Pre-Restructuring Managing Directors resigned from the Company’s management board with effect as of the end of January 31, 2024. |
| (2) |
In the context of the termination of the Sion passenger car program, Thomas Hausch resigned as chief operating officer and member of the management board on March 21, 2023 with immediate effect. |
Service Agreements
Management Board
We entered into service contracts with the individuals who served as members of our management board during the year ended December 31, 2023 (“Management Contracts”). The Management Contracts generally provided for a term of four years and a base salary and an annual variable payment expressed as a percentage of annual base salary. The supervisory board was also entitled to grant management board members additional compensation at its discretion.
The Management Contracts also provided for additional allowances. The management board members were also eligible to participate in a stock option plan, virtual stock plan or equivalent plan that is established in a manner substantially similar to other of the senior executives.
The Management Contracts provided for the following restrictive covenants: (i) a non-compete during employment and for 18 months following termination and (ii) a perpetual confidentiality covenant. Under the Management Contracts, we were obligated to pay the management board members compensation for the duration of their post-employment non-compete in monthly installments that are equal to half of the total compensation they received prior to their termination. In connection with the changes in the Company’s management board in connection with the Yorkville Investment, the Company waived the post-employment non-compete clauses contained in the Management Contracts.
The former management board members also held positions at the Subsidiary. In the context of the termination of the Sion passenger car program, Thomas Hausch resigned as chief operating officer of the Subsidiary and member of the Subsidiary’s management board on March 21, 2023 with immediate effect. In connection with the corporate structure and future business model envisioned in the Yorkville Investment, including the streamlined initial business focus on the Solar Bus Kit and similar retrofit solar products, on September 29, 2023, the Subsidiary terminated its contracts with its remaining managing directors – CEOs Laurin Hahn and Jona Christians, CFO Torsten Kiedel and CTO Markus Volmer. Mr. Hahn, Mr. Christians, Mr. Kiedel and Mr. Volmer remained in their roles and supported the Subsidiary through the end of 2023. In connection with the terminations, the Subsidiary waived the post-employment non-competition clauses contained in the employment contracts of each of the managing directors.
Supervisory Board
We entered into service agreements with our current and former supervisory board members, the terms of which provide (or provided, in the case of former supervisory board members) for, among other things, compensation as determined by the general meeting from time to time.
Remuneration and Other Benefits to Supervisory Board Members for the Year Ended December 31, 2023
Compensation of Current Supervisory Board Members
Our supervisory board was first established in 2021. As of February 1, 2024, the annual compensation packages for services as supervisory board members, including service on committees of the supervisory board, consists of $50,000.
At the Company’s EGM on January 31, 2024, David Dodge and Christopher Schreiber were appointed as members of the Company’s supervisory board as of the close of the EGM. For the year ended December 31, 2023, neither Mr. Dodge nor Mr. Schreiber received any compensation from the Company.
Compensation of Former Supervisory Board Members
For the year ended December 31, 2023, the annual compensation packages for services as supervisory board members consisted of €50,000 for the chairperson, €40,000 for the vice-chairperson and €25,000 for each regular supervisory board member. In addition, for membership in the audit committee, the chairperson received an annual compensation of €20,000 and each other member an annual compensation of €10,000. For membership in the compensation committee, the chairperson received an annual compensation of €12,000 and each other member an annual compensation of €6,000. For membership in the nomination and corporate governance committee, the chairperson received an annual compensation of €8,000 and each other member an annual compensation of €4,000.
On April 21, 2023, four members of our then five-member supervisory board – Martina Buchhauser, Sebastian Böttger, Robert A. Jeffee and Arnd Schwierholz – resigned from their roles as members of the Company’s supervisory board and as members of the supervisory board committees, as applicable, with immediate effect.
The following table sets forth the aggregate compensation and benefits provided to the supervisory board members who served on the supervisory board as of January 1, 2023 for their services on the supervisory board in the year ended December 31, 2023 (excluding the restricted stock units (“RSU”) awarded to them, as reflected).
| Compensation and benefits |
||||
| Name |
(€) |
|||
| Martina Buchhauser(1) |
20,967 | |||
| Sebastian Böttger(1) |
14,492 | |||
| Robert A. Jeffe(1) |
20,350 | |||
| Arnd Schwierholz(1) |
8,887 | |||
| Sandra Vogt-Sasse(2)(3) |
23,333 | |||
| Thomas Wiedermann(2)(3) |
20,000 | |||
| Martin Sabbione(2)(3) |
17,000 | |||
| Johannes Trischler(2) |
29,500 | |||
| (1) |
Robert A. Jeffe, Martina Buchhauser, Sebastian Böttger and Arnd Schwierholz resigned as members of the supervisory board on April 21, 2023 with immediate effect. |
| (2) |
On January 30, 2024, as contemplated in the Yorkville Agreements, all of the Pre-Restructuring Supervisory Board Members resigned from their positions on the Company’s supervisory board with effect as of the end of January 31, 2024. |
| (3) |
Sandra Vogt-Sasse, Thomas Wiedermann and Martin Sabbione served on the Company's supervisory board from September 2023 through January 2024. For the year ended December 31, 2023, their remuneration package was pro rata temporis. |
In 2023, we received services from members of the supervisory board (including services from employee representatives on the supervisory board in their capacity as employees of the Subsidiary) in the amount of €150,000.
Share Ownership of Supervisory Board Members
At the Company’s EGM on January 31, 2024, David Dodge and Christopher Schreiber were appointed as members of the Company’s supervisory board as of the close of the EGM. Neither Mr. Dodge nor Mr. Schreiber owned any shares of the Company as of December 31, 2023.
Share Ownership of Former Supervisory Board Members
In the year ended December 31, 2023, none of our former supervisory board members owned any shares in the Company except for Martin Sabbione, who owned an insignificant number of shares in the Company as of December 31, 2023.
In addition to the aforementioned cash component, Martina Buchhauser, Robert A. Jeffee, Sebastian Böttger and Johannes Trischler each received a one-time award of RSUs (restricted stock units for common shares in the capital of the Company) under the Company’s long-term incentive plan upon his or her appointment as supervisory board member, starting from the date of the Company’s IPO (November 19, 2021, the grant date), which vests in four equal installments on each relevant anniversary of the grant date, with the fourth installment vesting on the earlier of (a) the fourth anniversary of the grant date or (b) the Company's annual general meeting of shareholders to be held in 2025:
| Name |
Number of RSUs |
|||
| Martina Buchhauser(1) |
4,696 | |||
| Robert A. Jeffe(1) |
3,757 | |||
| Sebastian Böttger(1) |
3,757 | |||
| Johannes Trischler(2) |
15,028 | |||
________________
| (1) |
Robert A. Jeffe, Martina Buchhauser and Sebastian Böttger resigned as members of the supervisory board on April 21, 2023, with immediate effect, and the number of RSUs represent the amount vested up to the resignation date. |
| (2) |
The number of RSUs represents the total amount granted for Johannes Trischler. |
As of the date of this Annual Report, none of our other former supervisory board members holds any RSUs in the Company.
Employee Participation
Following the restructuring of the Companies as a result of the Self-Administration Proceedings and the corporate measures implemented in connection therewith, there is uncertainty over the future of the remuneration based on shares (share-based payment) programs, which may result in share options not being formally granted or, in some cases, cancellation of unexercised options, which may be done without compensation. Further, the Reverse Share Split and the exchange ratio to be determined by our management board may have a significant impact on options or awards granted.
Long-Term Incentive Plan (LTIP)
In November 2021, in conjunction with the consummation of our IPO, we established a new long-term incentive plan (the “LTIP”) with the purpose of advancing the interests of our shareholders and other stakeholders by enhancing our ability to attract, retain and motivate individuals who are expected to make important contributions to us. The LTIP governs issuances of equity and equity-based incentive awards from and after the consummation of our IPO. The maximum number of ordinary shares underlying awards granted pursuant to the LTIP (other than replacement awards under the LTIP) shall not exceed 10% of the Company’s issued share capital from time to time.
The LTIP is, as applicable, administered by (i) the management board, to the extent the administration or operation of the LTIP relates to the grant of awards to a participant who is not a management board member or supervisory board member, as well as any other matter relating to such awards, (ii) the Company’s supervisory board, to the extent the administration or operation of the LTIP relates to the grant of awards to participants who are members of the compensation committee established by the supervisory board, as well as any other matter relating to such awards, or (iii) the compensation committee established by the supervisory board for all other matters relating to the administration or operation of the LTIP (each of these bodies, where appropriate, the “Committee”).
Awards under the LTIP may be granted to our employees, the members of our management board and supervisory board, consultants or other advisors.
Awards under the LTIP may be granted in the form of stock options, stock appreciation rights, shares of restricted stock, restricted stock units, other share-based awards or a combination of the foregoing. The Committee may condition the right of an individual to exercise his or her awards upon the achievement or satisfaction of performance criteria.
In the event of a good leaver’s (as defined in the LTIP) termination of employment or service, all vested awards must be exercised or settled in accordance with their terms within a period specified by the Committee and all unvested awards shall be canceled automatically without compensation unless otherwise determined by the Committee or set forth in the applicable award documentation. In the event of a bad leaver’s (as defined in the LTIP) termination of employment or service, all vested and unvested awards will be canceled automatically without compensation.
In the event of a change in control of the Company (as defined in the LTIP) outstanding awards that will be substituted or exchanged for equivalent replacement awards, will be canceled. If outstanding rewards are not substituted or exchanged for equivalent replacement awards, the awards shall immediately vest and settle in full, unless otherwise decided by the Committee.
Conversion Stock Option Program (CSOP)
In December 2020, against the background of our intention to terminate all relevant benefits under the VESP 2017 and the VESP 2018, we adopted our conversion stock option program under the LTIP (“CSOP”) in order to grant a total of 1,805,100 of stock options each with an exercise price of €0.06 to the former beneficiaries under the VESP 2017 (except for one such beneficiary) and the VESP 2018 as well as one additional beneficiary based on individual grant agreements.
Under the CSOP, the Company granted 1,401,240 fully vested stock options, each with an exercise price of €0.06 and which are not subject to any performance criteria, with effect as of the closing date of our IPO on November 19, 2021 to all but one former beneficiaries (who had not accepted our offer to transfer to the CSOP) under the VESP 2017 as well as the one aforementioned additional beneficiary (the “VESP 2017 Tranche”).
The VESP 2017 Tranche stock options may first be exercised one year after the closing of our IPO, which took place on November 19, 2021, and only in certain windows afterwards and expire four years after the closing of our IPO.
In addition, the Company granted 403,860 stock options (as of June 2023 all these stock options were fully vested), each with an exercise price of €0.06 and which are not subject to any performance criteria, with effect as of the closing date of our IPO, which took place on November 19, 2021, to the former beneficiaries under the VESP 2018 (the “VESP 2018 Tranche”). The VESP 2018 Tranche stock options are generally subject to a three-year vesting period with 1/36 of the stock options granted to the relevant beneficiary incrementally vesting for each month of employment of such beneficiary depending on the relevant vesting start date as set out in the relevant individual grant agreement. The then-vested VESP 2018 Tranche stock options may first be exercised one year after the closing of our IPO, which took place on November 19, 2021, and expire four years after the closing of our IPO.
Immediately prior to the pricing of our IPO on November 16, 2021, we issued additional ordinary shares to all of our existing shareholders, replicating the effect of a share split. Each of our existing shareholders received 0.71 additional ordinary shares per common share or high voting share held by them immediately prior to the pricing of our IPO, rounded down to the nearest integer. Our stock options reflect the effect of this issuance of share, as the underlying securities for one stock option changed from one common share to 1.71 ordinary shares, with issuable shares being rounded down to the nearest full integer.
Employee Stock Option Plan (ESOP)
In 2022, we intended to implement a new employee stock option program (the “ESOP”) under the LTIP to grant stock options to certain employees of the Company or any direct or indirect subsidiary. Under the ESOP, as part of the 10% authorization under the LTIP, stock options may be granted by no later than December 31, 2024.
Stock options under the ESOP may be granted to our employees, managing directors and other officers, who are not members of our management board or our supervisory board. The exercise price of the stock options, granted to each eligible beneficiary by a separate grant agreement (the “Grant Agreement”) in one or more tranches, shall be €0.06 for each stock option (subject to adjustments in case of certain reorganization measures).
The stock options are not subject to any performance criteria and shall vest in quarterly installments over a one-year vesting period, potentially subject to the condition that a cliff period of eighteen months has expired. In connection with the initial adoption of the ESOP, a grant agreement may set forth for some or all of the stock options granted in 2022, a separate date on which vesting shall start and different cliff and vesting periods, such period not to be less than six months.
Vested stock options may be exercised only during certain trading windows following the publication of our financial results. Each exercised stock option entitles the beneficiary to receive one share against payment of the exercise price. However, in fulfillment of any validly exercised stock options, the Company, at its sole discretion, may instead of the delivery of some or all resulting shares make a cash payment to the beneficiary.
In the event of a good leaver’s (to be defined in the ESOP) termination of employment or service, all vested awards must be exercised or settled in accordance with their terms within a period specified in the ESOP and all unvested awards shall be canceled automatically without compensation. In the event of a bad leaver’s (to be defined in the ESOP) termination of employment or service, all vested and unvested awards will be canceled automatically without compensation.
As a consequence of the resignations of four of the five supervisory board members as described under “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management—Supervisory Board” on April 21, 2023, the Company did not have any supervisory board committees until three new candidates for the supervisory board were identified and appointed on a provisional basis on September 11, 2023. During that time, the Company was not in compliance with Nasdaq Listing Rule 5605(c)(2)(A), which requires a listed company to have an audit committee composed of at least three members, who each meet the criteria for independence set forth in Rule 10A-4(b)(1) under the Exchange Act. This deficiency served as an additional ground for delisting according to a letter we received from Nasdaq staff on August 28, 2023. On September 11, 2023, the Company re-established its compensation committee and its nomination and corporate governance committee. On September 22, 2023, the Company re-established its audit committee and regained compliance with the Nasdaq Listing Rules relating to audit committee requirements upon the re-establishment of the audit committee.
On January 30, 2024, as contemplated in the Yorkville Agreements, all of the Pre-Restructuring Managing Directors resigned from the Company’s management board with effect as of the end of January 31, 2024. At the Company’s EGM on January 31, 2024, David Dodge and Christopher Schreiber were appointed as members of the Company’s supervisory board as of the close of the EGM.
Audit Committee
The audit committee assists the supervisory board in overseeing our accounting and financial reporting processes and the audits of our consolidated financial statements. In addition, the audit committee is responsible for the appointment, compensation, retention and oversight of the work of our independent registered public accounting firm. The composition of our audit committee was consistent with the best practice provisions of the DCGC. Until April 21, 2023, the audit committee consisted of Robert A. Jeffe, Sebastian Böttger, Martina Buchhauser and Arnd Schwierholz, with Mr. Jeffe serving as chairperson. From September 22, 2023 to January 31, 2024, the audit committee consisted of Sandra Vogt-Sasse, Martin Sabbione, and Thomas Wiedermann, with Ms. Vogt-Sasse serving as chairperson. The audit committee currently consists of David Dodge and Christopher Schreiber, with Mr. Dodge serving as chairperson. All current and former audit committee members satisfy (or satisfied, in the case of former audit committee members) the “independence” requirements set forth in Rule 10A-3 under the Exchange Act. In our current audit committee, both David Dodge and Christopher Schreiber are qualified as an “audit committee financial expert,” as such term is defined in the rules of the SEC. In our former audit committees, Sandra Vogt-Sasse and Robert A. Jeffe qualified as an “audit committee financial expert,” as such term is defined in the rules of the SEC for the audit committees on which they respectively served.
The audit committee is governed by a charter, which was amended on February 23, 2024 and is posted and accessible on our investor relations website. In February 2024, we amended our audit committee charter to permit the audit committee to be comprised of fewer than three members, to allow for different independence standards based on any listing of the Company’s shares and to allow one person to serve as both the chair of the supervisory board and the chair of the audit committee.
Compensation Committee
The compensation committee assists the supervisory board in determining compensation for our executive officers and our management board members and supervisory board members. Christopher Schreiber currently serves as chairperson of the compensation committee. Martin Sabbione served as chairperson of the compensation committee from September 11, 2023 to January 31, 2024. Sebastian Böttger served as chairperson of the committee until April 21, 2023. The composition of our compensation committee was consistent with the best practice provisions of the DCGC. Until April 21, 2023, the compensation committee consisted of Sebastian Böttger and Robert A. Jeffe. From September 22, 2023 to January 31, 2024, the compensation committee consisted of Martin Sabbione, Thomas Wiedermann and Johannes Trischler. The compensation committee currently consists of Christopher Schreiber and David Dodge.
The compensation committee is governed by a charter, which is posted and accessible on our investor relations website.
Nomination and Corporate Governance Committee
The nomination and corporate governance committee assists our supervisory board in identifying individuals qualified to become our management board members or supervisory board members consistent with criteria established by us, including in our code of business conduct and ethics. Christopher Schreiber currently serves as chairperson of the committee. Thomas Wiedermann served as chairperson of the committee from November 10, 2023 to January 31, 2024. Martin Sabbione served as chairperson of the committee from September 11, 2023 to November 10, 2023. Martina Buchhauser served as chairperson of the committee until April 21, 2023. Until April 21, 2023, the nomination and corporate governance committee consisted of Martina Buchhauser, Johannes Trischler and Arnd Schwierholz. From September 22, 2023 to November 10, 2023, the nomination and corporate governance committee consisted of Martin Sabbione and Johannes Trischler. From November 10, 2023 to January 31, 2024, the nomination and corporate governance committee consisted of Thomas Wiedermann and Johannes Trischler. The nomination and corporate governance committee currently consists of Christopher Schreiber and David Dodge.
The nomination and corporate governance committee is governed by a charter, which is posted and accessible on our investor relations website.
| D. |
As of December 31, 2023, 85 people were employed at the Subsidiary. All of the Subsidiary’s employees are located in Germany. The Company did not have any of its own employees as of December 31, 2023. All services for the Company were provided by employees of the Subsidiary.
In light of our decision to terminate the Sion program, in February 2023, as of the end of March 2023, we notified 254 employees about the termination of their employment with us. Thereafter, in connection with the corporate structure and future business model currently envisioned in the Yorkville Investment, including the streamlined initial business focus on the Solar Bus Kit, on September 29, 2023, we terminated the contracts of 40 employees, including the contracts of the four managing directors of the Subsidiary. The following table shows the number of employees, by category, as of December 31, 2020, 2021, 2022 and 2023.
| Department |
||||||||||||||||||||||||
| Year |
Departments Sion, Solar and Digital |
Marketing & Sales |
Finance |
HR + Organization |
Other |
Total |
||||||||||||||||||
| December 31, 2020 |
52 | 21 | 9 | 5 | 20 | 107 | ||||||||||||||||||
| December 31, 2021 |
157 | 23 | 12 | 9 | 30 | 231 | ||||||||||||||||||
| December 31, 2022 |
310 | 25 | 17 | 15 | 42 | 409 | ||||||||||||||||||
| December 31, 2023 |
47 | 4 | 9 | 8 | 17 | 85 | ||||||||||||||||||
| E. |
For information regarding the share ownership of our current directors and officers, see “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders”. For information as to our equity incentive plans, see “Item 6. Directors, Senior Management and Employees—B. Compensation—Employee Participation”.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
| A. |
As of the date of signing of this Annual Report, we have an issued and subscribed capital in the amount of €10,842,698.58, which consists of 105,711,643 ordinary shares, each with a nominal value of €0.06 and 3,000,000 high voting shares, each with a nominal value of €1.50. Our authorized share capital is €25,200,000, divided into 320,000,000 ordinary shares, each with a nominal value of €0.06, and 4,000,000 high voting shares, each with a nominal value of €1.50. Each holder of our ordinary shares is entitled to one vote per common share and each holder of our high voting shares is entitled to 25 votes per high voting share. The following table sets forth information, as of June 15, 2024, regarding the beneficial ownership of our ordinary shares and our high voting shares known to us:
| ● |
each person, or group of affiliated persons, known by us to own beneficially 5% or more of our outstanding ordinary shares or high voting shares; |
| ● |
each management board member and supervisory board member; and |
| ● |
all management board members and supervisory board members as a group. |
Beneficial ownership is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to acquire within 60 days of May 15, 2024, through the exercise of any option, warrant or other right. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares held by that person.
Unless otherwise indicated below, the address for each beneficial owner listed is c/o Sono Group N.V., Waldmeisterstraße 93, 80935 Munich, Germany.
| Ordinary shares |
High voting shares |
|||||||||||||||||||
| Name of beneficial owner |
Number |
Percent |
Number |
Percent |
Combined |
|||||||||||||||
| 5% Shareholders |
||||||||||||||||||||
| SVSE LLC(1) |
17,306,251 | 16.4% | 3,000,000 | 100% | 51.1% | |||||||||||||||
| Bambino 255. V V UG(2) |
13,306,249 | 12.6% | 7.4% | |||||||||||||||||
| Members of the supervisory board |
||||||||||||||||||||
| Martina Buchhauser(3) |
||||||||||||||||||||
| Sebastian Böttger(3) |
||||||||||||||||||||
| Robert A. Jeffe(3) |
||||||||||||||||||||
| Martin Sabbione(4) |
* | * | * | |||||||||||||||||
| Arnd Schwierholz(3) |
||||||||||||||||||||
| Johannes Trischler |
||||||||||||||||||||
| Sandra Vogt-Sasse(4) |
||||||||||||||||||||
| Thomas Wiedermann(4) |
||||||||||||||||||||
| David Dodge |
||||||||||||||||||||
| Christopher Schreiber |
||||||||||||||||||||
| Members of the management board |
||||||||||||||||||||
| Laurin Hahn(5) |
3,500,000 | 3.2% | 1.9% | |||||||||||||||||
| Jona Christians(5) |
3,500,000 | 3.2% | 1.9% | |||||||||||||||||
| Torsten Kiedel(6) |
||||||||||||||||||||
| Thomas Hausch(7) |
||||||||||||||||||||
| Markus Volmer(8) |
||||||||||||||||||||
| George O’Leary(1) |
17,306,251 | 16.4% | 3,000,000 | 100% | 51.1% | |||||||||||||||
*Indicates beneficial ownership of less than 1% of the total outstanding ordinary shares.
| (1) |
George O’Leary was appointed Managing Director, CEO and CFO of Sono Group N.V. at the EGM held on January 31, 2024. He is the sole member of SVSE, which is the holder of record of the ordinary and high-voting shares presented. Laurin Hahn and Jona Christians transferred the ordinary and high voting shares presented pursuant to terms of their respective Sale and Transfer Agreements. See “Item 6. Directors, Senior Management and Employees—B. Compensation—Remuneration and Other Benefits to Management Board Members for the Year Ended December 31, 2023—Compensation of Management Board Members”. Yorkville has been granted a security interest in all the ordinary shares and high voting shares of the Company that SVSE currently holds or at any time acquires. For more information, see “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Relationships with Other Related Parties”. |
| (2) |
In connection with their respective Sale and Transfer Agreements, Laurin Hahn and Jona Christians cumulatively transferred 13,306,249 million ordinary shares of the Company to Bambino 255. V V UG, referred to herein as the Trustee, for the benefit of the Subsidiary’s creditors. The Trustee shall be entitled to sell such shares following expiration of a lock-up agreement and subject to certain volume restrictions agreed with Yorkville. The proceeds from such sales will be used to satisfy claims of the Subsidiary’s creditors. See “Item 4. Information on the Company—B. Business Overview—Overview—The Yorkville Investment”. |
| (3) |
On April 21, 2023, Martina Buchhauser, Sebastian Böttger, Robert A. Jeffe and Arnd Schwierholz resigned from their roles as members of the Company’s supervisory board and as members of the supervisory board committees, as applicable, with immediate effect. |
| (4) |
On September 11, 2023, Martin Sabbione, Sandra Vogt-Sasse, and Thomas Wiedermann were appointed as acting members of the Company’s supervisory board on a provisional basis and resigned from the supervisory board with effect as of January 31, 2024. |
| (5) |
On January 30, 2024, as contemplated in the Yorkville Agreements, Laurin Hahn and Jona Christians both resigned from the Company’s management board with effect as of the end of January 31, 2024. |
| (6) |
Torsten Kiedel joined Sono Motors on February 1, 2020 and became a member of our management board immediately prior to the pricing of the IPO. On January 30, 2024, as contemplated in the Yorkville Agreements, Torsten Kiedel resigned from the Company’s management board with effect as of January 31, 2024. |
| (7) | Thomas Hausch joined Sono Motors on June 13, 2018 and became a member of our management board immediately prior to the pricing of the IPO. In the context of the termination of the Sion passenger car program, he resigned as member of the management board on March 21, 2023, with immediate effect. |
| (8) | Markus Volmer joined Sono Motors on February 1, 2021 and became a member of our management board immediately prior to the pricing of the IPO on November 16, 2021. On January 30, 2024, as contemplated in the Yorkville Agreements, Markus Volmer resigned from the Company’s management board with effect as of the end of January 31, 2024. |
| B. |
The following is a description of related party transactions in excess of $120,000 we have entered into since January 1, 2020, with any members of our management or supervisory board, executive officers, nominees or holders of more than 5% of any class of our voting securities.
Relationships with Members of the Management Board and the Supervisory Board
Our former and current management board members entered into service agreements with us as discussed in more detail within the “Item 6. Directors, Senior Management and Employees—B. Compensation—Remuneration and Other Benefits to Management Board Members for the Year Ended December 31, 2022—Service Agreements” section above.
Relationships with Other Related Parties
Some of the key management personnel participate in the employee participation program. For details on this program, please refer to notes “4.11 Share-based payment” and “9.3 Remuneration based on shares (share-based payment)” to our consolidated financial statements included in this Annual Report.
In connection with the Yorkville Investment, the Companies entered into the Yorkville Agreements with Yorkville in mid-November 2023, and on April 30, 2024, the Company and Yorkville entered into an amendment to the Funding Commitment Letter in connection with the Second Commitment. Subject to the Companies’ continued compliance with the terms of the Yorkville Agreements, Yorkville will provide financing to the Company, which the Companies expect to position them to obtain sufficient funding for their business operations, with an initial focus on the Solar Bus Kit and similar retrofit solar products, through June 30, 2025. For more information, see “Item 4. Information on the Company—B. Business Overview—Overview—The Yorkville Investment”. Furthermore, in connection with the Yorkville Investment, the Subsidiary and SVSE entered into the Guaranty (as defined herein) for the benefit of Yorkville. For more information, see “Item 10. Additional Information—C. Material Contracts—The Yorkville Agreements and the New Convertible Debentures”.
In connection with the Funding Commitment Letter, SVSE and Yorkville entered into both a pledge agreement (the “Pledge Agreement”) and a security agreement (the “Security Agreement”), each dated February 5, 2024, pursuant to which SVSE agreed to pledge and grant to Yorkville, as a third-party pledge, a security interest in certain financial assets, including, among others, all of the ordinary shares and high voting shares of the Company that SVSE currently holds or at any time acquires (collectively, the “Pledged Ownership Interests”). The Pledged Ownership Interests serve as collateral for the repayment of the Company’s obligations to Yorkville. In the event that the Company is in default of its payment obligations to Yorkville, following notification thereof to SVSE, the voting rights and dividend rights in the Pledged Ownership Interests would accrue to Yorkville. In certain instances, Yorkville may also have the right to enforce its right of pledge and sell the Pledged Ownership Interests, thereby using the proceeds from the sale to repay the amounts owed by the Company to Yorkville.
| C. |
Not Applicable.
ITEM 8. FINANCIAL INFORMATION.
| A. |
See “Item 18. Financial Statements” and our audited consolidated financial statements beginning on page F-1.
Legal Proceedings
The Self-Administration Proceedings
Following the decision to change its business model, the Subsidiary continued to face challenges to obtain financing and, after other financing options failed to materialize, the Company’s management ultimately concluded that the Subsidiary was over-indebted and faced impending illiquidity (drohende Zahlungsunfähigkeit), with the Company, in turn, becoming over-indebted and also facing impending illiquidity. As a consequence, management decided to apply for the opening of the Self-Administration Proceedings with respect to the Company and the Subsidiary with the goal of sustainably restructuring the Company and the Subsidiary in order to preserve the Companies’ businesses. Accordingly, on May 15, 2023, the Company applied to the Court to permit the opening of self-administration proceedings (Eigenverwaltung) pursuant to Section 270 (b) of the German Insolvency Code (Insolvenzordnung). On the same day, the Subsidiary applied to the Court to permit the opening of self-administration proceedings in the form of a protective shield proceeding (Schutzschirmverfahren) pursuant Section 270 (d) of the German Insolvency Code.
The Self-Administration Proceedings applied for by the Company and the Subsidiary are debtor-in-possession type proceedings under German insolvency law, which are available to businesses in financial distress and typically aim to preserve the business and the entity that are the subject of the proceedings. In these proceedings, management retains control of the operation of the subject company’s business under the supervision of a custodian, who is initially appointed on a preliminary basis (vorläufiger Sachwalter) and is primarily responsible for monitoring the subject company’s compliance with German insolvency law.
On May 17 and May 19, 2023, respectively, the Court admitted the opening of the Preliminary Self-Administration Proceedings with respect to the Company and the Subsidiary. The Court also appointed preliminary custodians for each of the Company and the Subsidiary in their respective Preliminary Self-Administration Proceedings. On September 1, 2023, the Court opened the Subsidiary Self-Administration Proceedings. The Company retained SGP Schneider Geiwitz GmbH Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft and Schneider Geiwitz Management GmbH Wirtschaftsprüfungsgesellschaft to act as advisors in connection with its Preliminary Self-Administration Proceedings, and the Subsidiary retained Dentons GmbH Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft and Dentons Europe (Germany) GmbH & Co. KG to act as advisors during its Preliminary Self- Administration Proceedings and the Subsidiary Self-Administration Proceedings.
Yorkville, the Company’s main creditor in its Preliminary Self-Administration Proceedings apart from the Subsidiary, commenced negotiations regarding a new investment in the Company during the course of the Self-Administration Proceedings. As a result of those negotiations, the Company and Yorkville entered into the Yorkville Agreements, pursuant to which Yorkville has committed to provide financing to the Company subject to the Companies’ continued compliance with the terms of the Yorkville Agreements. The Yorkville Agreements provided for the restructuring of the Company and the Subsidiary, with the intention of enabling the Company to withdraw its application for its Preliminary Self-Administration Proceedings and enabling the Subsidiary to exit the Subsidiary Self-Administration Proceedings via the Plan. The Plan set out how the Subsidiary planned to restructure its debt and procure the inflow of new cash, including in connection with the First Commitment, and subsequently exit the Subsidiary Self-Administration Proceedings. The Plan was filed with the Court on December 7, 2023 for approval by the Subsidiary’s creditors and subsequent confirmation by the Court. Approval by the creditors and confirmation by the Court was obtained in the creditors meeting on December 21, 2023, and the Court confirmed on January 26, 2024 that the Plan became legally binding. On January 31, 2024, the Company withdrew its application for its Preliminary Self-Administration Proceedings with the Court. The Subsidiary exited its Self-Administration Proceedings on February 29, 2024. On April 30, 2024, the Company and Yorkville entered into an amendment to the Funding Commitment Letter in connection with the Second Commitment.
The Companies expect the Yorkville Investment to position them to obtain sufficient funding for their business operations, with an initial focus on the Solar Bus Kit and similar retrofit solar products, through June 30, 2025. Under the terms of the Yorkville Agreements, the financing is provided by Yorkville by way of new interest-bearing convertible debenture(s) that will be convertible into ordinary shares of the Company. The new convertible debenture issued to Yorkville on February 5, 2024 in connection with the funding of the First Tranche will mature on July 1, 2025, and each subsequent new convertible debenture will mature on the earlier of (i) July 1, 2025 or (ii) 12 months from the issuance date of such new debenture. The funding of the First Tranche occurred on February 6, 2024 in the amount of €4.0 million. Yorkville is the Company’s main creditor under the Existing Convertible Debentures, see “Item 10. Additional Information—C. Material Contracts—Existing Convertible Debentures”. For more information on the Transactions and the Yorkville Investment, see “Item 4. Information on the Company—B. Business Overview—Overview—The Yorkville Investment”.
Despite the Companies’ emergence from their respective Self-Administration Proceedings, the Yorkville Investment remains subject to a number of contingencies and risks, including, among others, (i) whether the Companies are able to successfully comply with the terms of the Yorkville Agreements so as to gain access to the unfunded portion of the Yorkville Investment, and (ii) the absence of any Termination Event or any event of default. For more information see “Item 3. Key Information—D. Risk Factors—Risks Related to the Yorkville Investment” and ”Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings—The Self-Administration Proceedings”.
Other Legal Proceedings
From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations.
In July 2023, we received a demand letter from Yorkville claiming that we and our directors and officers made various material misrepresentations and omissions to fraudulently induce Yorkville to enter into a securities purchase agreement and purchase convertible debentures in an aggregate principal amount of $31.1 million (the “Existing Convertible Debentures”). In the Restructuring Agreement, Yorkville agreed, subject to closing of the transactions envisaged in the Restructuring Agreement and certain other conditions, not to pursue claims against our directors and officers. We believe that the claims made in the demand letter are unjustified. We will defend ourselves against the claims made in the demand letter, should Yorkville decide to pursue these claims.
In light of our decision to terminate the Sion program in February 2023, as of the end of March 2023, the employment contracts of 254 of our employees had been terminated. Thereafter, in connection with the corporate structure and future business model envisioned in the Yorkville Investment, including the streamlined initial business focus on the Solar Bus Kit, in September 2023, we terminated the contracts of 40 employees. The statutory period for taking legal action against most of these terminations has now expired. As of March 31, 2024, 13 employees had initiated legal proceedings against us in connection with their termination due to our changes in business model, 11 of which had been resolved as of the date of this Annual Report.
In February 2022, a former employee filed a claim in court against us. The former employee asserts that the termination of his employment relationship by us was not justified and seeks re- employment. In May 2022, the former employee expanded the claims to recover certain benefits, which he claims to have a value of €14.2 million. In December 2022, the court decided that the termination was not justified and that we have to continue employing this person. The court rejected the claims to recover certain benefits. In February 2023, the employee filed an appeal against this part of the court’s decision. In August 2023, we settled the claim with the former employee for €70,000.
In the first half of 2021, we decided to change our designated battery supplier. The former supplier has indicated that it believes it is entitled to compensation under its contract with us. In initial discussions, the former supplier proposed an agreement with compensation in the amount of €2 million. In February 2022, the former supplier increased its request to €15 million. In June 2022, the former supplier filed an action for declaratory judgment (Feststellungsklage) with the Regional Court Stuttgart, Germany, in which the former supplier claimed that its damages were at least €23.4 million. On March 7, 2023, the former supplier declared the matter terminated in a written pleading.
Dividends
We may only make distributions, whether a distribution of profits or of freely distributable reserves, to our shareholders to the extent our shareholders’ equity (eigen vermogen) exceeds the sum of the paid-in and called-up share capital plus any reserves required by Dutch law or by our articles of association. Under our articles of association, the management board may decide that all or part of the profits are carried to reserves. After reservation by the management board of any profit, any remaining profit will be at the disposal of the general meeting for distribution, subject to restrictions of Dutch law and approval by our supervisory board.
We only make a distribution of dividends to our shareholders after the adoption of our annual accounts demonstrating that such distribution is legally permitted. The management board is permitted, subject to certain requirements, to declare interim dividends without the approval of the general meeting, but only with the approval of the supervisory board.
Dividends and other distributions shall be made payable not later than the date determined by the management board. Claims to dividends and other distributions not made within five years from the date that such dividends or distributions became payable will lapse and any such amounts will be considered to have been forfeited to us (verjaring).
Our current dividend policy is to retain all available funds and any future earnings to fund the further development and expansion of our business. If we were to revise this policy relating to a payment of future dividends, such revised policy would, subject to the restrictions described above, depend on many factors, such as our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our management board and supervisory board.
| B. |
Except as otherwise disclosed in this Annual Report, there has been no undisclosed significant change since the date of the annual financial statements.
| A. |
Our ordinary shares are currently quoted on the over-the-counter market, and we are currently applying to have our ordinary shares admitted to trading on OTCQB. From November 17, 2021 through February 25, 2024, our shares were listed on The Nasdaq Global Market (“Nasdaq”) under the symbol “SEV.” On July 21, 2023, trading of our shares on Nasdaq was suspended. On December 11, 2023, we received a decision of the Panel advising us that the Panel had determined to delist the Company’s ordinary shares from Nasdaq. Nasdaq filed a Form 25 Notification of Delisting with the U.S. Securities and Exchange Commission (the “SEC”) on February 15, 2023 to complete the delisting. See also “Item 3. Key Information—D. Risk Factors—Risks Related to Our Shares—Following the delisting of our ordinary shares from Nasdaq in February 2024, we may not be able to meet the initial listing requirements for admission of our shares to trading on a stock exchange in the future or to pay for the costs associated with such an initial listing, and therefore may not be able to have our shares admitted to trading on a stock exchange in the future”.
| B. |
Not applicable.
| C. |
See “—A. Offer and Listing Details.”
| D. |
Not applicable.
| E. |
Not applicable.
| F. |
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
| A. |
Not applicable.
| B. |
A copy of our articles of association is attached as Exhibit 1.1 to this Annual Report. The information called for by this Item is set forth in Exhibit 2.2 to this Annual Report and is incorporated by reference into this Annual Report.
| C. |
Valmet Term Sheet
On April 5, 2022, we entered into a binding term sheet (the “Term Sheet”) with Valmet Automotive , a Finnish contract manufacturer, which specified all substantial parameters regarding the collaboration and the production of the Sion. Under the Term Sheet, both parties had the option to terminate the Term Sheet at their discretion without liability, subject to certain material breach exceptions. Upon termination, each party’s continuing obligations under the Term Sheet expire, except for any obligations which by their nature survive the term of the Term Sheet, e.g., confidentiality obligations. In connection with our decision in February 2023 to shift to a solar-only business model, the Term Sheet was terminated.
Equity Line of Credit
On June 13, 2022, we entered into a purchase agreement and a registration rights agreement with Joh. Berenberg, Gossler & Co. KG (the “ELOC Investor”) in relation to an equity line of credit (the “ELOC”). Pursuant to the purchase agreement, we had the right to sell to the ELOC Investor up to $150 million of our ordinary shares, subject to certain limitations and conditions set forth in the purchase agreement, from time to time until June 30, 2024. Sales of ordinary shares to the ELOC Investor pursuant to the purchase agreement, and the timing of any such sales, were solely at our option, and we were under no obligation to sell any securities to the ELOC Investor under the purchase agreement. Under the terms of the Securities Purchase Agreement relating to the Existing Convertible Debentures described below, we are only permitted to have either the ELOC or an at market issuance sales agreement in place at any given time. In view of our entry into the at market issuance sales agreement described below on December 7, 2022, we terminated the ELOC. Through termination of the ELOC, we sold 8,748,433 ordinary shares to the ELOC Investor for total gross proceeds of $17.5 million (€17.3 million).
Existing Convertible Debentures
On December 7, 2022, we entered into a securities purchase agreement (the “Securities Purchase Agreement) with Yorkville, under which we agreed to sell and issue to Yorkville the Existing Convertible Debentures in an aggregate principal amount of up to $31.1 million, which are convertible into our ordinary shares, subject to certain conditions and limitations set forth in the Securities Purchase Agreement. A first convertible debenture in a principal amount of $11.1 million was issued on December 7, 2022 upon signing of the Securities Purchase Agreement, a second convertible debenture in a principal amount of $10.0 million was issued upon filing with the SEC of our registration statement on Form F-3 (the “Form F-3”) registering, among others, the resale of ordinary shares resulting from the conversion of the Existing Convertible Debentures, referred to as conversion shares, and a third convertible debenture in a principal amount of $10.0 million was issued to Yorkville on the effective date of the Form F-3. YA II PN, Ltd., a Cayman Islands exempt limited partnership, is a fund managed by Yorkville Advisors Global, LP, headquartered in Mountainside, New Jersey.
The Existing Convertible Debentures bear interest at an annual rate of 4.0%, payable at maturity, which will increase to an annual rate of 12.0% (i) for so long as the daily volume weighted average price of the ordinary shares is less than $0.15 for five trading days during a period of seven consecutive trading days (a “Triggering Event”) or (ii) upon the occurrence and during the continuance of an event of default. In connection with the Yorkville Investment, the Company and Yorkville entered into the Prolongation Agreement to postpone the repayment date of the Existing Convertible Debentures from December 7, 2023 to July 1, 2025, with the possibility of further extensions at Yorkville’s discretion.
The Existing Convertible Debentures provide a conversion right, according to which Yorkville may, at any time after the issuance date, subject to certain limitations, convert any portion of the outstanding and unpaid principal amount of the convertible debenture, together with any accrued but unpaid interest, into our ordinary shares at the lower of (i) $1.75 per ordinary share (the “Fixed Conversion Price”) or (ii) 96.5% of the lowest daily volume weighted average price of the ordinary shares during the seven consecutive trading days immediately preceding the date of conversion (the “Variable Conversion Price”), but not lower than a floor price of $0.15 per ordinary share, subject to adjustment in accordance with the terms of the Existing Convertible Debentures, provided that, under no circumstances, the conversion price per ordinary share shall be less than the nominal value of one ordinary share (translated into United States Dollars) on the applicable share delivery date.
Yorkville has agreed that (i) it will use commercially reasonable efforts to convert at least $2.5 million of principal amount of Existing Convertible Debentures per calendar month, subject to certain exceptions set forth in the convertible debentures, and (ii) it will not convert more than an aggregate of the greater of (y) 20% of monthly dollar trading value of the ordinary shares as reported on Bloomberg during regular trading hours during the applicable calendar month or (z) $5.0 million of principal amount of the Existing Convertible Debentures per calendar month utilizing the Variable Conversion Price, subject to certain exceptions set forth in the Securities Purchase Agreement. The Existing Convertible Debentures may not be converted into ordinary shares to the extent such conversion would result in Yorkville and its affiliates having beneficial ownership of more than 4.99% of our then outstanding ordinary shares; provided that this limitation may be waived by Yorkville upon not less than 65 days’ prior notice to us.
If, at any time after the issue date of the Existing Convertible Debentures, and from time to time thereafter, a Triggering Event occurs, then we shall make monthly payments beginning on the 20th calendar day after the date on which the Triggering Event occurs (the “Triggering Date”) and continuing on the same day of each successive calendar month. Each monthly payment shall be an amount equal to the sum of (i) the Triggered Principal Amount (as defined below), plus (ii) a redemption premium equal to 6.0% of such Triggered Principal Amount, plus (iii) accrued and unpaid interest on the outstanding Existing Convertible Debentures. Notwithstanding the foregoing, subject to certain conditions set forth in the Existing Convertible Debentures, our obligation to make monthly prepayments may cease. “Triggered Principal Amount” means the quotient of (i) the aggregate principal amounts outstanding on the Existing Convertible Debentures divided by (ii) the number of whole calendar months remaining between the Triggering Date and the maturity date.
The Existing Convertible Debentures provide us, subject to certain conditions, the right, at our option, to redeem early a portion or all amounts outstanding under the Existing Convertible Debentures; provided that (i) the trading price of the ordinary shares is less than the Fixed Conversion Price and (ii) we provide the holder of the Existing Convertible Debentures with at least three (3) business days’ prior written notice. Each redemption payment will be the principal amount of the Existing Convertible Debentures to be redeemed, plus a redemption premium equal to 4.0% of the principal amount being redeemed, plus accrued and unpaid interest on the outstanding Existing Convertible Debentures. Yorkville shall have five (5) business days after receipt of a redemption notice to elect to convert all or any portion of the Existing Convertible Debentures.
The Existing Convertible Debentures include customary covenants and set forth certain events of default after which the Existing Convertible Debentures may be declared immediately due and payable and set forth certain types of bankruptcy or insolvency events of default involving us after which the Existing Convertible Debentures become automatically due and payable.
In connection with the Securities Purchase Agreement, also on December 7, 2022, we entered into a registration rights agreement with Yorkville pursuant to which we agreed to prepare and file with the SEC the Form F-3 covering the resale by Yorkville of the conversion shares. We are currently not eligible to use our Form F-3.
The Securities Purchase Agreement contains customary representations, warranties, conditions and indemnification obligations by each party. The representations, warranties and covenants contained in the Securities Purchase Agreement were made only for purposes of the Securities Purchase Agreement and as of specific dates, were solely for the benefit of the parties to such agreement and are subject to certain important limitations.
As of the date hereof, an aggregate principal amount of $20.0 million remained outstanding under the Existing Convertible Debentures and Yorkville had converted $11.1 million principal amount plus respective interest of $145 thousand into 14,901,768 ordinary shares of the Company.
The Yorkville Agreements and the New Convertible Debentures
In mid-November 2023, in connection with the Yorkville Investment, the Companies entered into the Yorkville Agreements with Yorkville. In addition, the Company and Yorkville entered into an amendment to the Funding Commitment Letter on April 30, 2024 in connection with the Second Commitment. Subject to the Companies’ continued compliance with the terms of the Yorkville Agreements, Yorkville will provide financing to the Company, which the Companies expect to position them to obtain sufficient funding for their business operations, with an initial focus on the Solar Bus Kit and similar retrofit solar products, through June 30, 2025. For more information, see “Item 4. Information on the Company—B. Business Overview—Overview—The Yorkville Investment”.
Under the terms of the Funding Commitment Letter, funding from Yorkville in connection with the Yorkville Investment is to be provided by way of new interest-bearing convertible debenture(s). The convertible debenture in a principal amount of $4,317,600 was issued on February 5, 2024 in connection with the funding of the First Tranche.
The new convertible debenture(s) bear interest at an annual rate of 12.0%, payable at maturity, which will increase to an annual rate of 18.0% upon the occurrence and during the continuance of an event of default. The convertible debenture issued in connection with the First Tranche will mature on July 1, 2025. Each subsequent convertible debenture(s) issued in connection with the Yorkville Investment will mature on the earlier of (i) July 1, 2025 or (ii) 12 months from the issuance date of such new debenture.
The new convertible debenture(s) provide a conversion right, according to which Yorkville may, at any time after the issuance date, subject to certain limitations, convert any portion of the outstanding and unpaid principal amount of the convertible debenture, together with any accrued but unpaid interest, into our ordinary shares at the lower of (i) a price per ordinary share equal to $0.25 (the “Fixed Conversion Price”), or (ii) 85% of the lowest daily volume weighted average price of the ordinary shares during the seven consecutive trading days immediately preceding the date of conversion or other date of determination (the “Variable Conversion Price”), but not lower than a floor price per share equal to 20% of the closing price on the trading day immediately prior to the issuance date of the relevant debenture, subject to adjustment in accordance with the terms of the new convertible debenture(s). The new convertible debenture(s) may not be converted into ordinary shares to the extent such conversion would result in Yorkville and its affiliates having beneficial ownership of more than 4.99% of our then outstanding ordinary shares; provided that this limitation may be waived by Yorkville upon not less than 65 days’ prior notice to us.
The new convertible debenture(s) provide us, subject to certain conditions, the right, at our option, to redeem early a portion or all amounts outstanding under a new convertible debenture; provided that (i) the trading price of the ordinary shares is less than the Fixed Conversion Price and (ii) we provide Yorkville with at least five (5) business days’ prior written notice. Each redemption payment will be the principal amount of the new convertible debenture to be redeemed, plus a redemption premium equal to 4.0% of the principal amount being redeemed, plus accrued and unpaid interest on the outstanding new convertible debenture. Yorkville shall have five (5) business days after receipt of a redemption notice to elect to convert all or any portion of the new convertible debenture.
The new convertible debenture(s) include customary covenants and set forth certain events of default after which the new convertible debenture(s) may be declared immediately due and payable and set forth certain types of bankruptcy or insolvency events of default involving us after which the new convertible debenture(s) become automatically due and payable.
On June 20, 2024, in connection with the Yorkville Investment, the Subsidiary and SVSE entered into a guaranty agreement (the “Guaranty”) for the benefit of Yorkville. Under the terms of the Guaranty, each of the Subsidiary and SVSE have agreed, among other things (i) to jointly and severally guarantee the payment of obligations owed by the Company to Yorkville in full when due and (ii) to guarantee the performance of all of the terms, covenants and conditions required to be kept, observed or performed by the Company in the Guaranty, the Funding Commitment Letter, the new convertible debentures, the Security Agreement and the Pledge Agreement. The Guaranty is irrevocable, absolute and unconditional and applies to all obligations owed by the Company to Yorkville whenever arising. Under the terms of the Guaranty, certain events of default would enable Yorkville, at its option and in its discretion, to accelerate some or all of the obligations so that they become immediately due and payable.
At Market Issuance Sales Agreement
On December 7, 2022, we entered into an at market issuance sales agreement, (the “ATM Sales Agreement”) with B. Riley Securities, Inc., Berenberg Capital Markets LLC and Cantor Fitzgerald & Co. (collectively, the “Agents”). In accordance with the terms of the ATM Sales Agreement, under the Form F-3 we may offer and sell, from time to time, ordinary shares, through or to the agents, acting as agent or principal having an aggregate offering price of up to $135,000,000. Sales of ordinary shares, if any, will be made by any method permitted that is deemed an “at the market offering” as defined in Rule 415 under the Securities Act.
Under the ATM Sales Agreement, the Agents are not required to sell any specific amount but will act as our sales agents using commercially reasonable efforts consistent with each of their normal trading and sales practices, on mutually agreed terms between the Agents and us. Each time we wish to issue and sell ordinary shares under the ATM Sales Agreement, we will notify an Agent of the number of shares to be issued, the dates on which such sales are anticipated to be made and any minimum price below which sales may not be made. Once we have so instructed such Agent, unless such Agent declines to accept the terms of such notice, such Agent has agreed to use its commercially reasonable efforts consistent with its normal trading and sales practices to sell such shares up to the amount specified on such terms. The obligations of the Agents under the Sales Agreement to sell our ordinary shares are subject to a number of conditions that we must meet.
Under the terms of the Securities Purchase Agreement relating to the Existing Convertible Debentures described above, we had undertaken to limit sales under the ATM Sales Agreement to not more than 2% of the daily trading volume of our ordinary shares on Nasdaq (the “Two Percent Cap”) for so long as any amounts are outstanding under the Existing Convertible Debentures. The Two Percent Cap shall be increased on a trading day (i) to 10% if the trading volume on that trading day is between $5.0 million and $10 million and (ii) to 15% if the trading volume on that trading day is greater than $10 million.
We have agreed to pay the Agents a commission at a rate of 3.0% of the aggregate gross proceeds we receive from each sale of our ordinary shares. We have agreed to provide indemnification and contribution to the Agents with respect to certain civil liabilities, including liabilities under the Securities Act. We, B. Riley, Berenberg and Cantor may each terminate the ATM Sales Agreement at any time upon five days’ prior notice.
As of the date hereof, no sales have been made pursuant to the ATM Sales Agreement. We are currently not eligible to use our Form F-3.
| D. |
Under Dutch law, there are no exchange controls applicable to the transfer to persons outside of the Netherlands of dividends or other distributions with respect to, or of the proceeds from the sale of, shares of a Dutch company, albeit those transfers being subject to applicable restrictions under trade and economic sanctions and measures, including those concerning export control, pursuant to EU regulations, the Sanctions Act 1977 (Sanctiewet 1977) or other legislation, applicable anti-boycott regulations, applicable anti-money-laundering regulations and similar rules and provided that, under circumstances, such dividends or other distributions must be reported to the Dutch Central Bank for statistical purposes. There are no special restrictions in the articles of association or Dutch law that limit the right of shareholders who are not citizens or residents of the Netherlands to hold or vote shares.
| E. |
The following summary contains a description of Dutch, German and U.S. federal income tax considerations generally applicable to the acquisition, ownership and disposition of ordinary shares, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase ordinary shares. The summary is based upon the tax laws of the Netherlands and regulations thereunder, the tax laws of Germany and regulations thereunder and the tax laws of the United States and regulations thereunder as of the date hereof, which are subject to change. You should consult your tax advisor regarding the applicable tax consequences to you of investing in our ordinary shares.
Material Dutch Tax Considerations
General
The following is a general summary of certain material Dutch tax consequences of the acquisition, ownership and disposal of our ordinary shares. This summary does not purport to set forth all possible tax considerations or consequences that may be relevant to a holder or prospective holder or our ordinary shares and does not purport to deal with the tax consequences applicable to all categories of investors, some of which (such as trusts or similar arrangements) may be subject to special rules. In view of its general nature, it should be treated with corresponding caution.
For the purposes of this discussion, it is assumed that we are a tax resident of Germany under German national tax laws since we intended to have, from our incorporation and on a continuous basis, our place of effective management in Germany.
Except as otherwise indicated, this summary is based on and only addresses the tax laws of the Netherlands, published regulations thereunder and published authoritative case law, all as in effect on the date hereof, including for the avoidance of doubt, the tax rates on the date hereof, and all of which are subject to change, possibly with retroactive effect. Where the summary refers to “the Netherlands” or “Dutch” it refers only to the part of the Kingdom of the Netherlands located in Europe. The applicable tax laws or interpretations thereof may change, or the relevant facts and circumstances may change, and such changes may affect the contents of this section, which will not be updated to reflect such changes.
This discussion is for general information purposes only and is not Dutch tax advice or a complete description of all Dutch tax consequences relating to the acquisition, ownership and disposal of our ordinary shares. Holders or prospective holders of our ordinary shares should consult their own tax advisor regarding the Dutch tax consequences relating to the acquisition, holding and disposal of our ordinary shares in light of their particular circumstances.
Please note that this section does not set forth the tax considerations for:
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holders of ordinary shares if such holders have a substantial interest (aanmerkelijk belang) or deemed substantial interest (fictief aanmerkelijk belang) in us under the Dutch Income Tax Act 2001 (Wet inkomstenbelasting 2001). Generally, a holder of securities in a company is considered to hold a substantial interest in such company if such holder alone or, in the case of individuals, together with such holder’s partner for Dutch income tax purposes, or any relative by blood or marriage in the direct line (including foster children) , directly or indirectly holds (i) an interest of 5% or more of the total issued and outstanding capital of that company or of 5% or more of the issued and outstanding capital of a certain class of shares of that company; or (ii) rights to acquire, directly or indirectly, such interest; or (iii) certain profit sharing rights in that company that relate to 5% or more of the company’s annual profits and/or to 5% or more of the company’s liquidation proceeds. A deemed substantial interest may arise if a substantial interest (or part thereof) in a company has been disposed of, or is deemed to have been disposed of, on a non-recognition basis; |
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holder of ordinary shares which is or who is entitled to the dividend withholding tax exemption (inhoudingsvrijstelling) with respect to any income (opbrengst) derived from the ordinary shares (as defined in Article 4 of the Dutch Dividend Withholding Tax Act 1965 (Wet op de dividendbelasting). Generally, a holder of ordinary shares may be entitled or required to apply, subject to certain other requirements, the dividend withholding tax exemption if it is an entity and holds an interest of 5% or more in our nominal paid-up share capital; |
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holders of ordinary shares if the ordinary shares held by such holders qualify or qualified as a participation (deelneming) for purposes of the Dutch Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969). Generally, a holder’s shareholding of 5% or more in our nominal paid-in share capital qualifies as a participation. A holder may also have a participation if (a) such holder does not have a shareholding of 5% or more but a related entity (statutorily defined term) has a participation or (b) the company in which the shares are held is a related entity (statutorily defined term); |
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pension funds, investment institutions (fiscale beleggingsinstellingen), exempt investment institutions (vrijgestelde beleggingsinstellingen) (as defined in the Dutch Corporate Income Tax Act 1969) and other entities that are, in whole or in part, not subject to or exempt from corporate income tax in the Netherlands as well as entities that are exempt from corporate income tax in their country of residence, such country of residence being another state of the EU, Norway, Liechtenstein, Iceland or any other state with which the Netherlands has agreed to exchange information in line with international standards; and |
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holders of ordinary shares who are individuals and for whom the ordinary shares or any benefit derived from the ordinary shares are a remuneration or deemed to be a remuneration for (employment) activities performed by such holders or certain individuals related to such holders (as defined in the Dutch Income Tax Act 2001). |
Dividend Withholding Tax
Dividends distributed by us generally are subject to Dutch dividend withholding tax at a rate of 15%. Generally, we are responsible for the withholding of such dividend withholding tax at source; the Dutch dividend withholding tax is for the account of the holder of our ordinary shares.
However, as long as we continue to have our place of effective management solely in Germany, and not in the Netherlands, under the double tax treaty between Germany and the Netherlands, we will be considered to be exclusively tax resident in Germany and we will not be required to withhold Dutch dividend withholding tax. This exemption from withholding does not apply to dividends distributed by us to a holder who is resident or deemed to be resident in the Netherlands for Dutch income tax purposes or to holders of ordinary shares that are neither resident nor deemed to be resident of the Netherlands if the ordinary shares are attributable to a Dutch permanent establishment of such non-resident holder, in which case the following paragraph applies. See also “Item 3. Key Information—D. Risk Factors—Regulatory, Legal and Tax Risks—If we do pay dividends, we may need to withhold tax on such dividends payable to holders of our shares in both Germany and the Netherlands”.
Dividends distributed by us to individuals and corporate legal entities who are resident or deemed to be resident in the Netherlands for Dutch income tax purposes (“Dutch Resident Individuals” and “Dutch Resident Entities,” as the case may be) or to holders of ordinary shares that are neither resident nor deemed to be resident of the Netherlands if the ordinary shares are attributable to a Dutch permanent establishment of such non-resident holder are subject to Dutch dividend withholding tax at a rate of 15%.
The expression “dividends distributed” includes, among other things:
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distributions in cash or in kind, deemed and constructive distributions and repayments of paid-in capital not recognized for Dutch dividend withholding tax purposes; |
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liquidation proceeds, proceeds of redemption of ordinary shares, or proceeds of the repurchase of ordinary shares (other than as temporary portfolio investment; tijdelijke belegging) by us or one of our subsidiaries or other affiliated entities, in each case to the extent such proceeds exceed the average paid-in capital of those ordinary shares as recognized for purposes of Dutch dividend withholding tax; |
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an amount equal to the par value of ordinary shares issued or an increase of the par value of ordinary shares, to the extent that it does not appear that a related contribution, recognized for purposes of Dutch dividend withholding tax, has been made or will be made; and |
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partial repayment of the paid-in capital, recognized for purposes of Dutch dividend withholding tax, if and to the extent that we have net profits (zuivere winst), unless (i) the general meeting has resolved in advance to make such repayment and (ii) the par value of the ordinary shares concerned has been reduced by an equal amount by way of an amendment of our articles of association. The term "net profits" includes anticipated profits that have yet to be realized. |
Dutch Resident Individuals and Dutch Resident Entities generally are entitled to a credit for any Dutch dividend withholding tax against their Dutch (corporate) income tax liability. For Dutch Resident Entities, the credit in any given year is limited to the amount of corporate income tax payable in respect of the relevant year with an indefinite carry forward of any excess amount. The above generally also applies to holders of ordinary shares that are neither resident nor deemed to be resident of the Netherlands if the ordinary shares are attributable to a Dutch permanent establishment of such non-resident holder.
Dividend Stripping
Pursuant to legislation to counteract “dividend stripping,” a reduction, exemption, credit or refund of Dutch dividend withholding tax is denied if the recipient of the dividend is not the beneficial owner (uiteindelijk gerechtigde) of the dividend as described in the Dutch Dividend Withholding Tax Act 1965 (Wet op de dividendbelasting 1965). This legislation generally targets situations in which a shareholder retains its economic interest in shares but reduces the withholding tax costs on dividends by a transaction with another party. It is not required for these rules to apply that the recipient of the dividends is aware that a dividend stripping transaction took place. As from 1 January 2024, more stringent rules apply to the setoff, exemption from, and reduction or refund of Dutch dividend withholding tax to address situations where a claim for setoff, exemption, reduction or refund may align with the letter of Dutch tax law or a double taxation convention but goes against the underlying intention or spirit of the dividend stripping rules, as perceived by the legislator. In addition, the burden of proof in cases related to dividend stripping and beneficial owner status has in certain circumstances been shifted from the tax inspector to the person making a claim for a setoff, reduction or refund of or exemption from Dutch dividend withholding tax. Furthermore, for shares traded on a regulated market, including the Ordinary Shares, it has been codified that the record date is used when determining the person who is entitled to the dividend.
The Dutch State Secretary for Finance takes the position that the definition of beneficial owner introduced by this legislation will also be applied in the context of a double taxation convention.
Conditional withholding tax on dividends (as of January 1, 2024)
As of January 1, 2024, a Dutch conditional withholding tax will be imposed on dividends distributed by us to entities related (gelieerd) to the Company (within the meaning of the Dutch Withholding Tax Act 2021; Wet bronbelasting 2021), if such related entity:
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is considered to be resident (gevestigd) in a jurisdiction that is listed in the yearly updated Dutch Regulation on low-taxing states and non-cooperative jurisdictions for tax purposes (Regeling laagbelastende staten en niet-coöperatieve rechtsgebieden voor belastingdoeleinden) (a "Listed Jurisdiction"); or |
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has a permanent establishment located in a Listed Jurisdiction to which the ordinary shares are attributable; or |
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holds the ordinary shares for the main purpose or one of the main purposes to avoid taxation for another person or entity and there is an artificial arrangement or transaction or a series of artificial arrangements or transactions; or |
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is not considered to be the beneficial owner of the ordinary shares in its jurisdiction of residence because such jurisdiction treats another entity as the beneficial owner of the ordinary shares (a hybrid mismatch); or |
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is not resident in any jurisdiction (also a hybrid mismatch); or |
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is a reverse hybrid (within the meaning of Article 2(12) of the Dutch Corporate Income Tax Act 1969), if and to the extent (x) there is a participant in the reverse hybrid which is related (gelieerd) to the reverse hybrid, (y) the jurisdiction of residence of such participant treats the reverse hybrid as transparent for tax purposes and (z) such participant would have been subject to the Dutch conditional withholding tax in respect of dividends distributed by us without the interposition of the reverse hybrid, all within the meaning of the Dutch Withholding Tax Act 2021. |
The Dutch conditional withholding tax on dividends will be imposed at the highest Dutch corporate income tax rate in effect at the time of the distribution (2024: 25.8%). The Dutch conditional withholding tax on dividends will be reduced, but not below zero, by any regular Dutch dividend withholding tax withheld in respect of the same dividend distribution. As such, based on the currently applicable rates, the overall effective tax rate of withholding the regular Dutch dividend withholding tax (as described above) and the Dutch conditional withholding tax on dividends will not exceed the highest corporate income tax rate in effect at the time of the distribution (2024: 25.8%).
Taxes on Income and Capital Gains
Dutch Resident Entities
Generally speaking, if the holder of ordinary shares is a Dutch Resident Entity, any income derived or deemed to be derived from the ordinary shares or any capital gains realized on the disposal or deemed disposal of the ordinary shares is subject to Dutch corporate income tax at a rate of 19% with respect to taxable profits up to €200,000 and 25.8% with respect to taxable profits in excess of that amount (rates and brackets for 2024).
Dutch Resident Individuals
If the holder of ordinary shares is a Dutch Resident Individual, any income derived or deemed to be derived from the ordinary shares or any capital gains realized on the disposal or deemed disposal of the ordinary shares is subject to Dutch income tax at the progressive rates (with a maximum of 49.50% in 2024), if:
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the ordinary shares are attributable to an enterprise from which the holder of ordinary shares derives a share of the profit, whether as an entrepreneur (ondernemer) or as a person who has a co-entitlement to the net worth (medegerechtigd tot het vermogen) of such enterprise without being a shareholder (as defined in the Dutch Income Tax Act 2001); or |
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the holder of ordinary shares is considered to perform activities with respect to the ordinary shares that go beyond ordinary asset management (normaal, actief vermogensbeheer) or otherwise derives benefits from the ordinary shares that are taxable as benefits from miscellaneous activities (resultaat uit overige werkzaamheden). |
Taxation of savings and investments
If the above-mentioned conditions (1) and (2) do not apply to the Dutch Resident Individual, the ordinary shares will be subject to an annual Dutch income tax under the regime for savings and investments (inkomen uit sparen en beleggen). Taxation only occurs insofar the Dutch Resident Individual's net investment assets for the year exceed a statutory threshold (heffingvrij vermogen). The net investment assets for the year are the fair market value of the investment assets less the fair market value of the liabilities on January 1 of the relevant calendar year (reference date; peildatum). Actual income or capital gains realized in respect of the ordinary shares are as such not subject to Dutch income tax.
The Dutch Resident Individual's assets and liabilities taxed under this regime, including the ordinary shares, are allocated over the following three categories: (a) bank savings (banktegoeden), (b) other investments (overige bezittingen), including the ordinary shares, and (c) liabilities (schulden). The taxable benefit for the year (voordeel uit sparen en beleggen) is equal to the product of (x) the total deemed return divided by the sum of bank savings, other investments and liabilities and (b) the sum of bank savings, other investments and liabilities minus the statutory threshold, and is taxed at a flat rate of 36% (rate for 2024).
The deemed return applicable to other investments, including the ordinary shares is set at 6.04% for the calendar year 2024. Transactions in the three-month period before and after January 1 of the relevant calendar year implemented to arbitrate between the deemed return percentages applicable to bank savings, other investments and liabilities will for this purpose be ignored if the holder of ordinary shares cannot sufficiently demonstrate that such transactions are implemented for other than tax reasons.
The current Dutch income tax regime for savings and investments was implemented in Dutch tax law following the decision of the Dutch Supreme Court (Hoge Raad) of December 24, 2021 (ECLI:NL:2021:1963) (the “Decision”). In the Decision, the Dutch Supreme Court ruled that the (old) system of taxation for savings and investments based on a deemed return may under specific circumstances contravene with Section 1 of the First Protocol to the European Convention on Human Rights in combination with Section 14 of the European Convention on Human Rights (the “EC-Human Rights”). A new court procedure is pending before the Dutch Supreme Court questioning whether the current tax system for savings and investments is in line with the Decision. On September 18, 2023 (ECLI:NL:PHR:2023:655) the Attorney General Wattel concluded that the new tax system is not in line with the Decision, except for the taxation of bank savings, as the system is, in short, still based on a deemed return rather than actual returns, and as a result, the regime contravenes with the EC-Human Rights. The decision of the Dutch Supreme Court is expected mid-2024. In addition, on September 8, 2023, the former cabinet published a law proposal for a new tax system for savings and investments on the basis of actual returns according to an asset accumulation system, the 'Actual Return Box 3 Act' (Wet werkelijk rendement box 3). The proposed system is expected to come into effect on January 1, 2027 at the earliest. However, it is up to the new cabinet to submit a final law proposal to the Dutch parliament.
Holders of ordinary shares are advised to consult their own tax advisor to ensure that the tax in respect of the ordinary shares is levied in accordance with the applicable Dutch tax rules at the relevant time.
Non-residents of The Netherlands
A holder of ordinary shares that is neither a Dutch Resident Entity nor a Dutch Resident Individual will not be subject to Dutch (corporate) income tax in respect of income derived or deemed to be derived from the ordinary shares or in respect of any capital gains realized on the disposal or deemed disposal of the ordinary shares, provided that:
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such holder does not have an interest in an enterprise or deemed enterprise (as defined in the Dutch Income Tax Act 2001 and the Dutch Corporate Income Tax Act 1969) which, in whole or in part, is either effectively managed in the Netherlands or carried on through a permanent establishment, a deemed permanent establishment or a permanent representative in the Netherlands and to which enterprise or part of an enterprise the ordinary shares are attributable; and |
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in the event the holder is an individual, such holder does not carry out any activities in the Netherlands with respect to the ordinary shares that go beyond ordinary asset management and does not otherwise derive benefits from the ordinary shares that are taxable as benefits from miscellaneous activities in the Netherlands. |
Gift and Inheritance Taxes
Residents of the Netherlands
Gift or inheritance taxes will arise in the Netherlands with respect to a transfer of ordinary shares by way of a gift by, or on the death of, a holder of such ordinary shares who is resident or deemed resident of the Netherlands at the time of the gift or the holder’s death.
Non-residents of the Netherlands
No gift or inheritance taxes will arise in the Netherlands with respect to a transfer of ordinary shares by way of gift by, or on the death of, a holder of ordinary shares who is neither resident nor deemed to be resident of the Netherlands, unless:
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in the case of a gift of ordinary shares by an individual who at the date of the gift was neither resident nor deemed to be resident of the Netherlands, such individual dies within 180 days after the date of the gift, while being resident or deemed to be resident of the Netherlands; or |
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in the case of a gift of ordinary shares is made under a condition precedent, the holder of the ordinary shares is resident or is deemed to be resident of the Netherlands at the time the condition is fulfilled; or |
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the transfer is otherwise construed as a gift or inheritance made by, or on behalf of, a person who, at the time of the gift or death, is or is deemed to be resident of the Netherlands. |
For purposes of Dutch gift and inheritance taxes, among others, a person that holds the Dutch nationality will be deemed to be resident of the Netherlands if such person has been resident in the Netherlands at any time during the ten (10) years preceding the date of the gift or such person’s death. Additionally, for purposes of Dutch gift tax, among others, a person not holding the Dutch nationality will be deemed to be resident of the Netherlands if such person has been resident in the Netherlands at any time during the twelve (12) months preceding the date of the gift. Applicable tax treaties may override deemed residency.
Value Added Tax (VAT)
No Dutch value-added tax will be payable by a holder of ordinary shares in respect of any payment in consideration for the holding or disposal of the ordinary shares.
Other Taxes and Duties
No Dutch registration tax, stamp duty or any other similar documentary tax or duty will be payable by a holder of ordinary shares in respect of any payment in consideration for the holding or disposal of the ordinary shares.
Material German Tax Considerations
The following section is a summary of the material German tax considerations that become relevant when purchasing, holding or transferring the Company’s shares. The Company expects and intends to have its sole place of management in Germany and, therefore, qualifies as a corporation subject to German unlimited corporate income taxation; however, because a company’s tax residency depends on future facts regarding the location in which the Company is managed and controlled, there is no guarantee as to whether the Company will actually qualify as a corporation subject to German unlimited corporate income taxation and such a scenario in which the company does not qualify as a corporation subject to German unlimited income taxation is not discussed herein. This section does not set forth all German tax aspects that may be relevant for shareholders. The section is based on the German tax law applicable as of the date of this Annual Report. It should be noted that the law may change following the issuance of this Annual Report and that such changes may have retroactive effect.
The material German tax principles of purchasing, owning and transferring of shares are set forth in the following. This section does not purport to be a comprehensive or complete analysis or listing of all potential tax effects of the purchase, ownership or disposition of shares and does not set forth all tax considerations that may be relevant to a particular person’s decision to acquire ordinary shares. All of the following is subject to change. Such changes could apply retroactively and could affect the consequences set forth below. This section does not refer to any U.S. Foreign Account Tax Compliance Act aspects.
Shareholders are advised to consult their own tax advisers with regard to the application of German tax law to their particular situations, in particular with respect to the procedure to be complied with to obtain a (potential) relief of withholding tax on dividends and on capital gains (Kapitalertragsteuer) and with respect to the influence of double tax treaty provisions, as well as any tax consequences arising under the laws of any state, local or other foreign jurisdiction. For German tax purposes, a “shareholder” may include an individual who or an entity that does not have the legal title to the shares, but to whom the shares are nevertheless attributed, based either on such individual or entity owning a beneficial interest in the shares or based on specific statutory provisions.
This section does not constitute particular tax advice. Potential purchasers of the Company’s shares are urged to consult their own tax advisers regarding the tax consequences of the purchase, ownership and disposition of shares in light of their particular circumstances.
Dividends Tax
Withholding Tax on Dividends
Dividends distributed from a company to its shareholders are subject to withholding tax, subject to certain exemptions (for example, repayments of capital from the tax equity account (steuerliches Einlagekonto), as described in the following. The withholding tax rate is 25% plus 5.5% solidarity surcharge (Solidaritätszuschlag) thereon (in total 26.375%) and, if applicable, church tax (Kirchensteuer) of the gross dividend approved by the ordinary shareholders’ meeting. Withholding tax is to be withheld and passed on for the account of the shareholders by a domestic branch of a domestic or foreign credit or financial services institution (Kredit- und Finanzdienstleistungsinstitut) or a domestic securities institution (inländisches Wertpapierinstitut) which keeps and administers the shares and disburses or credits the dividends or disburses the dividends to a foreign agent, or by the securities custodian bank (Wertpapiersammelbank) to which the shares were entrusted for collective custody if the dividends are distributed to a foreign agent by such securities custodian bank (which is referred to as the “Dividend Paying Agent”). In case the shares are not held in collective deposit with a Dividend Paying Agent, the company is responsible for withholding and remitting the tax to the competent tax office.
Such withholding tax is levied and withheld irrespective of whether and to what extent the dividend distribution is taxable at the level of the shareholder and whether the shareholder is a person residing in Germany or in a foreign country.
In the case of dividends distributed to a parent company within the meaning of Art. 3 of the amended EU Directive 2011/96/EU of the Council of November 30, 2011 (the “EU Parent Subsidiary Directive”) domiciled in another member state of the EU, an exemption from withholding tax will be granted upon request if further prerequisites are satisfied (Freistellung im Steuerabzugsverfahren). This also applies to dividends distributed to a permanent establishment located in another member state of the EU of such a parent company or of a parent company tax resident in Germany if the participation in the company is attributable to this permanent establishment. The key prerequisite for the application of the EU Parent Subsidiary Directive is that the shareholder has held a direct participation in the share capital of the company of at least 10% for at least twelve months. If such a twelve month period is only completed after the receipt of the dividends, an exemption is not possible based on the EU Parent Subsidiary Directive. Rather, only a refund of withholding tax might be possible, subject to further prerequisites.
The withholding tax on distributions to other foreign resident shareholders might be reduced fully or partly in accordance with a double taxation treaty if Germany has concluded such double taxation treaty with the country of residence of the shareholder and if the shareholder does not hold his shares either as part of the assets of a permanent establishment or a fixed place of business in Germany or as business assets for which a permanent representative has been appointed in Germany. If the requirements for such a reduction are fulfilled, the reduction of the withholding tax would procedurally be granted in such a manner that the difference between the total amount withheld, including the solidarity surcharge, and the tax liability determined on the basis of the tax rate set forth in the applicable double taxation treaty (generally 15% unless further qualifications are met) is refunded by the German tax administration upon request (Federal Central Office for Taxes (Bundeszentralamt für Steuern), main office in Bonn-Beuel, An der Küppe 1, 53225 Bonn, Germany) subject to the treaty and German anti-abuse rules.
In the case of dividends received by corporations whose statutory seat and effective place of management are not located in Germany and who are therefore not tax resident in Germany, two-fifths of the withholding tax deducted and remitted are refunded without the need to fulfill all prerequisites required for such refund under the EU Parent Subsidiary Directive or under a double taxation treaty or if no double taxation treaty has been concluded with the state of residence of the shareholder.
In order to receive a refund pursuant to a double taxation treaty or the aforementioned option for foreign corporations, the shareholder has to submit a completed form for refund (available at the Federal Central Office for Taxes (http://www.bzst.de) as well as at the German embassies and consulates) together with a withholding tax certificate (Kapitalertragsteuerbescheinigung) issued by the institution that withheld the tax.
The exemption from withholding tax in accordance with the EU Parent Subsidiary Directive or a double tax treaty and the aforementioned options for a refund of the withholding tax (with or without protection under a double taxation treaty) depend on whether certain additional prerequisites (in particular so-called substance requirements) are fulfilled. The applicable withholding ˚tax relief will only be granted if the preconditions of the German anti avoidance rules (so called Directive Override or Treaty Override), in particular Section 50d, paragraph 3, German Income Tax Act (Einkommensteuergesetz) upon receipt of the dividends are fulfilled. In addition, e. g. Article 28 of the Convention between the Federal Republic of Germany and the United States of ˚America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital and to certain other Taxes of August 29, 1989 in the amended version of June 4, 2008 (Bundesgesetzblatt II 2008, p. 611) provides for further prerequisites that need to be fulfilled in the case of a shareholder who is resident of the United States. Other treaties might provide for additional requirements.
The aforementioned reductions of (or exemptions from) withholding tax are further restricted if (i) the applicable double taxation treaty provides for a tax reduction resulting in an applicable tax rate of less than 15% and (ii) the shareholder is not a corporation that directly holds at least 10% in the equity capital of the distributing company and is subject to tax on its income and profits in its state of residence without being exempt. In this case, the reduction of (or exemption from) withholding tax is subject to the following three cumulative prerequisites: (i) the shareholder must qualify as beneficial owner of the shares in the distributing company for a minimum holding period of 45 consecutive days occurring within a period of 45 days prior and 45 days after the due date of the dividends, (ii) the shareholder has to bear at least 70% of the change in value risk related to the shares in the distributing company during the minimum holding period without being directly or indirectly hedged and (iii) the shareholder must not be required to fully or largely compensate directly or indirectly the dividends to third parties. However, these further prerequisites do not apply if the shareholder has been the beneficial owner of the shares in the distributing company for at least one uninterrupted year upon receipt of the dividends.
For individual or corporate shareholders tax resident outside Germany not holding the shares through a permanent establishment (Betriebsstätte) in Germany or as business assets (Betriebsvermögen) for which a permanent representative (ständiger Vertreter) has been appointed in Germany, any non-refundable part of any paid withholding tax (if any) is final (i.e., not creditable or otherwise refundable in respect of such shareholder’s income tax liability) and settles the shareholder’s limited tax liability in Germany. For individual or corporate shareholders tax resident in Germany (that are, for example, shareholders whose residence, domicile, registered office or place of management is located in Germany) holding their shares as business assets, as well as for shareholders tax resident outside of Germany holding their shares through a permanent establishment in Germany or as business assets for which a permanent representative has been appointed in Germany, the withholding tax withheld (including solidarity surcharge) can be credited against the shareholder’s personal income tax or corporate income tax liability in Germany. Any withholding tax (including solidarity surcharge) in excess of such tax liability is refunded. For individual shareholders tax resident in Germany holding the company’s shares as private assets, the withholding tax is generally a final tax (Abgeltungsteuer).
Pursuant to special rules on the restriction of the aforementioned withholding tax credit, the credit of withholding tax is subject to the following three cumulative prerequisites: (i) the shareholder must qualify as beneficial owner of the shares in the distributing company for a minimum holding period of 45 consecutive days occurring within a period of 45 days prior and 45 days after the due date of the dividends, (ii) the shareholder has to bear at least 70% of the change in value risk related to the shares in the distributing company during the minimum holding period without being directly or indirectly hedged and (iii) the shareholder must not be required to fully or largely compensate directly or indirectly the dividends to third parties. Absent the fulfillment of all of the three prerequisites, three-fifths of the withholding tax imposed on the dividends must not be credited against the shareholder’s (corporate) income tax liability, but may, upon application, be deducted from the shareholder’s tax base for the relevant assessment period. A shareholder that has received gross dividends without any deduction of withholding tax in particular due to a tax exemption or to whom a withholding tax deduction has been refunded without qualifying for a full tax credit has to notify the competent local tax office accordingly, has to file withholding tax returns subject to specific filing requirements and has to make a payment in the amount of 15% withholding tax. The special rules on the restriction of withholding tax credit do not apply to a shareholder whose overall dividend earnings within an assessment period do not exceed €20,000 or that has been the beneficial owner of the shares in the company for at least one uninterrupted year upon receipt of the dividends.
Taxation of Dividend Income of Shareholders Tax Resident in Germany Holding the Company’s Shares as Private Assets
For individual shareholders (individuals) resident in Germany holding the Company’s shares as private assets, dividends are subject to a flat tax rate which is satisfied by the withholding tax actually withheld (Abgeltungsteuer). Accordingly, dividend income will be taxed at a flat tax rate of 25% plus 5.5% solidarity surcharge thereon (in total 26.375%) and church tax (Kirchensteuer) in case the shareholder is subject to church tax because of his individual circumstances. An automatic procedure for deduction of church tax by way of withholding will apply to shareholders being subject to church tax unless the shareholder has filed a blocking notice (Sperrvermerk) with the German Federal Tax Office (details related to the computation of the concrete tax rate including church tax are to be discussed with the individual tax adviser of the relevant shareholder). Except for an annual lump sum savings allowance (Sparer- Pauschbetrag) of up to €1,000 (for individual filers) or up to €2,000 (for married couples and for partners in accordance with the registered partnership law (Gesetz über die Eingetragene Lebenspartnerschaft) filing jointly), private individual shareholders will not be entitled to deduct expenses incurred in connection with the capital investment from their dividend income.
The income tax owed for the dividend income is satisfied by the withholding tax withheld by the Dividend Paying Agent. However, if the flat tax results in a higher tax burden as opposed to the private shareholder’s individual tax rate (Günstigerprüfung), the private shareholder can opt for taxation at his individual personal income tax rate. In that case, the final withholding tax will be credited against the income tax. However, pursuant to the German tax authorities and a court ruling, private shareholders are nevertheless not entitled to deduct expenses incurred in connection with the capital investment from their income. The option can be exercised only for all capital income from capital investments received in the relevant assessment period uniformly, and married couples as well as partners in accordance with the registered partnership law filing jointly may only jointly exercise the option.
Exceptions from the flat tax rate (satisfied by withholding at source) (Abgeltungsteuer) may apply - that is, only upon application - for shareholders who have a shareholding of at least 25% in the company and for shareholders who have a shareholding of at least 1% in the company and work for a company in a professional capacity through which the shareholder can exert significant entrepreneurial influence on the Company’s economic activity. In such a case, the same rules apply as for sole proprietors holding the shares as business assets. See “—Taxation of Dividend Income of Shareholders Tax Resident in Germany Holding the Company’s Shares as Business Assets—Sole Proprietors”.
Taxation of Dividend Income of Shareholders Tax Resident in Germany Holding the Company’s Shares as Business Assets
If a shareholder holds the company’s shares as business assets, the taxation of the dividend income depends on whether the respective shareholder is a corporation, a sole proprietor or a partnership.
Corporations
Dividend income of corporate shareholders is exempt from corporate income tax, provided that the incorporated entity holds a direct participation of at least 10% in the share capital of a company at the beginning of the calendar year in which the dividends are paid. The acquisition of a participation of at least 10% in the course of a calendar year is deemed to have occurred at the beginning of such calendar year for the purpose of this rule. Participations in the share capital of the company which a corporate shareholder holds through a partnership, including co-entrepreneurships (Mitunternehmerschaften), are attributable to such corporate shareholder only on a pro rata basis at the ratio of the interest share of the corporate shareholder in the assets of the relevant partnership. However, 5% of the tax-exempt dividends are deemed to be non-deductible business expenses for tax purposes and therefore are subject to corporate income tax (plus solidarity surcharge) and trade tax, i.e., tax exemption of 95%. Business expenses incurred in connection with the dividends received are generally entirely tax-deductible.
For trade tax purposes the entire dividend income is subject to trade tax (i.e., the tax-exempt dividends must be added back when determining the trade taxable income), unless the corporation shareholder holds at least 15% of the company’s registered share capital at the beginning of the relevant tax assessment period (Erhebungszeitraum). In case of an indirect participation via a partnership please refer to the section “—Partnerships” below.
If the shareholding is below 10% in the share capital, dividends are taxable at the applicable corporate income tax rate of 15% plus 5.5% solidarity surcharge thereon and trade tax (the rate of which depends on the municipalities the corporate shareholder resides in).
Special regulations apply which abolish the 95% tax exemption if the company’s shares are held as trading portfolio assets in the meaning of Section 340e of the German commercial code (Handelsgesetzbuch) by (i) a credit institution (Kreditinstitut) or (ii) a securities institution (Wertpapierinstitut) or (iii) a financial service institution (Finanzdienstleistungsinstitut). The 95% tax exemption is also abolished if the company’s shares have to be shown as current assets at the time of acquisition by a financial enterprise within the meaning of the German Banking Act (Kreditwesengesetz), in case more than 50% of the shares of such financial enterprise are held directly or indirectly by a credit institution or a securities institution or a financial service institution, as well as if the company’s shares are held by a life insurance company, a health insurance company or a pension fund in case the shares are attributable to the capital investments, resulting in fully taxable income.
Sole Proprietors
For sole proprietors (individuals) resident in Germany holding shares as business assets dividends are subject to the partial income rule (Teileinkünfteverfahren). Accordingly, only (i) 60% of the dividend income will be taxed at his/her individual personal income tax rate plus 5.5% solidarity surcharge thereon and church tax (if applicable) and (ii) 60% of the business expenses related to the dividend income are deductible for tax purposes. In addition, the dividend income is entirely subject to trade tax if the shares are held as business assets of a permanent establishment in Germany within the meaning of the German Trade Tax Act (Gewerbesteuergesetz), unless the shareholder holds at least 15% of the company’s registered share capital at the beginning of the relevant tax assessment period. The trade tax levied is generally eligible for credit against the shareholder’s personal income tax liability based on the applicable municipal trade tax rate (but limited to a maximum rate) and the individual tax situation of the shareholder.
Partnerships
In case shares are held by a partnership, the partnership itself is not subject to corporate income tax or personal income tax. In this regard, corporate income tax or personal income tax (and church tax, if applicable) as well as solidarity surcharge, are levied only at the level of the partner with respect to their relevant part of the profit and depending on their individual circumstances.
If the partner is a corporation, the dividend income will be subject to corporate income tax plus solidarity surcharge. See “—Corporations”. If the partner is an individual, the dividend income will be subject to the partial income rule. See “—Sole Proprietors”.
The dividend income is subject to trade tax at the level of the partnership (provided that the partnership is liable to trade tax), unless the partnership holds at least 15% of a company’s registered share capital at the beginning of the relevant assessment period, in which case the dividend income is exempt from trade tax. There are no explicit statutory provisions concerning the taxation of dividends with regard to a corporate shareholder of the partnership. However, trade tax should be levied on 5% of the dividends to the extent they are attributable to the shares of such corporate partners to whom at least 10% of the shares of the company are attributable on a look-through basis, since such portion of the dividends should be deemed to be non-deductible business expenses.
If a partner is an individual, depending on the applicable municipal trade tax rate and the individual tax situation, the trade tax paid at the level of the partnership is generally partly or entirely be credited against the partner’s personal income tax liability, if further prerequisites are satisfied.
Special regulations apply if the shares are held as trading portfolio assets by a partnership that qualifies as a credit institution, a securities institution, a financial service institution or a financial enterprise within the meaning of the German Banking Act (Kreditwesengesetz). In that case the partial income rule (Teileinkünfteverfahren) is not applicable.
In case of a corporation being a partner, special regulations apply with respect to trading portfolio assets of credit institutions, securities institutions, financial service institutions or financial enterprises within the meaning of the German Banking Act (Kreditwesengesetz) or life insurance companies, health insurance companies or pension funds. See “—Corporations”.
The actual trade tax charge, if any, at the level of the partnership depends on the shareholding quota of the partnership and the nature of the partners (e.g., individual or corporation).
For foreign individual or corporate shareholders tax resident outside of Germany not holding the shares through a permanent establishment in Germany or as business assets for which a permanent representative has been appointed in Germany, the deducted withholding tax (possibly reduced by way of a tax relief under a double tax treaty or domestic tax law, such as in connection with the EU Parent Subsidiary Directive) is final (that is, not refundable) and settles the shareholder’s limited tax liability in Germany, unless the shareholder is entitled to apply for a withholding tax refund or exemption.
In contrast, individual or corporate shareholders tax resident outside of Germany holding the company’s shares through a permanent establishment in Germany or as business assets for which a permanent representative has been appointed in Germany are subject to the same rules as applicable (and described above) to shareholders resident in Germany holding the shares as business assets. The withholding tax withheld (including solidarity surcharge) is credited against the shareholder’s personal income tax or corporate income tax liability in Germany.
Taxation of Capital Gains
Withholding tax on capital gains
Capital gains realized on the disposal of shares are subject to withholding tax if a German branch of a German or foreign credit or financial institution, a German securities trading company or a German securities trading bank stores or administrates or carries out the sale of the shares and pays or credits the capital gains. In those cases, the institution (and not the company) is required to deduct the withholding tax at the time of payment for the account of the shareholder and has to pay the withholding tax to the competent tax authority. In case the shares are held (i) as business assets by a sole proprietor, a partnership or a corporation and such shares are attributable to a German business or (ii) in case of a corporation being subject to unlimited corporate income tax liability in Germany, the capital gains are not subject to withholding tax. In case of clause (i), the withholding tax exemption is subject to the condition that the paying agent has been notified by the beneficiary (Gläubiger) that the capital gains are exempt from withholding tax. The respective notification has to be filed by using the officially prescribed form.
Taxation of Capital Gains Realized by Shareholders Tax Resident in Germany Holding Shares as Private Assets
For individual shareholders (individuals) resident in Germany holding shares as private assets, capital gains realized on the disposal of shares are subject to final withholding tax. Accordingly, capital gains will be taxed at a flat tax rate of 25% plus a 5.5% solidarity surcharge thereon (in total 26.375%) and church tax, in case the shareholder is subject to church tax because of his individual circumstances. An automatic procedure for deduction of church tax by way of withholding will apply to shareholders being subject to church tax unless the shareholder has filed a blocking notice (Sperrvermerk) with the German Central Federal Tax Office (details related to the computation of the concrete tax rate including church tax are to be discussed with the individual tax adviser of the relevant shareholder). The taxable capital gain is calculated by deducting the acquisition costs of the shares and the expenses directly related to the disposal from the proceeds of the disposal. Apart from that, except for an annual lump sum savings allowance (Sparer-Pauschbetrag) of up to €1,000 (for individual filers) or up to €2,000 (for married couples and for partners in accordance with the registered partnership law (Gesetz über die Eingetragene Lebenspartnerschaft) filing jointly), private individual shareholders will not be entitled to deduct expenses incurred in connection with the capital investment from their capital gain.
In case the flat tax results in a higher tax burden as opposed to the private shareholder’s individual tax rate, the private shareholder can opt for taxation at his or her individual personal income tax rate (Günstigerprüfung). In that case, the withholding tax (including solidarity surcharge) withheld will be credited against the income tax. However, pursuant to the German tax authorities and case law the private shareholders are nevertheless not entitled to deduct expenses incurred in connection with the capital investment from their income. The option can be exercised only for all capital income from capital investments received in the relevant assessment period uniformly, and married couples as well as for partners in accordance with the registered partnership law filing jointly may only jointly exercise the option.
Capital losses arising from the sale of the shares can only be offset against other capital gains resulting from the disposition of the shares or shares in other stock corporations during the same calendar year. Offsetting of overall losses with other income (such as business or rental income) and other capital income is not possible. Such losses are to be carried forward and to be offset against positive capital gains deriving from the sale of shares in stock corporations in future years. In case of a derecognition or transfer of worthless shares (or other capital assets), the utilization of such loss is further restricted and can only be offset up to the amount of €20,000 per calendar year.
The final withholding tax would not apply if the seller of the shares or, in the case of gratuitous transfer, its legal predecessor has held, directly or indirectly, at least 1% of the company’s registered share capital at any time during the five years prior to the disposal. In that case capital gains are subject to the partial income rule (Teileinkünfteverfahren). Accordingly, only (i) 60% of the capital gains would be taxed at his/her individual personal income tax rate plus a 5.5% solidarity surcharge thereon and church tax (if applicable) and (ii) 60% of the business expenses related to the capital gains are deductible for tax purposes. The withholding tax withheld (including solidarity surcharge) would be credited against the shareholder’s personal income tax liability in Germany.
Taxation of Capital Gains Realized by Shareholders Tax Resident in Germany Holding the Company’s Shares as Business Assets
If a shareholder holds shares as business assets, the taxation of capital gains realized on the disposal of such shares depends on whether the respective shareholder is a corporation, a sole proprietor or a partnership:
Corporations
Capital gains realized on the disposal of shares by a corporate shareholder are generally exempt from corporate income tax and trade tax. However, 5% of the tax-exempt capital gains are deemed to be non-deductible business expenses for tax purposes and therefore are subject to corporate income tax (plus solidarity surcharge) and trade tax, i.e., tax exemption of 95%. Business expenses incurred in connection with the capital gains are entirely tax-deductible.
Capital losses incurred upon the disposal of shares or other impairments of the share value are not tax-deductible.
Special regulations apply if the shares are held as trading portfolio assets by a credit institution, a securities institution, a financial service institution or a financial enterprise within the meaning of the German Banking Act (Kreditwesengesetz) as well as by a life insurance company, a health insurance company or a pension fund. See “—Taxation of Dividend Income of Shareholders Tax Resident in Germany Holding the Company’s Shares as Business Assets—Corporations”.
Sole Proprietors
If the shares are held by a sole proprietor, capital gains realized on the disposal of the shares are subject to the partial income rule (Teileinkünfteverfahren). Accordingly, only (i) 60% of the capital gains will be taxed at his/her individual personal income tax rate plus a 5.5% solidarity surcharge thereon and church tax (if applicable) and (ii) 60% of the business expenses related to the capital gains are deductible for tax purposes. In addition, 60% of the capital gains are subject to trade tax if the shares are held as business assets of a permanent establishment in Germany within the meaning of the German Trade Tax Act (Gewerbesteuergesetz). The trade tax levied, depending on the applicable municipal trade tax rate and the individual tax situation, is generally partly or entirely credited (but limited to a maximum rate) against the shareholder’s personal income tax liability.
Partnerships
In case the shares are held by a partnership, the partnership itself is not subject to corporate income tax or personal income tax as well as a solidarity surcharge (and church tax) since partnerships qualify as transparent for German tax purposes. In this regard, corporate income tax or personal income tax as well as a solidarity surcharge (and church tax, if applicable), are levied only at the level of the partner with respect to their relevant part of the profit and depending on their individual circumstances.
If the partner is a corporation, the capital gains will be subject to corporate income tax plus a solidarity surcharge at the level of the partner. See “—Corporations”. Trade tax will be levied at the level of the partnership. With respect to both corporate income and trade tax, the 95% exemption rule as described above applies.
If the partner is an individual, the capital gains are subject to the partial income rule. See “—Sole Proprietors”.
In addition, if the partnership is liable to trade tax, 60% of the capital gains are subject to trade tax at the level of the partnership, to the extent the partners are individuals, and 5% of the capital gains are subject to trade tax, to the extent the partners are corporations. However, if a partner is an individual, depending on the applicable municipal trade tax rate and the individual tax situation, the trade tax paid at the level of the partnership is generally partly or entirely credited against the partner’s personal income tax liability (but limited to a maximum rate), if further prerequisites are satisfied.
Special regulations apply if the shares are held as trading portfolio assets by a partnership that qualifies as a credit institution, a securities institution, a financial service institution or a financial enterprise within the meaning of the German Banking Act (Kreditwesengesetz). In that case the partial income rule (Teileinkünfteverfahren) is not applicable.
With regard to corporate partners, special regulations apply if they are held as trading portfolio assets by credit institutions, securities institutions, financial service institutions or financial enterprises within the meaning of the German Banking Act or life insurance companies, health insurance companies or pension funds, as described above.
Capital gains realized on the disposal of the shares by a shareholder tax resident outside of Germany are subject to German taxation provided that (i) the company’s shares are held as business assets of a permanent establishment or as business assets for which a permanent representative has been appointed in Germany, or (ii) the shareholder or, in case of a gratuitous transfer, its legal predecessor has held, directly or indirectly, at least 1% of the company’s shares capital at any time during a five-year period prior to the disposal. In these cases, capital gains are generally subject to the same rules as described above for shareholders resident in Germany. However, in case the shares held by a non-German tax resident corporation are not attributable to a German permanent establishment or permanent representative, the 5% taxation (see “—Taxation of Capital Gains Realized by Shareholders Tax Resident in Germany Holding the Company’s Shares as Business Assets”) as a consequence of deemed non-deductible business expenses shall not apply to such non- German tax resident shareholders and such capital gains are consequently fully exempt from German corporate income and trade tax.
However, except for the cases referred to in clause (i) above, some of the double tax treaties concluded with Germany provide for a full exemption from German taxation.
Inheritance and Gift Tax
The transfer of the shares in the Company to another person by way of succession or donation is subject to German inheritance and gift tax (Erbschaft- und Schenkungsteuer) if:
| (i) |
the decedent, the donor, the heir, the donee or any other beneficiary has his/her/its residence, domicile, registered office or place of management in Germany at the time of the transfer, or is a German citizen who has not stayed abroad for more than five consecutive years without having a residence in Germany, or is a non-resident German citizen employed by a legal entity organized under German public law or is a dependent having German citizenship and living in the household of such citizen, if further prerequisites are satisfied; or |
| (ii) |
irrespective of the personal circumstances the shares are held by the decedent or donor as business assets for which a permanent establishment in Germany is maintained or a permanent representative is appointed in Germany; or |
| (iii) |
irrespective of the personal circumstances at least 10% of the shares are held, directly or indirectly by the decedent or donor, himself or together with a related party in terms of Section 1 para. 2 Foreign Tax Act (Außensteuergesetz). |
Special regulations apply to qualified German citizens who maintain neither a residence nor their domicile in Germany but in a low tax jurisdiction, and to former German citizens, also resulting in inheritance and gift tax provided that certain conditions are met. The few double tax treaties on inheritance and gift tax which Germany has entered seek to prevent or mitigate a double taxation.
Abolishment of Solidarity Surcharge
The solidarity surcharge (Solidaritätszuschlag) has been partially abolished as of the assessment period 2021 for certain individuals. The solidarity surcharge shall, however, continue to apply for capital investment in general and, thus, on final withholding taxes levied. If, however, the withholding tax is not final or not levied at all, as the respective shares are held as business assets, solidarity surcharge may not be levied or levied at a reduced amount, depending on the circumstances of the individual. In addition, the solidarity surcharge continues to apply to corporations.
Other Taxes
No German capital transfer tax (Kapitalverkehrsteuer), value-added tax (Umsatzsteuer), stamp duty (Stempelgebühr) or similar taxes are levied when acquiring, holding or transferring shares in a company. No value-added tax will be levied unless the shareholder validly opts for it. Net wealth tax (Vermögensteuer) is currently not levied in Germany.
On January 22, 2013, the Council of the EU approved the resolution of the ministers of finance from 11 EU member states (including Germany) to introduce a Financial Transaction Tax (“FTT”) within the framework of enhanced cooperation. On February 14, 2013, the European Commission published a proposal for a Council Directive implementing enhanced cooperation in the area of financial transaction tax. The plan focuses on levying a tax of 0.1% (0.01% for derivatives) on the purchase and sale of financial instruments.
On December 9, 2019, the German Federal Finance Minister announced another proposal for a directive for a financial transaction tax by way of an enhanced cooperation mechanism with 9 other participating EU member states (“New FTT”). Such proposal was revised again in April 2020. In addition, the German Federal Finance Ministry further prepared the implementation of the FTT or the New FTT by the creation of a new department (Referat) within the German Federal Finance Ministry. Such new department is referred to as “Finanztransaktionssteuer” (financial transaction tax).
In February 2021, the Portuguese Presidency of the Council of the EU proposed an inclusive discussion among all EU member states on tax design issues of the FTT at EU level.
The FTT and the New FTT proposal remain subject to negotiation between the participating EU member states and are subject to political discussion. They may, therefore, be altered prior to the implementation, the timing of which remains unclear. Additional EU member states may decide to participate.
Prospective holders of the shares are advised to seek their own professional advice in relation to FTT.
U.S. Federal Income Tax Considerations
This section describes United States federal income tax considerations generally applicable to owning ordinary shares. It applies to you only if you are a U.S. holder, as defined below, and you hold your ordinary shares as capital assets for tax purposes. This discussion addresses only United States federal income taxation and does not discuss all of the tax consequences that may be relevant to you in light of your individual circumstances, including foreign, state or local tax consequences, estate and gift tax consequences, and tax consequences arising under the Medicare contribution tax on net investment income or the alternative minimum tax. This section does not apply to you if you are a member of a special class of holders subject to special rules, including:
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a broker or dealer in securities, |
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a trader in securities that elects to use a mark-to-market method of accounting for securities holdings, |
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a tax-exempt organization or governmental organization, |
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a tax-qualified retirement plan, |
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a bank, insurance company or other financial institution, |
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a real estate investment trust or regulated investment company, |
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a person that actually or constructively owns 10% or more of the combined voting power of our voting stock or of the total value of our stock, |
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a person that holds ordinary shares as part of a straddle or a hedging or conversion transaction, |
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a person that purchases or sells ordinary shares as part of a wash sale for tax purposes, |
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a U.S. holder (as defined below) whose functional currency is not the U.S. dollar, |
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a U.S. expatriate or former citizen or long-term resident of the United States, |
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a corporation that accumulates earnings to avoid U.S. federal income tax, |
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an S corporation, partnership or other entity or arrangement treated as a partnership for U.S. federal income tax purposes (and investors therein), or |
| ● | a U.S. holder that has a permanent establishment in a jurisdiction outside of the U.S., or |
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a person deemed to sell ordinary shares under the constructive sale provisions of the Internal Revenue Code of 1986. |
This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, published rulings and court decisions, all as currently in effect, as well as on the Convention Between the United States of America and Germany (the “Treaty”). These laws are subject to change, possibly on a retroactive basis.
If an entity or arrangement that is treated as a partnership for United States federal income tax purposes holds the ordinary shares, the United States federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership holding the ordinary shares should consult its tax advisor with regard to the United States federal income tax treatment of an investment in the ordinary shares.
You are a U.S. holder if you are a beneficial owner of ordinary shares and you are, for United States federal income tax purposes:
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a citizen or resident of the United States, |
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a domestic corporation, |
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an estate whose income is subject to United States federal income tax regardless of its source, or |
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a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust. |
| You should consult your own tax advisor regarding the United States federal, state and local tax consequences of owning and disposing of shares and ordinary shares in your particular circumstances. |
Except as described below under “PFIC Rules,” this discussion assumes that we are not, and will not become, a PFIC for United States federal income tax purposes.
Dividends
The gross amount of any distribution we pay out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes), other than certain pro- rata distributions of our shares, will be treated as a dividend that is subject to United States federal income taxation. If you are a noncorporate U.S. holder, dividends that constitute qualified dividend income will be taxable to you at the preferential rates applicable to long-term capital gains provided that you hold the ordinary shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and other requirements are met. Dividends we pay with respect to the ordinary shares generally will be qualified dividend income provided that, in the year that you receive the dividend, either we are eligible for the benefits of the Treaty or the ordinary shares are readily tradable on an established securities market in the United States. Our ordinary shares are not currently readily tradable on an established securities market in the United States and we cannot predict whether we will qualify for the benefits of the Treaty in any taxable year in which we distribute a dividend. It is therefore possible that any dividends that we may distribute in the future on the ordinary shares will not be treated as qualified dividend income that is subject to tax at preferential tax rates.
You must include any German tax withheld from the dividend payment in this gross amount even though you do not in fact receive it. The dividend is taxable to you when you receive the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. The amount of the dividend distribution that you must include in your income will be the U.S. dollar value of the Euro payments made, determined at the spot Euro/U.S. dollar rate on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the ordinary shares and thereafter as capital gain. However, we do not expect to calculate earnings and profits in accordance with United States federal income tax principles. Accordingly, you should expect to generally treat distributions we make as dividends.
Subject to certain limitations, the German tax withheld in accordance with the Treaty and paid over to Germany will be creditable or deductible against your United States federal income tax liability. However, under Treasury regulations, it is possible that such withholding taxes will not be creditable unless you are eligible to claim the benefits of the Treaty and elect to apply the Treaty. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the preferential tax rates. To the extent a reduction or refund of the tax withheld is available to you under German law or under the Treaty, the amount of tax withheld that could have been reduced or that is refundable will not be eligible for credit against your United States federal income tax liability. See “—Material German Tax Considerations—Dividends Tax—Withholding Tax on Dividends,” above, for the procedures for obtaining a tax refund.
Dividends will generally be income from sources outside the United States and will generally be “passive” income for purposes of computing the foreign tax credit allowable to you. However, if (a) we are 50% or more owned, by vote or value, by United States persons and (b) at least 10% of our earnings and profits are attributable to sources within the United States, then for foreign tax credit purposes, a portion of our dividends would be treated as derived from sources within the United States. With respect to any dividend paid for any taxable year, the United States source ratio of our dividends for foreign tax credit purposes would be equal to the portion of our earnings and profits from sources within the United States for such taxable year, divided by the total amount of our earnings and profits for such taxable year.
Sale or Disposition of Ordinary Shares
If you sell or otherwise dispose of your ordinary shares, you will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the amount that you realize and your tax basis in your ordinary shares. Capital gain of a noncorporate U.S. holder is generally taxed at preferential rates where the property is held for more than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.
PFIC Rules
Based on the composition of our income and valuation of our assets, including goodwill, we believe that we were not a PFIC in our taxable year ended December 31, 2023. However, this conclusion is a factual determination that is made annually and thus may be subject to change. Our position that we were not a PFIC in the 2023 taxable year was in part based on the market value of our goodwill. If the value of our ordinary shares, and thus the market value of our goodwill, has declined or declines in 2024, it is possible that we could be a PFIC in our 2024 taxable year or in a future taxable year.
In general we will be a PFIC in a taxable year if:
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at least 75% of our gross income for the taxable year is passive income, or |
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at least 50% of the value, determined on the basis of a quarterly average, of our assets is attributable to assets that produce or are held for the production of passive income. |
“Passive income” generally includes dividends, interest, gains from the sale or exchange of investment property, rents and royalties (other than certain rents and royalties derived in the active conduct of a trade or business) and certain other specified categories of income. If a foreign corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation, and as receiving directly its proportionate share of the other corporation’s income.
If we are treated as a PFIC, and you did not make a mark-to-market election, as described below, you will generally be subject to special rules with respect to:
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any gain you realize on the sale or other disposition of your ordinary shares and |
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any excess distribution that we make to you (generally, any distributions to you during a single taxable year, other than the taxable year in which your holding period in the ordinary shares begins, that are greater than 125% of the average annual distributions received by you in respect of the ordinary shares during the three preceding taxable years or, if shorter, your holding period for the ordinary shares that preceded the taxable year in which you receive the distribution). |
Under these rules:
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the gain or excess distribution will be allocated ratably over your holding period for the ordinary shares, |
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the amount allocated to the taxable year in which you realized the gain or excess distribution or to prior years before the first year in which we were a PFIC with respect to you will be taxed as ordinary income, |
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the amount allocated to each other prior year will be taxed at the highest tax rate in effect for that year, and |
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the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such year. |
Special rules apply for calculating the amount of the foreign tax credit with respect to excess distributions by a PFIC.
If we are a PFIC in a taxable year and our ordinary shares are treated as “marketable stock” in such year, you may make a mark-to-market election with respect to your ordinary shares. If you make this election, you will not be subject to the PFIC rules described above. Instead, in general, you will include as ordinary income each year the excess, if any, of the fair market value of your ordinary shares at the end of the taxable year over your adjusted basis in your ordinary shares. You will also be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of your ordinary shares over their fair market value at the end of the taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). Your basis in the ordinary shares will be adjusted to reflect any such income or loss amounts. Any gain that you recognize on the sale or other disposition of your ordinary shares would be ordinary income and any loss would be an ordinary loss to the extent of the net amount of previously included income as a result of the mark-to-market election and, thereafter, a capital loss.
Because we do not intend to provide the information necessary for a U.S. holder to comply with the requirements of a “qualified electing fund” election, such election will not be available to you with respect to your ordinary shares.
Your ordinary shares will generally be treated as stock in a PFIC if we were a PFIC at any time during your holding period in your ordinary shares, even if we are not currently a PFIC.
In addition, notwithstanding any election you make with regard to the ordinary shares, dividends that you receive from us will not constitute qualified dividend income to you if we are a PFIC (or are treated as a PFIC with respect to you) either in the taxable year of the distribution or the preceding taxable year. Dividends that you receive that do not constitute qualified dividend income are not eligible for taxation at the preferential rates applicable to qualified dividend income. Instead, you must include the gross amount of any such dividend paid by us out of our accumulated earnings and profits (as determined for United States federal income tax purposes) in your gross income, and it will be subject to tax at rates applicable to ordinary income.
If we are a PFIC and, at any time, have a foreign subsidiary that is classified as a PFIC, you generally would be deemed to own a portion of the shares of such lower-tier PFIC, and generally could incur liability for the deferred tax and interest charge described above if we receive a distribution from, or dispose of all or part of our interest in, the lower-tier PFIC or you otherwise were deemed to have disposed of an interest in the lower-tier PFIC. A mark-to-market election generally would not be available with respect to such lower-tier PFIC.
If you own ordinary shares during any year that we are a PFIC with respect to you, you may be required to file U.S. Internal Revenue Service Form 8621.
Shareholder Reporting
A U.S. holder that owns “specified foreign financial assets” with an aggregate value in excess of $50,000 (and in some circumstances, a higher threshold) may be required to file an information report with respect to such assets with its tax return. “Specified foreign financial assets” may include financial accounts maintained by foreign financial institutions, as well as the following, but only if they are held for investment and not held in accounts maintained by financial institutions: (i) stocks and securities issued by non-United States persons, (ii) financial instruments and contracts that have non-United States issuers or counterparties, and (iii) interests in foreign entities. U.S. Holders are urged to contact their tax advisors regarding the application of these filing requirements to their ownership of the ordinary shares.
THE DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE IMPORTANT TO YOU. EACH PROSPECTIVE PURCHASER SHOULD CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES OF AN INVESTMENT IN SHARES UNDER THE INVESTOR’S OWN CIRCUMSTANCES.
| F. |
Not applicable.
| G. |
Not applicable.
| H. |
As a foreign private issuer, we are subject to the informational requirements of the Exchange Act as applicable. Accordingly, we are required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal year, and are not required to disclose certain detailed information regarding executive compensation that is required from United States domestic issuers. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently as companies that are not foreign private issuers whose securities are registered under the Exchange Act. Also, as a foreign private issuer, we are exempt from the rules of the Exchange Act that require the furnishing of proxy statements to shareholders, and our senior management, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
The SEC maintains an Internet website that contains reports and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.
We also make available on our investor relations website, free of charge, our Annual Report and the text of our reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Our website address is https://ir.sonomotors.com/. The information contained on our website is not incorporated by reference in this Annual Report and our website address is included in this Annual Report as an inactive textual reference only.
Statements contained in this Annual Report regarding the contents of any contract or other document are not necessarily complete, and, where the contract or other document is an exhibit to the Annual Report, each of these statements is qualified in all respects by the provisions of the actual contract or other documents.
| I. |
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a variety of risks in the ordinary course of our business, including, but not limited to, credit risk, liquidity risk and interest rate risk. We regularly assess each of these risks to minimize any adverse effects on our business as a result of those factors. For discussion and sensitivity analyses of our exposure to these risks, see “Note 8.1 Type and management of financial risks” to the consolidated financial statements included in this Annual Report. For a discussion of the risks associated with our difficult liquidity situation due to need for substantial external financing, including the material risk that we may be unable to continue as a going concern and prevent insolvency, see “Note 8.1.3 Liquidity risk” and “Note 4.12.1 Going concern” to the consolidated financial statements included in this Annual Report and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Operations—We are an early-stage company with a history of significant losses that recently adapted its business model and expects continuing losses for the foreseeable future, which means that our ability to prevent insolvency and continue as a going concern and, if we are successful in doing so, to accomplish any of our business plans depends on our ability to imminently raise significant external financing” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Operations—There is substantial doubt about our ability to continue as a going concern, and there is a material risk that we may be liquidated”.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
| A. |
Not applicable.
| B. |
Not applicable.
| C. |
Not applicable.
| D. |
Not applicable.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
On May 15, 2023, with the filing of the preliminary insolvency, we defaulted under the Existing Convertible Debentures. This default was triggered by the Companies’ applications for the Self-Administration Proceedings under the terms of the Existing Convertible Debentures, specifically as an event of default due to the initiation of insolvency or similar proceedings by or against the Company or any of its subsidiaries. The Existing Convertible Debentures are governed by conditions that stipulate increased interest rates and potential acceleration of debt repayment following an event of default. Specifically, interest rates on the outstanding principal balance, which on the date of the filing of the preliminary insolvency was $20.0 million, increase to an annual rate of 12.0% upon the occurrence and during the continuance of any event of default. In connection with the Yorkville Investment, the Company and Yorkville entered into the Prolongation Agreement, which amended the terms of the Existing Convertible Debentures to, among other things, extend the maturity date of the Existing Convertible Debentures to July 1, 2025.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
| A. |
Disclosure Controls and Procedures Evaluation of Disclosure Controls and Procedures |
Our management, including our Chief Executive Officer/Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2023. Based on that evaluation, our Chief Executive Officer/Chief Financial Officer concluded that, as a result of the material weaknesses in our internal control over financial reporting as described below, as of December 31, 2023, our disclosure controls and procedures were not effective to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act was being recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information was being communicated to our management, including our Chief Executive Officer/Chief Financial Officer, as appropriate, to allow for timely decisions regarding the required disclosures under the Exchange Act. Notwithstanding the identified material weaknesses, our Chief Executive Officer/Chief Financial Officer has concluded that the consolidated financial statements in this Annual Report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
| B. |
Management's Annual Report on Internal Control over Financial Reporting |
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS was issued by the IASB. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Our management assessed the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission.
As disclosed in our annual report on Form 20-F for the year ended December 31, 2022, in connection with the audits of our consolidated financial statements for the years ended December 31, 2020, 2021 and 2022, we identified multiple material weaknesses in our internal control over financial reporting, which were, with respect to the material weaknesses identified in connection with the audits of our consolidated financial statements for the years ended December 31, 2019, 2020 and 2021, previously reported in our annual report on Form 20-F for the year ended December 31, 2022. As defined in the standards established by the U.S. Public Company Accounting Oversight Board, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknesses that were identified relate to (i) a lack of consistent and proper application of processes and procedures; (ii) the design and operating effectiveness of information technology general controls for information systems that are significant to the preparation of our consolidated financial statements; (iii) a lack of review and supervision; (iv) the sufficiency of resources with an appropriate level of technical accounting and SEC reporting experience; and (v) clearly defined control processes, roles and segregation of duties within our finance and accounting functions.
In light of the Companies’ successful emergence from their respective Self-Administration Proceedings and the restructuring of our businesses, we are currently planning measures to remedy such material weaknesses. In 2023, certain measures that were planned in order to remedy such material weaknesses could not be implemented as planned as a result of the Self-Administration Proceedings and the corporate measures implemented in connection with the change in our business model and the Yorkville Investment. These planned remedial measures include centralizing and increasing controls around access control, hiring additional employees with experience in public company accounting, taking steps to improve our controls and procedures including incorporating automated and software- based accounting tools, engaging third parties to support our internal resources related to accounting and internal controls, implementing additional internal training for our accounting and finance teams and investing in our finance IT systems. However, as of December 31, 2023, we are still in the process of remediating the previously identified material weaknesses. Recent changes to our business model, such as discontinuation of the Sion passenger car program, will necessitate a further review of the applicability of current processes and associated risks and controls.
Based upon the above evaluation, management, including our Chief Executive Officer/Chief Financial Officer, concluded that our internal control over financial reporting was not effective as of December 31, 2023, due to the presence of multiple material weaknesses as described above. Notwithstanding these material weaknesses, our management, based on the substantial work performed, concluded that our consolidated financial statements for the periods covered by and included in this Annual Report are fairly stated in all material respects in accordance with IFRS.
| C. |
This Annual Report does not include an attestation report of our independent registered public accounting firm. Our independent registered public accounting firm will not be required to opine on the effectiveness of our internal control over financial reporting until we are no longer an emerging growth company.
| D. |
Except as described above, there were no changes in our internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Annual Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Committees—Audit Committee.”
We have adopted a written code of business conduct and ethics, or code of conduct, which outlines the principles of legal and ethical business conduct under which we do business. The code of conduct applies to all of our management board members, supervisory board members and employees. Upon the closing of our IPO, the full text of the code of conduct was made available on our website at https://ir.sonomotors.com/. The information and other content appearing on our website are not part of this Annual Report.
In addition, we have rolled-out a compliance management policy which describes the compliance management system implemented at the Subsidiary, which is designed to ensure compliance with all legal requirements, while at the same time imposing high ethical standards that are mandatory for both management and each employee. The overall responsibility for the compliance management system lies with the compliance circle, which includes members of our management board and which reports regularly to the audit committee. In the performance of its compliance responsibilities, the management board has delegated the corresponding tasks to various functions at the Subsidiary.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our financial statements have been prepared in accordance with IFRS as issued by the IASB. Our consolidated financial statements for the year ended December 31, 2023 are audited by Grassi & Co., CPAs, P.C. (“Grassi”), acting as our independent registered public accounting firm registered with the Public Company Accounting Oversight Board in the United States.
PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (“PwC”) served as our independent registered public accounting firm for each of the two years ended December 31, 2021 and 2022, for which audited financial statements appear in this Annual Report.
The following table provides information on the aggregate fees billed by our current auditor, Grassi, and former auditor, PwC, for the years ended December 31, 2023 and 2022:
| 2023 |
2022 |
|||||||
| (€ in millions) |
||||||||
| Audit Fees(1) |
€ |
0.7 | € | 4.0 | ||||
| Audit Related Fees(2) |
- | - | ||||||
| Tax Fees(3) |
- | - | ||||||
| All Other Fees(4) |
- | - | ||||||
| Total |
0.7 |
4.0 | ||||||
| (1) |
“Audit Fees” includes fees associated with the annual audit, consultations on various accounting issues, performance of local statutory audits and comfort letters and review of offering documents filed with the SEC. |
| (2) |
“Audit Related Fees” includes fees for professional services rendered by the principal accountant and not included under the prior category. These services include, among others, fees relating to the issuance of limited assurance and other review reports in connection with our offering of securities. |
| (3) |
“Tax Fees” includes fees for professional services rendered by the principal accountant for tax compliance, advice and planning. |
| (4) |
“All Other Fees” includes fees for products and services provided by the principal accountant, other than Audit Fees and Audit-Related Fees. |
Pre-Approval Policies and Procedures
The Audit Committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by our independent registered public accounting firm. These policies generally provide that we will not engage our independent registered public accounting firm to render audit or non-audit services unless the service is specifically approved in advance by the Audit Committee or the engagement is entered into pursuant to the pre-approval procedure described below.
From time to time, the Audit Committee may pre-approve specified types of services that are expected to be provided to us by our independent registered public accounting firm during the next 12 months. Any such pre-approval is detailed as to the particular service or type of services to be provided and is also generally subject to a maximum dollar amount. The Audit Committee approved all of the services described above and determined that the provision of such services is compatible with maintaining the independence of Grassi and PwC.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASER
Not applicable.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
On January 31, 2024, PwC declined to stand for re-appointment to serve as the independent registered public accounting firm for the audits of the Company’s financial statements for the financial year ending December 31, 2023. In accordance with the Dutch civil code, on February 26, 2024, the Company engaged Grassi as the Company’s independent registered public accounting firm to audit the Company’s consolidated financial statements for the year ending December 31, 2023, and intend to appoint a new firm as the Dutch independent accounting firm to audit our Dutch statutory accounts, all to be confirmed at the next annual general meeting of shareholders of the Company. The appointment and engagement was approved by the audit committee of the Company’s supervisory board.
The audit report of PwC on the Company’s financial statements as of and for the fiscal years ended December 31, 2022 and 2021 filed with the SEC did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that PwC’s audit report on the Company’s consolidated financial statements as of and for the fiscal years ended December 31, 2022 and December 31, 2021 included an explanatory paragraph indicating that there was substantial doubt about the Company’s ability to continue as a going concern.
During the fiscal years ended December 31, 2022 and 2021, and in the subsequent interim period through January 31, 2024, (i) there were no disagreements (as defined in Item 16F(a)(1)(iv) of Form 20-F and the related instructions thereto) with PwC on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of PwC, would have caused PwC to make reference to the subject matter of the disagreement(s) in its reports on the consolidated financial statements for such years, and (ii) there were no “reportable events” (as defined in Item 16F(a)(1)(v) of Form 20-F) except for the material weaknesses in the Company’s internal controls over financial reporting disclosed in Part II, Item 15 of the Company’s Annual Report on Form 20-F for the year ended December 31, 2022 filed with the SEC on December 22, 2023.
In accordance with Item 16F(a)(3) of Form 20-F, the Company provided PwC with a copy of the above disclosure and requested that PwC furnish the Company with a letter addressed to the SEC stating whether or not it agrees with the above statements. A copy of PwC’s letter, dated March 1, 2024, was filed as Exhibit 16.1 to the Company’s Form 6-K/A, filed with the SEC on March 1, 2024.
During each of the fiscal years ended December 31, 2021 and 2022 and in the subsequent interim period through February 26, 2024, neither the Company nor anyone on behalf of the Company consulted with Grassi regarding: (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and neither a written report nor oral advice was provided to the Company that Grassi concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue, (ii) any matter that was the subject of a disagreement (as defined in Item 16F(a)(1)(iv) of Form 20-F and the related instructions thereto) or (iii) a reportable event (as described in Item 16F(a)(1)(v) of Form 20-F).
ITEM 16G. CORPORATE GOVERNANCE
Not applicable.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16J. INSIDER TRADING POLICIES
applicable.
Risk Management and Strategy
We recognize the importance of assessing, identifying and managing material risks associated with cybersecurity threats, as such term is defined in Item 16K of Form 20-F. Since our emergence from the Self-Administration Proceedings, we intend to take appropriate and reasonable steps to implement cybersecurity risk management processes, and integrate such processes into our overall business.
In response to the evolving cyber threat landscape, we have developed a cybersecurity risk management initiative. This program aims to protect our critical systems and sensitive information and is designed to maintain the confidentiality, integrity and accessibility of our systems and data. As part of our cybersecurity risk management initiative, we employ security tools and methods to proactively identify cybersecurity threats and to prevent, detect, investigate, contain, escalate and remediate risks, identified vulnerabilities and security breaches. By utilizing shared methodologies and reporting channels, we promote consistency and alignment across different risk areas.
Key components of our cybersecurity risk management program include:
| ● |
An IT Policy that outlines our IT security practices and procedures, which focus on information security, access to data, breach of policy and bolstering the security of our data assets. |
| ● |
A designated responsibility for executing internal and external mandates and implementing relevant technical and organizational measures to uphold information security standards and compliance. |
Additionally on the product and vehicle level, we constantly evaluate during the development process if our products and the integration of our products on to customers’ vehicles are relevant to cyber security threats, standards and/or regulations (e.g. automotive standards/regulations ISO/SAE 21434 and UNECE R 155).
Governance
The audit committee of our supervisory board is charged with monitoring the Companies’ application of information and communication technology, including risks relating to cybersecurity. The audit committee receives updates from management on our cybersecurity and data protection programs, including an annual update consisting of potential risks and an overview of the administration and control system of the Companies, including the state of the Companies’ cybersecurity and data protection programs, key issues, priorities and challenges.
In addition to any reports from the audit committee to the full supervisory board regarding cybersecurity, management informs and updates the full supervisory board about any significant cybersecurity incidents and any pressing risk or compliance matters.
Our management team is responsible for assessing and managing material risks from cybersecurity threats and has the primary responsibility for our overall cybersecurity risk management program. Our management team supervises efforts to prevent, detect, mitigate and remediate cybersecurity threats and incidents through various means, which may include briefings from relevant employees, threat intelligence and other information obtained from governmental, public, or private sources; and alerts and reports produced by security tools deployed in the IT environment.
As of the date of this Annual Report, the Company is not aware of any active cybersecurity threats that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations or financial condition. For additional information concerning risks related to cybersecurity, see “Item 3. Key Information—D. Risk Factors—Interruption or failure of information technology and communications systems could disrupt our business and affect our ability to effectively provide our services”.
We have elected to provide financial statements and related information pursuant to Item 18. Financial Statements.
The audited consolidated financial statements as required under Item 18 are attached hereto starting on page F-1 of this Form 20-F.
| Exhibits | Description |
| CEO/CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
| Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
| Consent of PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft |
|
| 101.INS |
Inline XBRL Instance Document |
| 101.SCH |
Inline XBRL Schema Documents |
| 101.CAL |
Inline XBRL Calculation Linkbase Document |
| 101.LAB |
Inline XBRL Label Linkbase Document |
| 101.PRE |
Inline XBRL Presentation Linkbase Document |
| 101.DEF |
Inline XBRL Definition Linkbase Document |
| 104 |
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
* Filed herewith.
** Furnished herewith
† Certain information has been omitted in accordance with Instruction 4 to Item 19 of Form 20-F.
(1) This exhibit contains a typographical error with respect to “Bambino 225. V V UG”. The correct legal name is “Bambino 255. V V UG”.
SIGNATURES
The Registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SONO GROUP N.V. | ||
| By: | /s/ George O’Leary | |
| Name: George O’Leary | ||
| Title: Chief Executive Officer, Chief Financial Officer and Member of the Management Board | ||
| Date: June 21, 2024 | ||
SONO GROUP N.V.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2023 AND 2022 AND FOR EACH OF THE
THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2023
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Supervisory Board and
Shareholders of Sono Group N.V.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Sono Group N.V. (the “Company”) as of December 31, 2023, and the related consolidated statements of income (loss), comprehensive income (loss), changes in equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year then ended, in conformity with International Financial Reporting Standards, as issued by the International Accounting Standards Board.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4.12.1 to the financial statements, the Company (i) has incurred losses and negative cash flows from operations since inception, (ii) has an accumulated deficit and negative equity, (iii) is dependent on its ability to comply with the terms of certain investment related agreements to access the unfunded amounts provided for therein or obtain alternative financing, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 4.12.1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/
We have served as the Company’s auditor since 2024.
June 21, 2024
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Supervisory Board and Shareholders of Sono Group N.V.
Opinion on the Financial Statements
We have audited the consolidated balance sheet of Sono Group N.V. and its subsidiary (the “Company”) as of December 31, 2022, and the related consolidated statements of income (loss), comprehensive income (loss), changes in equity and cash flows for each of the two years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4.12.1 to the consolidated financial statements, the Company (i) incurred recurring losses and cash outflows from operations, (ii) has an accumulated deficit and negative equity, (iii) initiated insolvency proceedings for itself and its sole subsidiary, Sono Motors GmbH, with the insolvency court of the local court of Munich, Germany on May 15, 2023 and has yet to emerge from the insolvency proceedings and (iv) is dependent on the closing of certain investment related agreements and the related cash inflows as well as additional financing to run the restructured business. These events and conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 4.12.1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Munich, Germany
December 22, 2023
PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft
/s/ Alexander Fiedler /s/ ppa. Sylvia Eichler
Wirtschaftsprüfer Wirtschaftsprüferin
(German Public Auditor) (German Public Auditor)
We have served as the Company's auditor from 2020 to 2023.
Consolidated Statements of Income (loss) and
Statements of Comprehensive Income (loss)
| Note | 2023 | 2022 | 2021 | |||||||||||||
| kEUR | kEUR | kEUR | ||||||||||||||
| Revenue | 6.1 | |||||||||||||||
| Cost of goods sold | 6.1 | ( | ) | ( | ) | ( | ) | |||||||||
| Gross loss | ( | ) | ( | ) | ( | ) | ||||||||||
| Cost of development expenses | 6.2 | ( | ) | ( | ) | ( | ) | |||||||||
| Selling and distribution expenses | 6.3 | ( | ) | ( | ) | ( | ) | |||||||||
| General and administrative expenses | 6.4 | ( | ) | ( | ) | ( | ) | |||||||||
| Other operating (expenses)/income | 6.6 | ( | ) | ( | ) | |||||||||||
| Deconsolidation gain | 6.7 | |||||||||||||||
| Impairment reversals/(losses) on financial assets | ( | ) | ||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest and similar income | 6.8 | |||||||||||||||
| Interest and similar expense | 6.9 | ( | ) | ( | ) | ( | ) | |||||||||
| Loss before tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Taxes on income | 6.10 | |||||||||||||||
| Deferred taxes expense | 6.10 | ( | ) | |||||||||||||
| Loss for the period | ( | ) | ( | ) | ( | ) | ||||||||||
| Other comprehensive income that will not be reclassified to profit or loss | ||||||||||||||||
| Total comprehensive loss for the period | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss per share in EUR | 9.4 | |||||||||||||||
| Basic/diluted |
|
|
| |||||||||||||
| Weighted average number of shares for calculation of earnings per share | ||||||||||||||||
| Basic/diluted | ||||||||||||||||
| Note | Dec. 31, 2023 | Dec. 31, 2022 | ||||||||||
| kEUR | kEUR | |||||||||||
| ASSETS | ||||||||||||
| Noncurrent assets | ||||||||||||
| Intangible assets | 7.1 | |||||||||||
| Property, plant and equipment | 7.2 | |||||||||||
| Right-of-use assets | 7.3 | |||||||||||
| Other financial assets | 7.4 | |||||||||||
| Other non-financial assets | ||||||||||||
| Current assets | ||||||||||||
| Work in progress | ||||||||||||
| Other financial assets | 7.5 | |||||||||||
| Other non-financial assets | 7.6 | |||||||||||
| Cash and cash equivalents | 7.7 | |||||||||||
| Total assets | ||||||||||||
| EQUITY AND LIABILITIES | ||||||||||||
| Equity | 7.8 | |||||||||||
| Subscribed capital | ||||||||||||
| Capital and other reserves | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||||
| ( | ) | ( | ) | |||||||||
| Noncurrent liabilities | ||||||||||||
| Advance payments received from customers | 7.9 | |||||||||||
| Financial liabilities | 7.10 | |||||||||||
| Other non-financial liabilities | 7.11 | |||||||||||
| Current liabilities | ||||||||||||
| Advance payments received from customers | 7.9 | |||||||||||
| Financial liabilities | 7.10 | |||||||||||
| Trade and other payables | 7.12 | |||||||||||
| Other liabilities | 7.13 | |||||||||||
| Provisions | 7.14 | |||||||||||
| Total equity and liabilities | ||||||||||||
Consolidated Statements of Changes in Equity
| Note | Subscribed capital | Capital | Other reserves | Accumulated deficit | Total | |||||||||||||||||||
| kEUR | kEUR | kEUR | kEUR | kEUR | ||||||||||||||||||||
| Equity on January 1, 2021 | | | | ( | ) | ( | ) | |||||||||||||||||
| Capital increase | ||||||||||||||||||||||||
| Institutional investors* | 7.8 | | | - | - | | ||||||||||||||||||
| Issue of bonus shares | 7.8 | | ( | ) | - | - | - | |||||||||||||||||
| IPO** | 7.8 | | | - | - | | ||||||||||||||||||
| Fair Value Measurement Convertible Bond | 7.10.1 | - | - | | - | | ||||||||||||||||||
| Conversion of Convertible Bond | 7.10.1 | | | | ( | ) | | |||||||||||||||||
| Share-based compensation | 9.3 | - | - | | - | | ||||||||||||||||||
| Settlement payment to owner | 7.10.1 | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||
| Equity on December 31, 2021 | | | | ( | ) | | ||||||||||||||||||
| Note | Subscribed capital | Capital | Other reserves | Accumulated deficit | Total | |||||||||||||||||||
| kEUR | kEUR | kEUR | kEUR | kEUR | ||||||||||||||||||||
| Equity on January 1, 2022 | | | | ( | ) | | ||||||||||||||||||
| Capital increase |
| |||||||||||||||||||||||
| Public offering*** | 7.8 | | | - | - | | ||||||||||||||||||
| Committed equity facility**** | 7.8 | | | - | - | | ||||||||||||||||||
| Convertible debentures conversion | 7.8 | | | - | - | | ||||||||||||||||||
| Exercise of share options | 9.3 | | | ( | ) | - | | |||||||||||||||||
| Share-based compensation | 9.3 | - | - | | - | | ||||||||||||||||||
| Loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||
| Equity on December 31, 2022 | | | | ( | ) | ( | ) | |||||||||||||||||
| Note | Subscribed capital | Capital | Other reserves | Accumulated deficit | Total | |||||||||||||||||||
| kEUR | kEUR | kEUR | kEUR | kEUR | ||||||||||||||||||||
| Equity on January 1, 2023 | | | | ( | ) | ( | ) | |||||||||||||||||
| Capital increase |
| |||||||||||||||||||||||
| Convertible debentures conversion | 7.8 | | | - | - | | ||||||||||||||||||
| Exercise of share options | 9.3 | | | ( | ) | - | | |||||||||||||||||
| Share-based compensation | 9.3 | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||
| Equity on December 31, 2023 | | | | ( | ) | ( | ) | |||||||||||||||||
| * |
transaction costs of kEUR 17 were deducted from capital reserve |
| ** |
transaction costs of kEUR 2,825 less deferred taxes of kEUR 18 were deducted from capital reserve |
| *** |
transaction costs of kEUR 842 were deducted from capital reserve |
| **** |
transaction costs of kEUR 771 were deducted from capital reserve |
Consolidated Statements of Cash Flows
| 2023 | 2022 | 2021 | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Operating activities | ||||||||||||
| Loss for the period | ( | ) | ( | ) | ( | ) | ||||||
| Adjustments for: | ||||||||||||
| Depreciation of property, plant and equipment | ||||||||||||
| Impairment of property, plant and equipment | ||||||||||||
| Depreciation of right-of-use assets | ||||||||||||
| Impairment of right-of-use assets | ||||||||||||
| Amortization of intangible assets | ||||||||||||
| Impairment of intangible assets | ||||||||||||
| Expenses for share-based payment transactions | ( | ) | ||||||||||
| Deconsolidation gain | ( | ) | ||||||||||
| Other non-cash (income)/expenses | ( | ) | ||||||||||
| Interest and similar income | ( | ) | ( | ) | ||||||||
| Interest and similar expense | ||||||||||||
| Movements in provisions | ||||||||||||
| Decrease/(Increase) in other assets | ( | ) | ( | ) | ||||||||
| Increase in trade and other payables | ||||||||||||
| (Decrease)/Increase in advance payments received from customers | ( | ) | ||||||||||
| Interest paid | ( | ) | ( | ) | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ( | ) | ||||||
| Investing activities | ||||||||||||
| Deconsolidation of Subsidiary cash balance | ( | ) | ||||||||||
| Purchase of intangible assets | ( | ) | ( | ) | ||||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ( | ) | ||||||
| Financing activities | ||||||||||||
| Transaction costs on issue of shares to institutional investors | ( | ) | ||||||||||
| Proceeds from issue of shares to institutional investors | ||||||||||||
| Transaction costs on issue of shares in IPO | ( | ) | ||||||||||
| Proceeds from issue of shares in IPO | ||||||||||||
| Transaction costs on issue of shares from public offering | ( | ) | ||||||||||
| Proceeds from issue of shares on public offering | ||||||||||||
| Transaction costs on issue of shares from committed equity facility | ( | ) | ||||||||||
| Proceeds from issue of shares on committed equity facility | ||||||||||||
| Proceeds from issue of shares on stock option scheme | ||||||||||||
| Proceeds from convertible debentures | ||||||||||||
| Transaction costs for convertible debentures | ( | ) | ||||||||||
| Repayments of borrowings | ( | ) | ||||||||||
| Payment of principal portion of lease liabilities | ( | ) | ( | ) | ( | ) | ||||||
| Net cash (used in)/from financing activities | ( | ) | ||||||||||
| Net (decrease) increase in cash and cash equivalents | ( | ) | ( | ) | ||||||||
| Effect of currency translation on cash and cash equivalents | ( | ) | ( | ) | ||||||||
| Cash and cash equivalents at the beginning of the financial year | ||||||||||||
| Cash and cash equivalents at end of year | ||||||||||||
Notes to the Consolidated
Financial Statements
| 1. | General information |
Sono Group N.V. (“Sono N.V.” or the “Company”) is registered in the business register (Netherlands Chamber of Commerce) and its corporate seat is in Amsterdam. In November 2021, the Company successfully completed an initial public offering (IPO) and became listed on the Nasdaq Stock Market (“Nasdaq”), traded under the ticker symbol “SEV” since November 17, 2021. On December 11, 2023, Sono N.V. received notice from the Nasdaq Hearings Panel that the Company’s ordinary shares will be delisted from the Nasdaq. Nasdaq filed a Form 25 Notification of Delisting with the U.S. Securities and Exchange Commission (the “SEC”) on February 15, 2024 to complete the delisting.
The Company has its management in the United States of America since January 31, 2024. Prior to this date, the Company had its management based in Germany. The business address is Waldmeisterstraße 93, 80935 Munich, Germany (trade register number: 80683568). Sono N.V.’s sole and wholly-owned subsidiary, Sono Motors GmbH (“Sono Motors” or the “Subsidiary”), is registered in the commercial register (Handelsregister) at the local court (Amtsgericht) of Munich, Germany, under HRB 224131. Sono Motors’ registered headquarters is Waldmeisterstraße 93, 80935 Munich, Germany. Sono N.V. is the ultimate parent of the Group. Hereinafter, Sono N.V. and its consolidated subsidiary collectively are referred to as “Sono Group”, or the “Group”, “Management”, “we” and “us”.
Sono Group intended to develop and manufacture electric vehicles with integrated solar panels (the “Sion passenger car program). In addition, it planned to license its solar technology to other Original Equipment Manufacturers (OEMs). However, on February 24, 2023, Sono Group announced the decision to terminate the Sion passenger car program and to pivot the business model to exclusively retrofitting and integrating Sono Group’s solar technology onto third party vehicles due to lack of available funding.
| 1.1 | Insolvency proceedings |
On May 15, 2023, based on management’s conclusion that the Company was over-indebted and faced impending illiquidity (drohende Zahlungsunfähigkeit), the Company applied to the insolvency court of the local court of Munich, Germany (the “Court”) to permit the opening of self-administration proceedings (Eigenverwaltung) with respect to the Company pursuant to Section 270 (b) of the German Insolvency Code (Insolvenzordnung). On the same day and for the same reason, the Subsidiary applied to the Court to permit the opening of self-administration proceedings in the form of a protective shield proceeding (Schutzschirmverfahren). The applications for the opening of the self-administration proceedings with respect to the Company and the Subsidiary (the “Self-Administration Proceedings), in each case, were made with the goal of sustainably restructuring the business of both Companies. On May 17, 2023 and May 19, 2023, the Court admitted the opening of the Self-Administration Proceedings with respect to Sono Group N.V. and Sono Motors GmbH, respectively, on a preliminary basis (the “Preliminary Self-Administration Proceedings”). On September 1, 2023, the Court opened the Self-Administration Proceedings with respect to the Subsidiary beyond the preliminary stage (the “Subsidiary Self-Administration Proceedings”).
YA PN II, Ltd. (“Yorkville”), the Company’s main creditor apart from the Subsidiary, started negotiations in the course of the Self-Administration Proceedings regarding a new investment. In connection with those discussions, in November 2023, Sono Group N.V. and Yorkville entered into certain investment-related agreements, including a restructuring agreement (as amended from time to time, the “Restructuring Agreement”) and a funding commitment letter (as amended from time to time, the “Funding Commitment Letter” and together with the Restructuring Agreement and the ancillary agreements entered into in connection therewith, the “Yorkville Agreements”), pursuant to which Yorkville committed to provide financing to the Company (the “First Commitment”) subject to the Companies’ continued compliance with the terms of the Yorkville Agreements. The aim of the Yorkville Agreements and the transactions contemplated therein (the “Transactions”) was the planned restructuring of Sono Group N.V. and Sono Motors GmbH, with the intention of enabling the Company to withdraw its application for its Preliminary Self-Administration Proceedings and enabling the Subsidiary to exit the Subsidiary Self-Administration Proceedings via a plan (the “Plan”) under the German Insolvency Code that set out how the Subsidiary intended to restructure its debt and procure the inflow of new money, including in connection with the Yorkville Investment (as defined herein), and subsequently exit the Subsidiary Self-Administration Proceedings. The Plan was filed with the Court on December 7, 2023 for approval by the Subsidiary’s creditors and subsequent confirmation by the Court. Approval by the creditors and confirmation by the Court was obtained in the creditors meeting on December 21, 2023, and the Court confirmed on January 26, 2024 that the Plan became legally binding. On January 31, 2024, the Company withdrew its application for its Preliminary Self-Administration Proceedings with the Court. The Subsidiary exited its Self-Administration Proceedings on February 29, 2024. For more detail see note 9.7.1 Exit from insolvency and note 9.7.3 Funding and restructuring.
| 2. | Basis of preparation of consolidated financial statements |
The consolidated financial statements of Sono Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), and are presented in euro, which is also the Group’s functional currency. Unless otherwise stated, all amounts are presented in thousands of euros (“kEUR”).
The significant accounting policies adopted in the preparation of these consolidated financial statements are described below. These accounting policies have been consistently applied to all years presented.
The Group determines the functional currency of each entity, and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions are initially translated at the spot rate applicable between the functional currency and the foreign currency on the date of the transaction. Monetary assets and liabilities in foreign currencies are translated to the functional currency using the prevailing rate at the reporting date. Foreign currency exchange differences are recognized in profit or loss.
The preparation of consolidated financial statements requires the use of certain accounting estimates. The areas that require a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed below. The statements of income or loss were prepared using the cost of sales method. All figures shown are rounded, so minor discrepancies may arise from addition of these amounts.
These consolidated financial statements are prepared on a historical cost basis, except where certain assets or liabilities are held at amortized cost or at fair value as described in the accounting policies, and under the going concern assumption. The going concern assumption contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The consolidated financial statements do not reflect any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary if the Group is unable to continue as a going concern. For the significant accounting judgments, estimates and assumptions made by Management regarding the going concern, see note 4.12.1 Going concern.
The consolidated financial statements as of December 31, 2023, have been authorized by the management board on June 21, 2024.
Standards issued but not yet effective
Certain new accounting standards and interpretations have been published that are not mandatory for the consolidated financial statements as of December 31, 2023, and have not been early adopted by Sono Group. These standards are not expected to have a material impact on Sono Group’s consolidated financial statements in the current or future reporting periods and on foreseeable future transactions.
| Mandatory for fiscal years | |
| IAS 1 Classification of liabilities as current or non-current (Amendments) | January 1, 2024 |
| IAS 7 and IFRS 7 supplier finance arrangements (Amendments) | January 1, 2024 |
| IFRS 16 Leases on sale and leaseback (Amendments) | January 1, 2024 |
Standards adopted in 2023
All standards or amendments made to the existing standards that have been issued by the International Accounting Standards Board and which were effective by January 1, 2023, were not applicable or material to the consolidated financial statements of the Group.
| 3. | Basis of consolidation |
The consolidated financial statements reflect the assets, liabilities and results of operations of Sono N.V. and its wholly-owned subsidiary Sono Motors, over which Sono N.V. had control. Control over an entity exists when Sono N.V. is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Sono Motors was fully consolidated until Sono N.V. On May 19, 2023, Sono N.V. lost control of Sono Motors due to the opening of the self-administration proceedings and the appointment of a custodian (Sachwalter). After this event, Sono N.V. no longer had the power to direct the activities of Sono Motors. The results of Sono Motors are consolidated up until the loss of control in the consolidated financial statements. In accordance with IFRS 10 Consolidated Financial Statements, Sono Group derecognized the assets and liabilities of Sono Motors from the consolidated statement of financial position, which led to significant movements in the assets and liabilities. The interest in Sono Motors is accounted for as a financial instrument in Sono N.V. with a fair value of zero. The asset and liability balances that Sono N.V. had with Sono Motors were previously intercompany and therefore eliminated on consolidation. These balances were reinstated. Due to a hard comfort letter between Sono N.V. and Sono Motors, Sono N.V. then recognized a parental guarantee provision (see accounting policies and note 7.14 Provisions). Control was obtained again once Sono Motors exited the self-administration proceedings on February 29, 2024, and therefore Sono Motors will be consolidated once again on this date within the Group. For further detail on the consolidation see note 9.7.2 Regaining control of the Subsidiary.
The fiscal year of both Group entities corresponds to the calendar year ending December 31.
The assets and liabilities of both companies included in the consolidated financial statements are recognized in accordance with the uniform accounting policies used within the Sono Group, which complies with IFRS as issued by the IASB.
For periods of consolidation, 2021 and 2022, the consolidation process involved adjusting the items in the separate financial statements of the parent and its subsidiary and presenting them as if they were those of a single economic entity. Therefore, all intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Sono Group were eliminated upon consolidation.
Deferred taxes, if any, are recognized for consolidation adjustments, and deferred tax assets and liabilities are offset where taxes are levied by the same tax authority and have the same maturity.
| 4. | Significant accounting policies |
| 4.1 | Revenue |
Sono Group recognizes revenues primarily from the integration of Sono Motors patented solar technology across other transportation platforms and from the Sono app, which provides an in-app booking and payment system and optional additional insurance.
Revenues are recognized when control of the goods and services is transferred to the customer, being generally when the customer gains the ability to direct the use of the goods and services and obtains substantially all of the remaining benefits from them. The amount of revenue recognized equals the amount of consideration the Group expects to receive in exchange for the goods and services. Sono Group acts as a principal in all sales transactions because it has control over the goods and services before transferring control to customers.
A receivable is recognized when the goods and services are delivered or are ready for use as this is the point in time that the consideration is unconditional because only the passage of time is required before payment is due. Goods and services transferred are accounted for as separate performance obligations if they are distinct (i.e., the customer can benefit from the goods or services on its own or together with other resources readily available to the customer and the promise to transfer the good or service is separately identifiable from other promises in the contract). Performance obligations may be satisfied over time or at a point in time. Performance obligations are satisfied over time when the customer simultaneously receives and consumes the benefits resulting from the Group’s performance as the Group performs, when the Group creates or enhances an asset while the customer controls it or when the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. For such performance obligations, the Group recognizes revenue in line with the progress towards complete satisfaction of the performance obligation. While the information required to measure directly and faithfully the output transferred to the customer to date is not readily available, the work required to satisfy the Group’s performance obligations usually has a direct relation to satisfaction progress. Therefore, progress is measured based on the Group’s input in relation to the total amount of input the Group expects is necessary to fulfill the performance obligation, (i.e., on a cost-to-cost basis). Performance obligations that are not satisfied over time are satisfied at a point in time. Such obligations are satisfied when the customer obtains control of the asset or service, typically when the customer accepts delivery of the integrated asset or in-app services are ready for use by the customer.
Contract liabilities are the obligations of the Company to transfer goods to a customer for which the Company has received consideration from the customer. If a customer pays consideration before the Company transfers goods, a contract liability is recognized. Contract liabilities are recognized as revenue when the Company performs its performance obligations under the contract. Sono Group N.V. expects to recognize revenue within the next 12 months; therefore, it is classified as a current liability.
Transaction prices do not include any variable amounts or significant financing components. Payment generally is due within 30 days after Sono Group has fulfilled its performance obligation. Regarding the treatment of advance payments from customers, please refer to note 4.8 Advance payments received from customers.
No significant judgment is required to assess the timing of satisfaction of the Group’s performance obligations, the transaction price or the amounts allocated to distinct performance obligations. Obligations regarding returns or warranties do not arise from revenues.
4.2 | Grants from government agencies and similar bodies |
Sono Group receives grants from government agencies and similar bodies like the European Union for participation in specific development projects. The grants are recognized when there is reasonable assurance that the grant will be received, and all grant conditions will be met. If grant funds are received prior to qualifying expenses being incurred or assets purchased, they are deferred and recognized in other liabilities. If the funds reimburse expenses and have been received, the liability is amortized into other operating income on a systematic basis over the period in which the Group incurs the corresponding expenses. If the funds reimburse purchased assets, the liability is reduced with a corresponding amount deducted from the asset’s carrying amount upon recording of the qualified asset.
4.3 | Financial instruments |
Initial recognition
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Sono Group initially recognizes financial instruments when it becomes party to the contractual provisions of the instrument. Regular way purchases and sales of financial assets are recognized on settlement date (i.e., the date that an asset is delivered to or by an entity).
Offsetting of financial assets and financial liabilities
Financial assets and liabilities are only offset if offsetting the amounts is legally enforceable at the current time and if there is an actual intention to offset. In general, the Group does not offset financial assets and liabilities and no material offsetting potential exists.
4.3.1 | Financial assets |
Initial measurement
Sono Group’s financial assets include cash and cash equivalents, security deposits and other financial receivables. At initial recognition, Sono Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset.
Subsequent measurement
After the initial measurement, financial assets are subsequently classified into one of the following categories:
| > | financial assets at fair value through profit or loss (FVTPL); |
| > | financial assets at fair value through other comprehensive income (FVOCI, debt instruments); |
| > | financial assets at fair value through other comprehensive income (FVOCI, equity instruments); and |
| > | financial assets at amortized cost (AC). |
The classification depends on the financial asset’s contractual cash flow characteristics and the business model (‘hold to collect’, ‘hold to collect and sell’ and ‘other’) for managing them. The cash flow characteristics are assessed at an instrument level, whereas the business model is assessed on portfolio level. Under the business model ‘hold to collect’, the Group holds a financial instrument only to collect contractual cash flows. Under the business model ‘hold to collect and sell’, the Group would hold a financial instrument both to collect contractual cash flows and to receive economic benefits from selling these instruments. All other debt instruments would be held under the business model ‘other’. Debt instruments that are held under the business model ‘hold to collect’, where those contractual terms give rise to cash flows that are solely payments of principal and interest (SPPI) on the outstanding principal amount, are measured at amortized cost. Financial assets that are held under the business model ‘hold to collect and sell’, where the SPPI criterion is met, are measured at FVOCI. All other debt instruments are measured at FVTPL. Derivatives are instruments that are always measured at FVTPL Additionally, IFRS 9 allows for optional measurement at FVTPL if using the option significantly reduces a measurement or recognition inconsistency (accounting mismatch). Sono Group does not use this option.
Equity instruments are measured at FVTPL, because they do not meet the SPPI criterion. However, if they are not held for trading and the Group uses the FVOCI option upon recognition, equity instruments may be measured at FVOCI. The Group does not use the FVOCI option.
As of the reporting date, all financial assets are to be measured at amortized cost as the Group only holds debt instruments and these are held within the business model ‘hold to collect’ and have passed the SPPI-test.
Financial assets at amortized cost are subsequently measured using the effective interest rate (EIR) method and are subject to impairment. Gains and losses from derecognition, modification, and interest income are recognized in profit or loss (interest and similar income/expense). Changes in the loss allowance and any impairments are recognized in profit or loss (impairment reversals/(losses) on financial assets).
Derecognition
Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.
Impairment
IFRS 9 requires recognizing expected credit losses (ECLs) for debt financial assets measured at amortized cost or at FVOCI, lease receivables and contract assets. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that Sono Group expects to receive, discounted at the original EIR. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
For the calculation of impairment losses, IFRS 9 distinguishes between the general approach and the simplified approach.
Under the general approach, financial assets are allocated to one of three stages. Sono Group generally presumes all financial assets that are 30 days past due to have a significant increase in credit risk and accounts for expected losses over the remaining lifetime of those financial assets. For financial assets not yet credit-impaired at initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (12-month ECL, Stage 1). In subsequent measurement, for credit exposures for which there has not been a significant increase in credit risk since initial recognition, 12-month ECL are provided. For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (lifetime ECL, Stage 2). Financial assets with objective evidence of impairment are allocated to Stage 3, for which also lifetime expected credit losses are calculated.
Sono Group applies the general approach unless the simplified approach is required. The simplified approach is required for trade receivables or contract assets resulting from transactions within the scope of IFRS 15 that do not contain a significant financing component. Under the simplified approach, the loss allowance is always measured over the remaining life of the exposure (lifetime ECL, Stage 2). In addition, the simplified approach also requires loss allowances in case an objective indication of default is present (credit-impaired financial assets; Stage 3).
Sono Group decided to test all financial assets, regardless of their maturity, individually for expected credit loss, using reasonable and supportable historic and forward-looking information.
4.3.2 | Financial liabilities |
Initial measurement
Sono Group’s financial liabilities include lease liabilities, loans from private investors, convertible debentures (host contract and embedded derivatives), and trade and other payables. Regarding lease liabilities, please refer to note 4.6.2 Lease liabilities.
Sono Group analyzes all contracts to determine whether the underlying contracts are debt or equity.
All financial liabilities in the scope of IFRS 9 are initially measured at their fair value minus, in the case of financial liabilities not at FVTPL, transaction costs that are directly attributable to the issue of the financial liabilities. In the case of financial liabilities at FVTPL, transaction costs are directly recognized in profit or loss.
When the fair value of the financial liabilities differs from the transaction price at initial recognition, and the fair value is not evidenced by a quoted price or based on a valuation technique that uses data only from observable markets, Sono Group adjusts the measurement to defer this difference (“deferred day-one profit or loss”).
IFRS requires that a compound financial instrument, i.e., a financial instrument containing both equity and debt instruments, shall be split into the equity instrument and the debt instrument upon initial recognition. For a financial instrument that grants a conversion right, classification of any component as equity instrument is only allowed if the conversion features of the loan lead to a conversion of a fixed amount into a fixed number of shares.
Some contracts do not only contain a single debt instrument but both a non-derivative host and a derivative, such that some of the cash flows of the combined instrument vary in a way similar to a standalone derivative (so called “hybrid contracts”). A derivative is a financial instrument or contract within the scope of IFRS 9 whose value changes in response to the change of a specific underlying, that requires no or only a comparably small initial investment, and that is settled at a future date. For hybrid contracts that contain a debt instrument as host, IFRS require that the embedded derivative be separated (“bifurcated”) from the host and accounted for as a separate derivative if (a) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics of the host, and (b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and (c) the hybrid contract is not measured at FVTPL. Bifurcation takes place at initial recognition and a reassessment of the bifurcation requirement only occurs if there is a change in the terms of the contract that significantly modifies the cash flows.
Alternatively, IFRS allows for an optional classification of a financial liability measured at FVTPL if a contract contains one or more embedded derivatives, unless the embedded derivative(s) do(es) not significantly modify the contractual cash flows or it is clear with little or no analysis at the time of the contract’s first recognition that a separation of the embedded derivatives is prohibited (“FVTPL option”). Accordingly, if the FVTPL option is exercised, bifurcation is not required.
In the current and previous financial years, Sono Group has identified three kinds of hybrid financial instruments that contain a debt instrument as the host as well as embedded derivatives: mandatory convertible notes that were issued in 2020, convertible debentures that were issued in December 2022 (“2022 convertible debentures”) and the modification of these convertible debentures in 2023 (“modified convertible debentures”). For each of these contracts, the conversion rights were assessed as a debt instrument, because the conversion rights do not grant the right to convert a fixed amount into a fixed number of shares. For the Mandatory Convertible Notes, the Group exercised the FVTPL option. Hence, the whole hybrid contract was accounted for at FVTPL.
For the 2022 convertible debentures, bifurcation was performed for the host contract, on the one hand, and the embedded derivatives, on the other hand. For each tranche, the host contract was accounted for at amortized cost, while the embedded derivatives were accounted for at FVTPL. As the embedded derivatives are interdependent and as such share closely related economic characteristics and the same risk exposure, they were combined for measurement purposes. Furthermore, at initial recognition, the fair value of the convertible debentures differed from their transaction price, so a day-one loss was deferred upon initial recognition to account for this difference.
In November 2023, the contractual terms of the 2022 convertible notes were renegotiated and significantly amended. For the modified convertible debentures recognized in 2023, bifurcation was performed for the host contract, on the one hand, and the embedded derivatives, on the other hand. The host contract was accounted for at amortized cost, while the embedded derivatives were accounted for at FVTPL. As the embedded derivatives are interdependent and as such share closely related economic characteristics and the same risk exposure, they were combined for measurement purposes. Furthermore, at initial recognition, the fair value of the convertible debentures differed from their transaction price, so a day-one gain was deferred upon initial recognition to account for this difference.
For an explanation of the characteristics of the convertible debentures and the associated accounting estimates, see note 4.12.2 Convertible debentures.
Subsequent measurement
The measurement of financial liabilities of Sono Group depends on their classification as follows:
| 1. | Financial liabilities at FVTPL: After initial recognition, these liabilities are measured at fair value. Gains and losses are recognized in profit or loss (interest and similar income/expense). |
| 2. | Financial liabilities measured at amortized cost: After initial recognition, these liabilities are measured at amortized cost using the EIR method. Amortized cost is calculated by considering all fees and points paid or received between parties to the contract that are an integral part of the EIR, transaction costs, and all other premiums or discounts that are an integral part of the EIR. Amortization according to the EIR method is included in interest expenses in profit or loss. |
Initial recognition of deferred day-one gains or losses is determined individually and matches the time of recognition of the associated financial instrument. The amortization of the deferred day-one gains or losses takes place to the extent that it arises from a change in a factor (including time) that market participants would consider in setting a price. The deferred day-one gains or losses from the convertible debentures are amortized pro rata on a straight-line basis over the time horizon of expected conversions.
As of the end of the 2022 reporting period, conversions were expected until the end of May 2023 for the 2022 convertible debentures. According to management's assessment of the facts and circumstances, the main important factor is the timing of the conversions. Based on the assumed conversion schedule as of December 31, 2022, these were assumed to take place constantly until the end of May 2023. As a result, a linear amortization until the end of May 2023 was concluded to be most appropriate. The amortization amounts of the deferred day-one losses are included in interest and similar expenses.
As of the end of the 2023 reporting period, conversions for the modified convertible debentures were expected based on a three-scenario approach which models the occurrence of conversions until the end of October 2024 (
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or canceled or expires. When an existing financial liability is replaced by another one from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference between the carrying amount of a financial liability (or part of a financial liability) extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss. Terms are substantially different if the discounted present value of the cash flows under the new terms, considering the net effect of fees between borrower and lender and discounted using the original effective interest rate, is at least 10 per cent different from the discounted present value of the remaining cash flows of the original financial liability.
When the expected cash flows of an existing financial liability are renegotiated or otherwise modified and the renegotiation or modification do not result in derecognition of the financial liability, the amortized cost of the liability is recalculated. When Sono Group revises its estimates of payments it adjusts the amortized cost of the financial liability to reflect the actual and revised estimated contractual cash flows. In both cases, amortized cost is recalculated as the present value of the (updated) estimated contractual cash flows, using the original effective interest rate. Any resulting catch-up adjustment is recognized in profit or loss.
In November 2023, the contractual terms of the 2022 convertible notes were renegotiated and significantly amended. The amendment resulted in substantially different terms of the contract and, consequently, in derecognition of the original financial liability. A new financial liability, the modified convertible debentures, was recognized.
4.4 | Intangible assets |
| 4.4.1 | Internally generated intangible assets |
In accordance with IAS 38, research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding are expensed as incurred. In the current and prior periods, Sono Group has not undertaken any research activities.
Development costs for future series products and other internally generated intangible assets may be capitalized at cost if they are directly attributable to the design and testing of identifiable and unique products controlled by Sono Group and the criteria of IAS 38.57 are met. Capitalized development costs then must include all direct costs that are attributable to the development process. If the criteria for recognition of assets are not met, the expenses are recognized in profit or loss in the year in which they are incurred. As of the end of the reporting period as well as in previous years, the criteria for capitalization of development costs have not been met. Consequently, all development costs were recognized in profit or loss as incurred.
| 4.4.2 | Acquired intangible assets |
Acquired intangible assets are recognized when received and are initially measured at cost and amortized over their useful life using the straight-line method.
Subsequent measurement
Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. The recognition of impairment losses requires the prior identification of triggering events. In 2022, there was a triggering event and hence an impairment test was performed on intangible assets. For details on the impairment test and triggering events see note 4.12.3 Impairment test of assets.
Intangible assets with finite useful lives are amortized over their useful life, generally using the straight-line method. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least annually at each fiscal year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits are accounted for prospectively. Amortization of an intangible asset is recognized in profit or loss in accordance with the function of the intangible asset.
Intangible assets are amortized using the straight line-method over the useful life as displayed in the below table:
| Website | Software | |||||||
| Useful life (years) | | | ||||||
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in profit or loss in the period in which the asset is derecognized.
4.5 | Property, plant and equipment |
Property, plant and equipment are stated at cost less accumulated depreciation and impairments. These costs also comprise the costs for replacement parts, which are recognized at the time they are incurred, providing they meet the recognition criteria. All other repair and maintenance costs are expensed as incurred. Depreciation begins when the asset is available for use. Advance payments to suppliers to produce technical equipment and machinery, that are capitalized, are not depreciated until available for use.
Property, plant and equipment are depreciated using the straight line-method over the useful life as displayed in the below table:
| Equipment / Hardware | ||||
| Useful life (years) |
| | ||
Impairment losses on property, plant and equipment are recognized in accordance with IAS 36 if the recoverable amount of the respective asset has fallen below the carrying amount. Recoverable amount is the higher of value in use and fair value less costs to sell. If the reasons for impairments recognized in previous years no longer apply, the impairment losses are reversed up to a maximum of the amount that would have been determined if no impairment loss had been recognized.
The recognition of impairment losses requires the prior identification of triggering events. In 2022, Sono Group considered the significant increase in interest rates during the second half of 2022, among other possible triggering events for impairment, a triggering event and hence an impairment test was performed on property, plant and equipment. In 2023, Sono Group considered the termination of the Sion passenger car program as a triggering event and therefore an impairment test was performed. For details on the impairment test and triggering events see note 4.12.3 Impairment test of assets. For details on recognized impairments or reversals of earlier impairments in the reporting period, please refer to note 7.2 Property, plant and equipment.
Property, plant and equipment are derecognized upon disposal or when no further economic benefits are expected from their continued use or sale. The gain or loss on derecognition is determined as the difference between the net disposal proceeds and the carrying amount and recognized in profit or loss in the period in which the item is derecognized.
The residual values of the assets, useful lives and depreciation methods are reviewed at the end of each fiscal year and any changes are accounted for prospectively. The residual values of the assets are generally considered to be zero.
4.6 | Leases |
Applying IFRS 16, at inception of a contract, Sono Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. For the periods presented the Company did not have any contracts as the lessor.
| 4.6.1 | Right-of-use assets |
Sono Group recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received as well as any estimated costs to be incurred by the lessee for dismantling and removing the underlying asset. Unless Sono Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life, and the lease term. Right-of-use assets are subject to impairment according to IAS 36. In 2022, there was a triggering event and hence an impairment test was performed on property, plant and equipment. For details on the impairment test and triggering event see note 4.12.3 Impairment test of assets.
| 4.6.2 | Lease liabilities |
At the commencement date of the lease, Sono Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by Sono Group and payments of penalties for terminating a lease, if the lease term reflects Sono Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognized as expenses in the period in which the event or condition that triggers the payment occurs. To calculate the present value of lease payments, Sono Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment of whether an option to purchase the underlying asset will be executed with reasonable certainty.
When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount for the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
| 4.6.3 | Short-term leases and leases of low-value assets |
Sono Group applies the short-term lease recognition exemption to its short-term leases of buildings and cars (i.e., leases that have a lease term of twelve months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value. Lease payments on short-term leases (contracts with a term of twelve months or less) and leases of low-value assets (Sono Group threshold of fair value of leased asset < kEUR 5) are recognized as expenses on a straight-line basis over the lease term.
4.7 | Cash and cash equivalents |
Cash and cash equivalents include bank balances, deposits and cash in transit with an original maturity of three months or less. Cash and cash equivalents are measured at amortized cost and are subject to the impairment requirements of IFRS 9.
4.8 | Advance payments received from customers |
Advance payments received from customers for Sion electrical vehicles were recognized as liabilities at the time the cash was collected by Sono Group. Sono Group intended to begin delivering its Sion electrical vehicles to customers after the start of production, which, prior to termination of the Sion, was expected to be in the first quarter of 2024. Therefore, in 2022, the majority of advance payments were shown as noncurrent, even though customers might have been able to cancel their contract (depending on the general terms in some cases cancellation is possible within the next 12 months) and demand the money back. Due to an original term of the advance payments which was more than 12 months, the advance payments included a significant financing component. The compounding effect was recognized in interest expense and increased the advance payments received from customers. Sales revenues from advance payments received from customers were planned to be recognized in event of delivery of the car. Therefore, the advance payments were accounted for in accordance with IFRS 15. However, with the termination of the Sion passenger car program, in 2023, the advance payments was accounted for in accordance with IFRS 9.
4.9 | Provisions |
Provisions for bonus and settlement payments or any other obligations are recognized when the group has a present legal or constructive obligation as a result of past events, if it is probable that an outflow of resources will be required to settle the obligation, and if the amount can be reliably estimated. Provisions are not recognized for future operations. Moreover, provisions are recognized when Sono Group determines that it has a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it (onerous contract).
Moreover, provisions are recognized in Sono N.V. related to a hard comfort letter for the benefit of Sono Motors, which gave Sono N.V. the obligation to provide Sono motors with financial resources in such a way that Sono Motors is able to meet all its current and future obligations as the obligations fall due for payment. The provision is calculated based on the liabilities of Sono Motors where there is a potential resource outflow, taking into account the liquid assets of Sono Motors that could offset these liabilities.
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. Provisions for onerous contracts are measured at the present obligation under the contract, (i.e., the lower of the cost of fulfilling the contract and any compensations or penalties arising from failure to fulfill it). Provisions are discounted when the time value of money is material, however, the time value of money was not material for the provisions recognized. As of December 31, 2023, and 2022, there were no provisions that were discounted.
4.10 | Taxes |
| 4.10.1 | Current tax assets and liabilities |
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities based on the tax rates and tax laws that are enacted or substantively enacted at the end of the reporting period.
| 4.10.2 | Deferred taxes |
Deferred tax is recognized using the liability method on temporary differences as of the end of the reporting period between the carrying amounts of assets and liabilities and their tax bases.
Deferred tax liabilities are recognized for all taxable temporary differences. The only exception is if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination which, at the time of the transaction, affects neither accounting profit or loss nor taxable profit or loss. Deferred tax liabilities are recognized for all taxable temporary differences associated with investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets are recognized for deductible temporary differences and to the extent that it is probable that future taxable income will allow the deferred tax asset to be realized.
Deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply in 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 tax assets may only be recognized up to the amount of the deferred tax liabilities as it is not sufficiently probable that future taxable profit will be available against which they can be utilized.
If transactions and other events are recognized directly in equity, any related taxes on income are also recognized directly in equity. As transaction costs are recognized in the capital reserve, corresponding (deferred) tax effects are recognized partly due to the loss situation of Sono Group and the fact that deferred taxes for losses carried forward were partly recognized at the level of Sono N.V.
Deferred tax assets and deferred tax liabilities are offset if there is a legally enforceable right to offset current tax assets and current tax liabilities and these relate to income taxes levied by the same tax jurisdiction.
| 4.10.3 | Tax losses carried forward |
Based on management’s estimation, a deferred tax asset is recognized for the tax losses carried forward to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilized. Only up to
4.11 | Share-based payment |
The Group has entered into the following types of share-based transactions, each accounted for in accordance with IFRS 2 as described below:
| a) | equity-settled share-based payment transactions, and |
| b) | transactions in which the Group receives or acquires services and the terms of the arrangement provide either the Group or the supplier of those services with a choice of whether the Group settles the transaction in cash (or other assets) or by issuing equity instruments. |
| 4.11.1 | Equity-settled |
For equity-settled share-based payment transactions, on grant date, Sono Group initially measures the fair value of the services received by reference to the fair value of the equity instruments granted. Sono Group recognizes the fair value of the services as expenses and a corresponding increase in equity when the services are received.
Vesting conditions, other than market conditions, are not considered when estimating the fair value of the equity instruments at the measurement date. Instead, vesting conditions, other than market conditions, are considered by adjusting the number of equity instruments included in the measurement of the transaction amount. Market conditions and non-vesting conditions are considered when estimating the fair value of the equity instruments granted.
If Sono Group and the supplier of services did not agree on service conditions and the supplier of services is unconditionally entitled to the equity instruments, Sono Group presumes that the services have been received on grant date and recognizes the services received in full, with a corresponding increase in equity. If Sono Group and the supplier of services did agree on service conditions, the Group accounts for the services as they are rendered by the supplier during the vesting period, with a corresponding increase in equity.
| 4.11.2 | Choice of settlement (Sono Group) |
For transactions in which the terms of the arrangement provide Sono Group with a choice of settlement, Sono Group determines whether it has a present obligation to settle in cash. Sono would have an obligation to settle in cash if the choice of settlement in equity instruments has no commercial substance, or Sono Group had a past practice or a stated policy of settling in cash, or generally settles in cash whenever the counterparty asks for cash settlement. Management determined that Sono Group does not have an obligation to settle in cash for these types of transactions (i.e., employee participating programs) and therefore accounts for these arrangements as equity-settled share-based payment transactions (refer to note 4.11.1 Equity-settled).
Upon settlement:
| a) | if Sono Group elects to settle in cash, the cash payment is accounted for as the repurchase of an equity interest, i. e. as a deduction from equity, |
| b) | if Sono Group elects to settle by issuing equity instruments, no further accounting is required and |
| c) | if Sono Group elects the settlement alternative with the higher fair value, as at the date of settlement, Sono Group recognizes an additional expense for the excess value given, i. e. the difference between the cash paid and the fair value of the equity instruments that would otherwise have been issued, or the difference between the fair value of the equity instruments issued and the amount of cash that would otherwise have been paid, whichever is applicable. |
For further details, please refer to note 9.3. Remuneration based on shares (share-based payment).
4.12 | Significant accounting judgments, estimates and assumptions |
The preparation of consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgments and estimates in relation to assets, liabilities, contingent liabilities, and expenses. Management bases its judgments and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which forms the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions and may materially affect the financial results or the financial position reported in future periods.
In the process of applying the accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognized in the consolidated financial statements.
| 4.12.1 | Going concern |
Management assessed Sono Group’s ability to continue as a going concern, evaluating whether there are conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern using all information available about the future, focusing on the twelve-month period following the issuance date of the consolidated financial statements.
Historically, Sono Group financed its operations primarily through capital raises and loans from shareholders and private investors (including its IPO in November 2021) as well as through advance payments received from customers. Since inception, Sono Group has incurred recurring losses and negative cash flows from operations. The accumulated deficit amounts to kEUR
During the second half of 2022, attempts to raise additional financing through equity offerings failed due to deteriorating market conditions, investor sentiment and other factors. On December 7, 2022, the Company issued convertible debentures to YA PN II, Ltd. (Yorkville) with an aggregate nominal amount of kUSD
On May 15, 2023, due to the fact that the first installment to repay advance payments to customers became due, and Sono Group had not succeeded in raising additional funds, the Company’s management ultimately concluded that Sono Motors was over-indebted and faced impending illiquidity (drohende Zahlungsunfähigkeit) with Sono N.V., in turn, becoming over-indebted and also facing impending illiquidity. As a consequence, management decided to apply for the opening of self-administration proceedings with respect to Sono Group N.V. and Sono Motors GmbH (the “Self Administration Proceedings”) with the goal of sustainably restructuring both companies. Accordingly, on May 15, 2023, Sono N.V. applied to the insolvency court of the local court of Munich, Germany (the “Court”) to permit the opening of a self-administration proceeding (Eigenverwaltung) pursuant to Section 270 (b) of the German Insolvency Code (Insolvenzordnung). On the same day, Sono Motors applied to the same Court to permit the opening of a self-administration proceeding in the form of a protective shield proceeding (Schutzschirmverfahren) pursuant Section 270 (d) of the German Insolvency Code. On May 17, 2023 and May 19, 2023, the Court admitted the opening of the Self-Administration Proceedings with respect to the Company and the Subsidiary respectively, on a preliminary basis (the “Preliminary Self-Administration Proceedings”). On September 1, 2023 the Court opened the Self-Administration Proceedings with respect to the Subsidiary beyond the preliminary stage (the “Subsidiary Self-Administration Proceedings”) (refer to note 1.1 Insolvency proceedings for a detailed description of the insolvency proceedings).
Yorkville, as one of the largest creditors of Sono N.V., started negotiations in the course of the insolvency proceedings regarding a new investment. In November 2023, Sono Group and Yorkville entered into the Yorkville Agreements in connection with the First Commitment, pursuant to which Yorkville committed to provide limited financing to the Company (based on a mutually agreed business plan focused on the planned development of the Solar Bus Kit business operations) subject to the satisfaction of certain conditions precedent. The aim of the Yorkville Agreements and the transactions contemplated therein (the “Transactions”) was the planned restructuring of the Company and the Subsidiary with the intention of enabling the Company to withdraw its application for its Preliminary Self-Administration Proceedings and enabling the Subsidiary to exit the Subsidiary Self-Administration Proceedings via a plan under the German Insolvency Code (the “Plan”). The Plan was filed with the Court on December 7, 2023 for approval by the Subsidiary’s creditors and subsequent confirmation by the Court. Approval by the creditors and confirmation by the Court was obtained in the creditors meeting on December 21, 2023 and the Court confirmed on January 26, 2024 that the Plan became legally binding. On January 31, 2024, the Company withdrew its application for its Preliminary Self-Administration Proceedings with the Court. The Subsidiary exited its Self-Administration Proceedings on February 29, 2024.
On April 30, 2024, the Company and Yorkville entered into an amendment to the Funding Commitment Letter in connection with a second financing commitment from Yorkville to the Company (the “Second Commitment” and together with the First Commitment, the “Yorkville Investment”). The Company expects the Yorkville Investment to position the Group to obtain sufficient funding for their business operations, with an initial focus on the Solar Bus Kit, through June 30, 2025. Under the terms of the Yorkville Agreements, the financing is provided by Yorkville by way of new interest-bearing convertible debenture(s) that will be convertible into ordinary shares of the Company. Each new convertible debenture, other than the new convertible debenture issued to Yorkville on February 5, 2024 in connection with the funding of the First Tranche (as defined herein), will mature on the earlier of (i) July 1, 2025 or (ii) 12 months from the issuance date of such new debenture. Yorkville’s funding commitments in connection with the Yorkville Investment are subject to the absence of certain termination events or events of default. If such an event occurs, Yorkville would have the right, at its sole discretion, to cancel any funding commitments still available, meaning that the Company would no longer be able to draw down on unused portions of the commitment amount, and to exercise all of its rights under any of the new convertible debentures as if an event of default had occurred. The funding of the first tranche of the Yorkville Investment occurred on February 6, 2024 for mEUR
Based on the above outlined plans, the Company’s going concern status is subject to various risks and uncertainties mainly:
| ● | Sono Group’s ability to comply on an ongoing basis with the terms of the Yorkville Agreements and thereby gain access to the unused amount of the funding provided for therein; |
| ● | Sono Group’s ability to meet the assumptions underlying the mutually agreed business plan with Yorkville (focusing on the development of the Solar Bus Kit business) so that the committed financing by Yorkville is sufficient to allow the Company to continue as a going concern through June 30, 2025, including, without limitation, Sono Group’s ability to accomplish technical feasibility of the Solar Bus Kit components to enable serial production, Sono Group’s ability to enter into customer contracts to start generating revenues, Sono Group’s ability to keep to cost assumptions and margins expected to be realized, Sono Group’s ability to retain essential employees, Sono Group’s ability to maintain relationships with suppliers and enter into planned relationships with new suppliers, Sono Group’s ability to find independent distributors for the Solar Bus Kits as planned; |
| ● | Sono Group’s ability to obtain additional financing from third parties in order to fund the business from July 2025 onwards and to be able to repay any remaining amounts owed in connection with the funding provided by Yorkville, when due (both for the convertible debentures liability of Sono N.V. and the intercompany loan to be paid back by Sono Motors); |
| ● | Sono Group’s ability to attract additional and retain existing key employees and hire additional qualified technical and engineering personnel to develop the planned business; and |
| ● | the risk that defined termination conditions or events of default will occur, which can cause Yorkville, on its sole discretion, to cancel any additional funding commitments still available which can lead, in absence of alternative funding possibilities, to insolvency and liquidation of the Company. |
Because of the risks and uncertainties, there is no certainty as to Sono Group’s ability to continue as a going concern in the medium-term. Sono Group will need to raise additional funds through public or private debt or equity financing or other means to fund the Group’s business beyond June 2025, should the Yorkville Investment continue to be concluded and implemented as planned. Sono Group’s access to required additional financing is, and for the foreseeable future will likely continue to be limited, if it is available at all, as of July 1, 2025 and beyond. Even though Sono Group N.V. and Sono Motors GmbH have successfully emerged from their respective Self-Administration Proceedings, they might be adversely affected by the possible reluctance of prospective lenders or investors and other counterparties to do business with a company that has recently emerged from such proceedings. Therefore, adequate funds may not be available when needed or may not be available on favorable terms and thus the Company and Group might not be able to continue as a going concern.
Based on the above, over the twelve-month period following the issuance date of the consolidated financial statements, there is a risk that Sono Group deviates from the mutually agreed business plan which could lead to Yorkville not providing the agreed financing or additional funding being required if funding requirements are greater than projected. Alternative funding would then need to be found through private debt or equity financing or other means. Consequently, there is substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| 4.12.2 | Convertible debentures |
Convertible debentures in 2022
In 2022, Sono Group issued convertible debentures in three tranches with an aggregate nominal amount of kUSD
The respective host contract of the three tranches (measured at amortized cost) and embedded derivatives (measured at FVTPL) are accounted for separately. According to management´s assessment it is not possible to reliably determine the fair value of the embedded derivatives, therefore these are measured indirectly as the difference between the fair value of the hybrid instrument and the fair value of the host contract.
The fair value of the convertible debentures was determined by applying a Monte Carlo valuation model (simulation model as valuation technique) with observable and unobservable input factors. Short-term financing was required to push ahead with the development of the Sion without delays and to meet the planned start of production. Due to the high risk profile of the Group and the prevailing market conditions, unfavorable financing conditions had to be accepted and therefore the transaction price for the 2022 convertible debentures was less than the fair value, which was based on Monte Carlo simulation as a valuation model with unobservable input factors (regarding the model see note 8.3.2 Carrying amounts and fair values). Hence, a day-one loss resulting from each of the 2022 convertible debentures was recognized in addition to the 2022 convertible debentures to defer the difference between the fair value at initial recognition and the transaction price. After initial recognition, the deferred difference was amortized pro rata on a straight-line basis over the estimated time over which the conversions were expected to take place. As of the 2022 balance sheet date, conversion of the total amount of the convertible debentures into shares was expected to be completed by the end of May 2023.
The main input factors that flow into the valuation model included the observable input factors share price, exchange rate USD/EUR and risk-free interest rate. Management assessed that the main unobservable input factors were the credit spread, probability of default, expected recovery rate in case of event of default, expected monthly conversion amounts in equity and expected share price volatility.
The following judgments, estimates and assumptions were made in relation to these input factors:
| ● | The risk-free interest rate is based on the 12-month rates of Secured Overnight Financing Rates (SOFR) which is in line with the 12-month time horizon of the maturity date and simulation model. |
| ● | The interest rate used in the discounted cash flow model is adjusted for the credit spread with the assumption that Sono Group´s credit risk is equivalent to a Standard & Poor's rating scale of CCC or a Moody's rating scale of Caa-2. |
| ● | The expected probability of default is based on historical loss statistics for the respective credit rating published by Moody’s. Based on the 40-year average annual issuer weighted default rates for rating Caa-2 of |
| ● | The expected recovery rate for the investor in case of default used in the model is based on management expectations under the consideration of other financial obligations. |
The expected monthly conversion amounts for 2023 were based on the expected conversion schedule as of December 31, 2022 and backed by the observed conversions in January until March 2023 which were very close to the expected values. The conversion schedule used assumed conversions at the upper limit defined in relation to the expected monthly trading volumes for Sono Group’s shares and maximum percentage of ownership of the total shares outstanding.
In 2022, the expected share price volatility was based on an evaluation of historical Nasdaq share price volatilities for Sono Group’s shares, assuming that the historical volatility based on daily returns over a 12-month period similar to the maturity of the 2022 convertible debentures is indicative of future trends, which may not necessarily be the actual outcome.
As of the 2022 balance sheet date, the contractual rights to extend the term or to early repay the 2022 convertible debentures were assumed not to be exercised, based on the expected conversion schedule, therefore these rights are not modeled. This is not necessarily indicative of exercise patterns that may occur.
Convertible debentures in 2023
In November 2023, the contractual terms of the 2022 convertible notes were renegotiated and significantly amended resulting in modified convertible debentures. The maturity date was extended until July 1, 2025. The conversion price was changed to the lower of USD
Due to the low market valuation of the Group at the time of amendment of the 2022 convertible debentures contract, while the Group’s insolvency proceedings were still ongoing, the transaction price for the modified convertible debentures is higher than the fair value, which was based on Monte Carlo simulation as a valuation model with unobservable input factors (regarding the model see note 8.3.2 Carrying amounts and fair values). Hence, a day-one gain resulting from the modified convertible debentures was recognized in addition to the modified convertible debentures to defer the difference between the fair value at initial recognition and the transaction price. After initial recognition, the deferred difference was amortized pro rata on a straight-line basis over the estimated time over which the conversions were expected to take place. As of the 2023 balance sheet date, conversion of the total amount of the modified convertible debentures into shares was expected to be completed, more likely than not, by the end of October 2024.
The main input factors that flow into the valuation model include the observable input factors share price, exchange rate USD/EUR and risk-free interest rate. Management assessed that the main unobservable input factors are the credit spread, probability of default, expected recovery rate in case of event of default, expected monthly conversion amounts in equity and expected share price volatility.
The following judgments, estimates and assumptions were made in relation to these input factors:
| ● | The risk-free interest rate is based on the 12-month rates of Secured Overnight Financing Rates (SOFR) which is in line with the 12-month time horizon of the maturity date and simulation model. |
| ● | The interest rate used in the discounted cash flow model is adjusted for the credit spread with the assumption that Sono Group´s credit risk is equivalent to a Standard & Poor's rating scale of C or a Moody's rating scale of Caa-3. |
The conversion schedule for the modified convertible debentures is based on three possible scenarios weighted with relevant probabilities. Scenario one: expected average monthly trading volumes over the time period until the conversion of the total amount of the modified convertible debentures at the end of October 2024. Scenario two: expected average monthly trading volumes over the time period until the conversion of the total amount of the modified convertible debentures at the end of June 2025. Scenario three: expected average monthly trading volumes over the time period until the conversion of the total amount of the modified convertible debentures at the end of December 2025, which would include an extension of the maturity of the modified convertible debentures to December 2025.
Due to the stocking trading for the Group’s shares was comparatively thin to the previous year, a peer group of shares with similar characteristics as Sono Group was used instead of Sono Group’s shares was used to assess the expected share price volatility for the modified convertible debentures.
As of the 2023 balance sheet date, the contractual rights to extend the term or to early repay the modified convertible debentures were assumed not to be exercised, based on the expected conversion schedule, therefore these rights are not modeled. This is not necessarily indicative of exercise patterns that may occur.
| 4.12.3 | Impairment test for assets |
Sono Group is required to perform an impairment test on assets if there is a triggering event that indicates potential impairment.
Impairment in 2022
Sono Group considered the significant increase in interest rates during the second half of 2022 a triggering event and hence an impairment test was performed at year end on assets, namely, intangible assets, property, plant, and equipment, right-of-use assets, and current assets. There were two cash generating units (CGUs) identified - the Sion car program assets and the Solar assets.
The recoverable amounts of both CGUs have been determined from value in use calculations, accounting for different scenarios with attached probabilities, based on cash flow projections from approved plans and an estimated terminal value. The discount rate used for both CGUs is the Group’s weighted average cost of capital. The key assumptions, other than the cash flows, are the discount rate of
The recoverable amount for the Sion CGU as of December 31, 2022, was negative based on the value in use calculation and therefore the impairment that should be allocated to assets is kEUR According to IAS 36 Impairment of assets, the impairment allocated to individual assets should not reduce the carrying amount of an asset below the highest of its fair value less costs of disposal, its value of use or zero. In cases where the fair value or value in use could not be accurately determined, these assets were concluded to have a fair value or value in use of zero. The combined fair value of the individual assets was kEUR
| Sion CGU pre-impairment | Impairment allocation | Sion CGU after impairment | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Intangible assets | ( | ) | ||||||||||
| Equipment and hardware | ( | ) | ||||||||||
| Construction in progress | ( | ) | ||||||||||
| Prepayments to contract manufacturer for property, plant and equipment | ||||||||||||
| Right-of-use assets | ( | ) | ||||||||||
| Prepayments to contract manufacturer for development services | ||||||||||||
| Total assets | ( | ) | ||||||||||
The recoverable amount of the Solar CGU was greater than the net book value of the assets and therefore no impairment was recognized.
Sensitivity analysis was performed on the key assumptions used to calculate the value in use for the Solar CGU, and it was concluded that the recoverable amount remains above the carrying value even under varying scenarios. Since the Sion CGU has a value in use of nil, no sensitivity analysis was needed.
Impairment in 2023
During 2023, a decision was made to terminate the Sion and therefore the Sion CGU assets no longer have a value in use. The fair value less costs to sell of the Sion CGU assets were also assessed as zero and the recoverable amount was zero. Therefore, any additional assets that related to the Sion CGU were capitalized in 2023 were immediately impaired to zero.
| 4.12.4 | Remuneration based on shares |
For equity-settled share-based payment transactions (see note 4.11 Share-based payment), on grant date, Sono Group measures the fair value of the received services by reference to the fair value of the equity instruments granted. For the Conversion Stock Option Program (CSOP), the fair value measurement of the share options for the equity-settled share-based payment transactions requires assumptions about the input data for using the Black-Scholes Model. The expected life of the share options is based on current expectations and is not necessarily indicative of exercise patterns that may occur. The expected volatility was based on an evaluation of historical volatilities of comparable listed peer group companies, assuming that the historical volatility over a period similar to the life of the options is indicative of future trends, which may not necessarily be the actual outcome. For further details about the input factors used see note 9.3 Remuneration based on shares (share-based payment).
| 4.12.5 | Prepayments to contract manufacturer |
Prepayments had been made to the contract manufacturer during 2022. These were then allocated to construction in progress (property, plant and equipment), prepayments to contract manufacturer for property, plant and equipment (current non-financial assets) and prepayments to contract manufacturer for development services (current non-financial assets). During the 2022 year, the allocation was based on the agreed term sheet between Sono Group and the contract manufacturer, which had estimations of the allocation. In 2023, unused prepayments were refunded to the Sono Group, which was greater than the information management had at the end of 2022. For further details on the financial impact see note 7.6 Other current non-financial assets.
| 4.12.6 | Recoverability of deferred tax assets in relation to loss carryforwards |
Tax losses represent start-up losses as a result of establishing Sono Motors’ business. The tax losses can be carried forward indefinitely and have no expiry date. As of December 31, 2023, management does not expect a (proportional) reduction of deductible tax loss carryforwards due to any future corporate restructuring or due to the various capital measures, especially the IPO, in 2021. Management expects that the “hidden reserves clause” can be asserted and that the tax losses can still be carried forward. The hidden reserves as of December 31, 2023 have not yet been determined. Therefore, it is currently not foreseeable whether all tax losses can still be carried forward.
| 4.12.7 | Sono Points |
Sono Motors had carried out several crowdfunding campaigns in which the Sion could be reserved against an advance payment received from customers of various amounts. With the reservation, the customer was entitled to the right to enter a contract for the purchase of the Sion. However, Sono Motors was not obliged to deliver a vehicle to the customer. Instead, the customer could withdraw from the reservation if he or she decides not to conclude the purchase contract or Sono Motors has not offered a purchase contract by the respective date defined by the underlying terms and conditions. In December 2020, a crowdfunding campaign with the aim of raising a predefined target amount was launched. In connection with the campaign, so-called Sono Points were introduced and communicated on December 15, 2020. The three founders, Laurin Hahn, Navina Pernsteiner and Jona Christians, announced that they would be giving a majority of their profit participation rights (for clarification: the voting rights remain with the founders), amounting to
According to current legal assessments, management concludes that Sono Points do not impact Sono Group as the no longer existing obligation related only to the founders.
| 5. | Segment information |
An operating segment is defined as a component of an entity for which discrete financial information is available and whose operating results are regularly reviewed by management (chief operating decision maker within the meaning of IFRS 8). Sono Motors is a start-up company that had not yet started production on the planned electric car Sion, which was terminated in February 2023. All significant activities of the Group related to the development of the Sion and related technology, and as such, Management made decisions about allocating resources and assessing performance based on the entity as a whole and determined that Sono Group operates in operating and reportable business segment. Furthermore, Sono Group is currently almost exclusively active in Germany, however, noncurrent assets are located in countries listed in the below table. Amounts are shown at carrying value.
| 2023 | 2022 | |||||||
| kEUR | kEUR | |||||||
| Finland | ||||||||
| Germany | ||||||||
| Total | ||||||||
For the distribution of revenues across products, please refer to note 6.1 Revenue and cost of goods sold. Revenues result from different customers across Europe (2023: kEUR
| 6. | Disclosures to the consolidated statements of income or loss |
| 6.1 | Revenue and cost of goods sold |
| 2023 | 2022 | 2021 | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Revenue | ||||||||||||
| Cost of goods sold | ( | ) | ( | ) | ( | ) | ||||||
Revenue and cost of goods sold mainly relates to the integration of Sono Group’s patented solar technology across other transportation platforms. Cost of goods sold include raw material consumed, personnel cost, change in provision for onerous contracts and impairment of work in progress for loss making contracts.
As of December 31, 2023, prepayments of kEUR (2022: kEUR 2021: kEUR ) had been received from solar customers and were recognized as contract liability. The prepayments are recognized as revenue when the promised goods or services are transferred in the future. Given that the nature of this liability is short term, it is included in trade and other payables in current liabilities. The aggregate amount of the transaction price allocated to unsatisfied performance obligations amounts to kEUR (2022: kEUR 2021: kEUR ).
| 6.2 | Cost of development expenses |
The table below presents details on the cost of development:
| 2023 | 2022 | 2021 | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Development cost of prototypes | ||||||||||||
| Personnel expenses | ||||||||||||
| thereof related to the CSOP and ESOP (IFRS 2) | ( | ) | ||||||||||
| Impairment | ||||||||||||
| Software fees and subscriptions | ||||||||||||
| Professional services | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Other | ||||||||||||
| Total | ||||||||||||
There are no research expenses included in the profit and loss of Sono Group in the financial year 2023 and prior periods, as the Group does not perform research. As the recognition criteria for the capitalization of development costs have not been met, all development expenses were recognized in profit or loss as incurred in the reporting year and the previous years. The personnel expenses concern employees responsible for development activities and the share of the employee participation programs (CSOP and ESOP) attributable to them (see note 9.3 Remuneration based on shares (share-based payment)).
The impairment in 2022 largely relates to fixed assets, namely property, plant and equipment (kEUR
The impairment in 2023 relates to fixed assets, namely property, plant and equipment (kEUR
For further details see note 4.12.3 Impairment test of assets.
| 6.3 | Selling and distribution expenses |
The below table displays details included in selling and distribution expenses:
| 2023 | 2022 | 2021 | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Personnel expenses | ||||||||||||
| thereof related to the remuneration based on shares | ( | ) | ||||||||||
| Professional services | ||||||||||||
| Advertising | ||||||||||||
| Other | ||||||||||||
| Total | ||||||||||||
The personnel expenses concern mainly employees responsible for marketing activities like roadshows, test rides and social media, and the share of the employee participation programs (CSOP and ESOP) attributable to them (see note 9.3 Remuneration based on shares (share-based payment)).
| 6.4 | General and administrative expenses |
The below table displays details included in general and administrative expenses:
| 2023 | 2022 | 2021 | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Professional services | ||||||||||||
| Personnel expenses | ||||||||||||
| thereof related to the remuneration based on shares | ( | ) | ||||||||||
| Insurance | ||||||||||||
| Impairment | ||||||||||||
| Software fees and subscriptions | ||||||||||||
| Bank charges | ||||||||||||
| Other | ||||||||||||
| Total | ||||||||||||
Personnel expenses concern mainly employees responsible for Finance, Human Resources, Business Development, Administration etc. and the share of the employee participation program (ESOP and CSOP) attributable to them. Professional services include accounting, tax and legal services as well as other services performed by external parties such as the preparation of consolidated financial statements, services provided by our independent auditor, as well as legal and tax services received.
In 2021, an impairment loss of kEUR
| 6.5 | Additional information on the nature of expenses |
The below table displays the depreciation and amortization expenses as well as personnel expenses included in cost of development, selling and distribution costs and general and administrative expenses:
| 2023 | 2022 | 2021 | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Personnel expenses | ||||||||||||
| thereof related to the remuneration based on shares | ( | ) | ||||||||||
| Depreciation and amortization | ||||||||||||
| Total | ||||||||||||
See note 9.3 Remuneration based on shares (share-based payment) for details on the CSOP and ESOP program.
| 6.6 | Other operating income/(expenses) |
The below table displays details included in other operating income (expenses):
| 2023 | 2022 | 2021 | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Other operating income | ||||||||||||
| Income from currency revaluation | ||||||||||||
| Income Renault ZOE | ||||||||||||
| Government grant | ||||||||||||
| Donations received | ||||||||||||
| Miscellaneous income | ||||||||||||
| Other operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| Expenses from currency revaluation | ( | ) | ( | ) | ( | ) | ||||||
| Customer advance repayment plan bonus | ( | ) | ||||||||||
| Advance payments received from customers VAT | ( | ) | ||||||||||
| Parental guarantee expense | ( | ) | ||||||||||
| Miscellaneous expense | ( | ) | ( | ) | ||||||||
| Other operating income/(expenses) | ( | ) | ( | ) | ||||||||
In 2020, Sono Motors entered into a framework agreement with Renault Deutschland AG (Renault) for electric vehicles (Renault ZOE). According to the agreement, customers, who have made advance payments for the Sion, can enter into a lease agreement with Renault for a Renault ZOE and use their advance payments to partly offset their lease payments. Customers can use advance payments made up to EUR
In 2023 and 2021, the government grant income related to a grant that Sono Motors received from the EU. The government grant income in 2022 related to a grant in the form of tax subsidies for expenses incurred in 2020.
Foreign currency revaluation includes exchange gains and losses on bank balances and trade payable balances.
Customer advance repayment plan bonus (kEUR
Sono N.V. signed a hard comfort letter for the benefit of Sono Motors and had the obligation to provide Sono motors with financial resources in such a way that Sono Motors is able to meet all its current and future obligations as the obligations fall due for payment. This obligation is recognized as a provision with the resulting expense being kEUR
| 6.7 | Deconsolidation gain |
On May 19, 2023, Sono N.V. lost control of Sono Motors due to the opening of the self-administration proceedings and the appointment of a custodian (Sachwalter). After this event, Sono N.V. no longer had the power to direct the activities of Sono Motors. In accordance with IFRS 10 Consolidated Financial Statements, Sono Group derecognized the assets and liabilities of Sono Motors from the consolidated statement of financial position, which led to significant movements in the assets and liabilities and a resulting gain of kEUR
| 6.8 | Interest and similar income |
The below table displays details included in interest and similar income:
| 2023 | 2022 | 2021 | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Advanced payments received from customers interest (note 4.8) | ||||||||||||
| Fair value changes convertible debentures (embedded derivatives) | ||||||||||||
| Derecognition of convertible debentures (embedded derivatives) on conversion | ||||||||||||
| Income from currency revaluation | ||||||||||||
| Amortization of deferred day-one gains from convertible debentures | ||||||||||||
| Other interest | ||||||||||||
| Total | ||||||||||||
Due to changes in the fair value of the derivatives embedded in the convertible debentures, an amount of kEUR
The deferred day-one gains are the difference between the fair value at initial recognition and the transaction price of the modified convertible debentures and are amortized pro rata on a straight-line basis until the date of the last expected conversion. For further details in relation to the convertible debentures please refer to note 7.10.1 Financial liabilities overview.
With the termination of the Sion passenger car program, the advance payments from customers balances were no longer accounted for under IFRS 15. The accrued interest, (kEUR
| 6.9 | Interest and similar expense |
The below table displays details included in interest and similar expense:
| 2023 | 2022 | 2021 | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Advanced payments received from customers interest (note 4.8) | ||||||||||||
| Interest from financial liabilities measured at amortized cost | ||||||||||||
| Amortization of deferred day-one losses from convertible debentures | ||||||||||||
| Expense from currency revaluation (day-one losses) | ||||||||||||
| Lease liabilities interest | ||||||||||||
| Total | ||||||||||||
The deferred day-one losses are the difference between the fair value at initial recognition and the transaction price of the 2022 convertible debentures and are amortized pro rata on a straight-line basis until the date of the last expected conversion. For further details in relation to the convertible debentures please refer to note 7.10.1 Financial liabilities overview.
| 6.10 | Tax on income |
The below tables display the changes in deferred tax assets and liabilities:
| Dec 31, 2023 | Dec. 31, 2022 | Dec. 31, 2021 | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Deferred tax assets | ||||||||||||
| due to property, plant and equipment | ||||||||||||
| due to current financial liabilities | ||||||||||||
| due to tax loss carryforwards | ||||||||||||
| due to advance payments received from customers | ||||||||||||
| due to lease liabilities | ||||||||||||
| due to current provisions | ||||||||||||
| due to current other non-financial assets | ||||||||||||
| due to current/noncurrent other liabilities | ||||||||||||
| due to cash and cash deposits | ||||||||||||
| due to current other financial assets | ||||||||||||
| due to prepaid expenses | ||||||||||||
| Deferred tax assets | ||||||||||||
| Deferred tax liabilities | ||||||||||||
| due to other financial/non-financial assets | ||||||||||||
| due to current financial liabilities | ||||||||||||
| due to leases | ||||||||||||
| due to trade payables | ||||||||||||
| due to provisions | ||||||||||||
| due to cash and cash deposits | ||||||||||||
| due to property, plant and equipment | ||||||||||||
| due to noncurrent other non-financial assets | ||||||||||||
| due to other noncurrent financial liabilities | ||||||||||||
| Deferred tax liabilities | ||||||||||||
| Non-recognition of deferred tax assets | ( | ) | ( | ) | ( | ) | ||||||
| Recognition of deferred tax assets | ||||||||||||
| Deferred tax assets/liabilities, net | ||||||||||||
The table above presents the gross deferred taxes only for reasons of understanding and completeness, as no deferred taxes have been recognized due to a (deferred tax asset/liabilities) net position of zero. As the net deferred tax asset was not booked in a first step, no valuation allowance is booked.
Deferred tax assets due to property, plant and equipment (kEUR
Given the loss history of Sono Motors, deferred tax assets are not recognized on the balance sheet. The amount of deferred tax assets / liabilities as of December 31, 2022 and December 31, 2023 is .
Of the gross deferred tax assets, kEUR
There are no deferred taxes with regard to Outside Basis Differences as those are permanent differences.
The amount of temporary differences on balance sheet positions for which no deferred tax asset has been recognized is displayed in the table below:
| Dec. 31, 2023 | Dec. 31, 2022 | |||||||
| kEUR | kEUR | |||||||
| Property, plant and equipment | - | | ||||||
| Advance payments received from customers | - | | ||||||
| Lease liabilities | | | ||||||
| Prepaid expenses | | |||||||
| Current provisions | - | - | ||||||
| Current other liabilities | | | ||||||
| Other financial assets | - | - | ||||||
| Total | | | ||||||
| Potential tax benefit at a total tax rate of 32,98 % | | | ||||||
The amount of unused tax losses for which no deferred tax asset has been recognized is displayed in the table below:
| Dec. 31, 2023 | Dec. 31, 2022 | |||||||
| kEUR | kEUR | |||||||
| Unused tax losses for which no deferred tax asset has been recognized (corporate tax) | ||||||||
| Unused tax losses for which no deferred tax asset has been recognized (trade tax) | ||||||||
| Potential tax benefit at a total tax rate of 32.98 % | ||||||||
As of December 31, 2023, KEUR (2022: kEUR
The following table presents a numerical reconciliation of expected to effective income tax.
| 2023 | 2022 | 2021 | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Income (loss) before tax for the period | ( | ) | ( | ) | ( | ) | ||||||
| Expected income tax (income (-)/expense (+) at a tax rate of 32.98 % | ( | ) | ( | ) | ( | ) | ||||||
| Reconciliation: | ||||||||||||
| Changes in unrecognized tax losses | ||||||||||||
| Changes in deferred taxes on timing differences | ||||||||||||
| Deconsolidation gain | ( | ) | ||||||||||
| Intercompany provisions and liability | ||||||||||||
| MCN* non-tax-deductible expenses | ||||||||||||
| CSOP non-tax-deductible expenses | ( | ) | ||||||||||
| RSU* supervisory board non-tax-deductible expenses | ( | ) | ||||||||||
| ESOP non-tax-deductible expenses | ( | ) | ||||||||||
| Tax-deductible transaction costs | ( | ) | ( | ) | ||||||||
| Convertible tax-deductible expenses | ( | ) | ( | ) | ||||||||
| Non-tax-deductible expenses | ||||||||||||
| Other | ( | ) | ( | ) | ||||||||
| Effective income tax income for the period | ||||||||||||
* MCN (Mandatory Convertible Notes), RSU (Restricted Stock Units)
As Sono N.V. is also fully taxable in Munich, Germany, the tax rate in 2021, 2022 and 2023 is unchanged.
| 7. | Balance sheet disclosures |
| 7.1 | Intangible assets |
| Website | Software | Total | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Historical cost | ||||||||||||
| Balance as of Jan. 1, 2023 | ||||||||||||
| Deconsolidation of Subsidiary | ( | ) | ( | ) | ( | ) | ||||||
| Balance as of Dec. 31, 2023 | ||||||||||||
| Accumulated amortization | ||||||||||||
| Balance as of Jan. 1, 2023 | ( | ) | ( | ) | ( | ) | ||||||
| Amortization | ||||||||||||
| Deconsolidation of Subsidiary | ||||||||||||
| Balance as of Dec. 31, 2023 | ||||||||||||
| Carrying amount as of Jan. 1, 2023 | ||||||||||||
| Carrying amount as of Dec. 31, 2023 | ||||||||||||
| Website | Software | Total | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Historical cost | ||||||||||||
| Balance as of Jan. 1, 2022 | ||||||||||||
| Additions | ||||||||||||
| Balance as of Dec. 31, 2022 | ||||||||||||
| Accumulated amortization | ||||||||||||
| Balance as of Jan. 1, 2022 | ( | ) | ( | ) | ( | ) | ||||||
| Impairment | ( | ) | ( | ) | ( | ) | ||||||
| Amortization | ( | ) | ( | ) | ( | ) | ||||||
| Balance as of Dec. 31, 2022 | ( | ) | ( | ) | ( | ) | ||||||
| Carrying amount as of Jan. 1, 2022 | ||||||||||||
| Carrying amount as of Dec. 31, 2022 | ||||||||||||
The amortization expenses for the acquired intangible assets amounting to kEUR (2022: kEUR
The impairment is the result of the impairment test performed based on different triggering events in 2022 and 2023. For further details see note 4.12.3 Impairment test of assets.
On May 19, 2023, the Sono N.V. lost control of Sono Motors and Sono Motors assets and liabilities were derecognized from the consolidated position. For further information see note 3. Basis of consolidation.
| 7.2 | Property, plant and equipment |
| Equipment / Hardware | Construction in progress | Total | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Acquisition or manufacturing costs | ||||||||||||
| Balance as of Jan. 1, 2023 | ||||||||||||
| Additions | ||||||||||||
| Deconsolidation of Subsidiary | ( | ) | ( | ) | ( | ) | ||||||
| Acquisition or manufacturing costs Dec. 31, 2023 | ||||||||||||
| Accumulated depreciation and impairment | ||||||||||||
| Balance as of Jan. 1, 2023 | ( | ) | ( | ) | ( | ) | ||||||
| Impairment | ( | ) | ( | ) | ( | ) | ||||||
| Depreciation | ( | ) | ( | ) | ||||||||
| Deconsolidation of Subsidiary | ||||||||||||
| Balance as of Dec. 31, 2023 | ||||||||||||
| Carrying amount Jan. 1, 2023 | ||||||||||||
| Carrying amount Dec. 31, 2023 | ||||||||||||
| Equipment / Hardware | Construction in progress | Total | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Acquisition or manufacturing costs | ||||||||||||
| Balance as of Jan. 1, 2022 | ||||||||||||
| Additions | ||||||||||||
| Acquisition or manufacturing costs Dec. 31, 2022 | ||||||||||||
| Accumulated depreciation and impairment | ||||||||||||
| Balance as of Jan. 1, 2022 | ( | ) | ( | ) | ||||||||
| Impairment | ( | ) | ( | ) | ( | ) | ||||||
| Depreciation | ( | ) | ( | ) | ||||||||
| Balance as of Dec. 31, 2022 | ( | ) | ( | ) | ( | ) | ||||||
| Carrying amount Jan. 1, 2022 | ||||||||||||
| Carrying amount Dec. 31, 2022 | ||||||||||||
The additions mainly relate to capitalization of prepayments made for assets under construction in relation to the preparation for serial production of the Sion. In 2022, this included advance payments (acquisition cost kEUR
The impairments are the result of the impairment tests performed based on different triggering events in 2022 and 2023. For further details see note 4.12.3 Impairment test of assets and note 6.2 Cost of development expenses.
On May 19, 2023, the Sono N.V. lost control of Sono Motors and Sono Motors assets and liabilities were derecognized from the consolidated position. For further information see note 3. Basis of consolidation.
| 7.3 | Right-of-use assets |
Sono Motors leases buildings and warehouses at its headquarters in Munich and three electrical cars including batteries. At the end of the 2022 reporting period, the remaining lease terms for the buildings were
The below table presents details on the lease agreements of Sono Motors:
| Buildings | Cars and equipment | Total | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Right-of-use assets on January 1, 2023 | ||||||||||||
| Depreciation of right-of-use assets | ( | ) | ( | ) | ( | ) | ||||||
| Deconsolidation of Subsidiary | ( | ) | ( | ) | ( | ) | ||||||
| Right-of-use assets on December 31, 2023 | ||||||||||||
| Interest expense on lease liabilities | ||||||||||||
| Expense relating to short-term leases | ||||||||||||
| Total cash outflow for leases | ||||||||||||
| Buildings | Cars and equipment | Total | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Right-of-use assets on January 1, 2022 | ||||||||||||
| Additions to right-of-use assets | ||||||||||||
| Lease modifications | ( | ) | ( | ) | ||||||||
| Impairment | ( | ) | ( | ) | ( | ) | ||||||
| Depreciation of right-of-use assets | ( | ) | ( | ) | ( | ) | ||||||
| Right-of-use assets on December 31, 2022 | ||||||||||||
| Interest expense on lease liabilities | ||||||||||||
| Expense relating to short-term leases | ||||||||||||
| Total cash outflow for leases | ||||||||||||
| Buildings | Cars and equipment | Total | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Right-of-use assets on January 1, 2021 | ||||||||||||
| Additions to right-of-use assets | ||||||||||||
| Depreciation of right-of-use assets | ( | ) | ( | ) | ( | ) | ||||||
| Right-of-use assets on December 31, 2021 | ||||||||||||
| Interest expense on lease liabilities | ||||||||||||
| Expense relating to short-term leases | ||||||||||||
| Total cash outflow for leases | ||||||||||||
At the end of the reporting period, Sono Group has lease commitments for short-term leases of kEUR (2022: kEUR
The impairment was the result of the impairment test performed based on a triggering event. For further details see note 4.12.3 Impairment test of assets and note 6.2 Cost of development expenses.
The Group had entered several leasing agreements for buildings that offer an extension option. As of the 2022 balance sheet date, in all of these cases, the Group was reasonably certain to exercise the extension option. Therefore, the extension options were included in determining the carrying amounts of the lease liabilities and right-of-use assets for these buildings.
On May 19, 2023, the Sono N.V. lost control of Sono Motors and Sono Motors assets and liabilities were derecognized from the consolidated position. For further information see note 3. Basis of consolidation.
| 7.4 | Other noncurrent financial assets |
In 2023, other noncurrent financial assets consisted of a sublease asset (kEUR ) and security deposits (kEUR ).
Sono N.V. acts as a sublessor in the lease agreement of its headquarters in Munich. The tenant is Sono Motors. Upon deconsolidation, the sublease asset was recognized in the consolidated financial statements. Previously, the asset would have been classified as a right of use asset.
In 2022, other noncurrent financial assets (kEUR
The decrease of security deposits in 2023 is due to the deconsolidation of Sono Motors. For further information see note 3. Basis of consolidation.
For details on expected credit losses, please refer to note 8.1.2 Credit risk.
| 7.5 | Other current financial assets |
The below table displays information on financial instruments included in other current financial assets:
| Dec. 31, 2023 | Dec. 31, 2022 | |||||||
| kEUR | kEUR | |||||||
| Sublease asset | ||||||||
| PayPal reserve | ||||||||
| Receivables from crowdfunding and deposits | ||||||||
| Debtors creditors | ||||||||
| Current trade receivables | ||||||||
| Other | ||||||||
| Total | ||||||||
The majority of the decrease in the other current financial asset balance is due to Sono Motors’ assets and liabilities being derecognized from the consolidated position. For further information see note 3. Basis of consolidation.
Sono N.V. acts as a sublessor in the lease agreement of its headquarters in Munich. The tenant is Sono Motors. Upon deconsolidation, the sublease asset was recognized in the consolidated financial statements. Previously, the asset would have been classified as a right of use asset.
| 7.6 | Other current non-financial assets |
The below table displays details included in other current non-financial assets:
| Dec. 31, 2023 | Dec. 31, 2022 | |||||||
| kEUR | kEUR | |||||||
| Prepayments to contract manufacturer for development services | ||||||||
| Prepayments to contract manufacturer for property, plant and equipment | ||||||||
| Prepaid expenses | ||||||||
| VAT and other taxes | ||||||||
| Other | ||||||||
| Total | ||||||||
The prepayments in 2022 were mainly for property, plant and equipment (kEUR
The majority of the decrease in the VAT asset balance is due to Sono Motors’ assets and liabilities being derecognized from the consolidated position. In 2022, kEUR
| 7.7 | Cash and cash equivalents |
Cash and cash equivalents include the following amounts:
| Dec. 31, 2023 | Dec. 31, 2022 | |||||||
| kEUR | kEUR | |||||||
| Bank balances | ||||||||
| Deposits | ||||||||
| Allowance for expected credit losses | ( | ) | ||||||
| Total | ||||||||
Deposits are balances held with the service provider that processes advance payments received from customers which were mainly received during the crowd-funding campaign in December 2022. The movement in this balance is due to Sono Motors’ assets and liabilities being derecognized from the consolidated position. For further information see note 3. Basis of consolidation.
For details on expected credit losses, please refer to note 8.1.2 Credit risk.
| 7.8 | Equity |
Total equity of Sono Group comprises subscribed capital, capital reserves, other reserves and accumulated deficit. The subscribed capital amounts to kEUR
In the reporting year, the following events with regard to equity took place:
From January 1, 2023, through March 31, 2023 and in accordance with the convertible debenture agreements from December 7, December 8, and December 20, 2022, between the Company and Yorkville, the Company issued
Regarding changes in equity due to share-based compensation see note 9.3 Remuneration based on shares (share-based payment).
In the previous year, the following events with regard to equity took place:
Sono N.V. successfully completed a follow-on offering on May 3, 2022. The Company offered
On June 13, 2022, the Ordinary Share Purchase Agreement between the Company and Berenberg was signed. This committed equity facility (the “CEF”) provided Sono Group with the right, without obligation, to sell and issue up to kUSD
On December 7, 2022, the Company entered into a Securities Purchase Agreement with Yorkville under which the Company agreed to sell and issue to Yorkville convertible debentures in a gross aggregate principal amount of up to kUSD
Also on December 7, 2022, the Company entered into the ATM Sales Agreement with B. Riley Securities, Inc., Berenberg Capital Markets LLC and Cantor Fitzgerald & Co. (“agents”). The ATM Sales Agreement provides Sono Motors with the right to sell ordinary shares to the agents at the sole discretion of Sono Motors, subject to certain limitations and conditions. To register potential future sales under the ATM Sales Agreement, the Company filed a shelf registration statement on Form F-3 registering up to kUSD
Regarding changes in equity due to share-based compensation see note 9.3 Remuneration based on shares (share-based payment).
In 2021, the following events with regard to equity took place:
During the first half of fiscal year 2021, an amount of
Moreover, the shareholders agreed to extend the authorization of Sono Motors’ Management Board to issue shares in the Company's capital (irrespective of the class concerned) and/or to grant rights to subscribe for those shares up to the authorized share capital as included in the Company's articles of association from time to time and to limit and/or exclude pre-emption rights in relation thereto for a period of another five years after the execution of the underwriting agreement. The authorized share capital increased to kEUR
In the IPO on November 17, 2021, Sono Group offered
Upon the IPO, the mandatory convertible notes issued in 2020 (carrying amount: kEUR
The conditional settlement payment to one of the owners of Sono N.V. was due upon completion of the IPO. The corresponding liability was debited to other reserves.
| 7.9 | Advance payments received from customers |
Advance payments received from customers are VAT exclusive and include the following amounts:
| Dec. 31, 2023 | Dec. 31, 2022 | |||||||
| kEUR | kEUR | |||||||
| Current - advance payments received from customers | ||||||||
| Non-current - advance payments received from customers | ||||||||
The current portion of the liability represents the cancellation requests received from customers who were eligible to cancel their reservations as of December 31, 2022, and therefore would have been needed to be repaid immediately if canceled.
Depending on the general terms and conditions, in some cases, a cancellation by the customer was possible in less than twelve months. Customers could provide their advance payments in several installments, the latest of which determines the applicable cancellation policy. As of December 31, 2022, for customers who made their latest installment on or before November 25, 2020, cancellation was possible at any time. For customers who made their latest installment later than November 25, 2020, but before November 3, 2021, cancellation was possible on August 1, 2023, or later. For customers who made their latest installment on or after November 3, 2021, cancellation was possible on January 1, 2024, or later. Deviating from these conditions, in November 2020, Sono Group approached all German-speaking customers that had made their latest installment during the crowdfunding campaign from December 1, 2019, until and including January 20, 2020, and asked them to accept a change in the terms and conditions to waive their cancellation right until December 31, 2022. In effect, those customers who accepted the change may cancel their advance payment on January 1, 2023, or later. For customers who increased their reservation during the crowdfunding campaign, between December 8 and December 31, 2022, the then accepted terms and conditions were designed to supersede the original terms and conditions from the original reservation. For those customers, cancellation was deemed to be possible on January 1, 2025.
As of December 31, 2022,
The table below shows the changes in the advance payments received from customers:
| 2023 | 2022 | |||||||
| kEUR | kEUR | |||||||
| Balance as of January 1 | ||||||||
| Additions | ||||||||
| Repayment | ( | ) | ( | ) | ||||
| Net interest | ( | ) | ||||||
| Reclassification to current | ( | ) | ||||||
| Donation | ( | ) | ||||||
| One-time bonus | ||||||||
| VAT gross up | ||||||||
| Deconsolidation of Subsidiary | ( | ) | ||||||
| Balance as of December 31 | ||||||||
On February 24, 2023, Sono Group decided to terminate the Sion passenger car program due to a lack of available funding and to pivot the business model to exclusively retrofitting and integrating Sono Group’s solar technology onto third party vehicles. Since there will no longer be delivery of the car, advance payments are due back to customers.
Sono Group proposed a payment plan to reimburse reservation holders for advance payments made in three installments ( May 2023, June 2024 and January 2025). Reservation holders who accepted the payment plan would have received a one-time bonus of
Due to the change in the IFRS standard applicable from IFRS 15 to IFRS 9, the following financial effects occurred: the accrued interest, previously accumulated (kEUR
| 7.10 | Financial liabilities |
| 7.10.1 | Financial liabilities overview |
The below table shows the changes in loans:
| Nominal amounts | Loan | Subordinated | Convertible debentures** | Total | ||||||||||||
| kEUR | kEUR | kEUR | kEUR | |||||||||||||
| January 1, 2022* | ||||||||||||||||
| Addition | ||||||||||||||||
| Accrued interest | ||||||||||||||||
| Repayment | ( | ) | ( | ) | ( | ) | ||||||||||
| Effect of currency translation | ( | ) | ( | ) | ||||||||||||
| Conversion to equity | ( | ) | ( | ) | ||||||||||||
| December 31, 2022 | ||||||||||||||||
| Accrued interest | ||||||||||||||||
| Effect of currency translation | ( | ) | ( | ) | ||||||||||||
| Deconsolidation of subsidiary | ( | ) | ( | ) | ( | ) | ||||||||||
| Conversion to equity | ( | ) | ( | ) | ||||||||||||
| December 31, 2023 | ||||||||||||||||
| * | including nominal interest accrued in previous periods if applicable |
| ** | amounts are translated into kEUR, the original nominal amount was kUSD amounts presented are for the 2022 convertible debentures and the modified convertible debentures; amounts presented are the sum of the host contracts, embedded derivatives and deferred day-one losses or gains |
| Carrying amounts | Loan | Subordinated | Convertible debentures* | Total | ||||||||||||
| kEUR | kEUR | kEUR | kEUR | |||||||||||||
| January 1, 2022 | ||||||||||||||||
| Initial recognition | ||||||||||||||||
| Subsequent measurement | ||||||||||||||||
| Derecognition | ( | ) | ( | ) | ( | ) | ||||||||||
| Effect of currency translation | ( | ) | ( | ) | ||||||||||||
| Conversion to equity | ( | ) | ( | ) | ||||||||||||
| December 31, 2022 | ||||||||||||||||
| Subsequent measurement | ||||||||||||||||
| Deconsolidation of subsidiary | ( | ) | ( | ) | ( | ) | ||||||||||
| Effect of currency translation | ( | ) | ( | ) | ||||||||||||
| Conversion to equity | ( | ) | ( | ) | ||||||||||||
| December 31, 2023 | ||||||||||||||||
| * | amounts presented are for the 2022 convertible debentures and the modified convertible debentures; amounts presented are the sum of the host contracts, embedded derivatives and deferred day-one losses or gains |
Loan 1
Loan 1 consists of nine individual loans with an aggregate nominal value of kEUR
Subordinated loans (crowdfunding)
These loans consisted of several crowdfunding loans with interest rates of
Mandatory convertible notes
In December 2020, Sono Group issued mandatory convertible notes with a nominal value of kEUR
Convertible debentures
On December 7, 2022, December 8, 2022, and December 20, 2022, the Company issued convertible debentures to Yorkville in three tranches with an aggregate nominal amount of kUSD
Any conversion was subject to certain limitations and conditions, including that Yorkville shall not have the right to convert any portion of the debentures or receive ordinary shares that would result in it and its affiliates beneficially owing in excess of
Further limitations were the trading volume, the conversion price of the shares, and the conversion amount. A minimum conversion amount of kUSD
If not converted (either partially or in whole), the 2022 convertible debentures were repayable, including interest, at maturity in December 2023. In case the contractually defined “triggering event” occurred the outstanding principal balance at that time would have be due in equal monthly installments over the remaining life of the debentures (including accrued interest (increased to
The contractual rights, in particular the conversion rights, can lead to changed cash flows and represent embedded derivatives, so that the contracts each consisted of a host contract and embedded derivatives as financial instruments. The embedded derivatives (measured at FVTPL) were separated from the host (measured at amortized cost) and accounted for separately, as the economic characteristics and risks are not closely related to the host. The conversion rights of the 2022 convertible debentures were not an equity instrument but a liability, as the conversion features of the loan lead to a conversion into a variable number of shares. The conversion features and any other options provided for in the contracts of the 2022 convertible debentures that have to be bifurcated were treated as a combined embedded derivative as they share the same risk exposure and are interdependent. As the fair value of the 2022 convertible debentures (total fair values of the host contract and embedded derivatives) differed from the transaction price at initial recognition, this difference was deferred (day-one loss). The carrying amount of the host contracts and embedded derivatives are presented in the same financial statement line item net of the deferred day-one losses or gains. The deferred day-one losses were amortized pro rata on a straight-line basis until the end of May 2023 as this was the expected date for the last conversion.
On December 21, 2022, the Company converted a portion of the nominal and accrued interest amount, kUSD
From January 1, 2023, through March 31, 2023 and in accordance with the 2022 convertible debenture agreements from December 7, December 8, and December 20, 2022, between the Company and Yorkville, the Company issued
In November 2023, the contractual terms of the 2022 convertible debentures were renegotiated and significantly amended. The amendment resulted in substantially different terms of the contract and, consequently, in derecognition of the original financial liability. A new financial liability, the modified convertible debentures, was recognized.
The significant differences to the 2022 convertible debentures are as follows: If not converted (either partially or in whole), the modified convertible debentures are repayable, including interest, at maturity in July 1, 2025; The conversion price is the lower of USD
The deferred day-one gains will be amortized pro rata on a straight-line basis until the end of October 2024.
| 7.10.2 | Noncurrent financial liabilities |
The below table displays details on items included in other noncurrent financial liabilities:
| Dec. 31, 2023 | Dec. 31, 2022 | |||||||
| kEUR | kEUR | |||||||
| Loans | ||||||||
| Lease liabilities | ||||||||
| Total | ||||||||
For further details regarding the conditions of the other noncurrent financial liabilities, we refer to note 7.10.1 Financial liabilities overview.
| 7.10.3 | Current financial liabilities |
The below table displays details on items included in current financial liabilities:
| Dec. 31, 2023 | Dec. 31, 2022 | |||||||
| kEUR | kEUR | |||||||
| Loans | ||||||||
| Affiliated company balance | ||||||||
| Lease liabilities | ||||||||
| Total | ||||||||
The affiliate company balance relates to amounts owed to Sono Motors with no repayment terms and therefore classified as current. This balance was settled in 2024 as part of the Plan to exit insolvency that was presented and accepted by the court. See note 9.7.1 Exit from insolvency.
For further details regarding the conditions of the other financial liabilities, we refer to note 7.10.1 Financial liabilities overview.
| 7.11 | Other noncurrent non-financial liabilities |
The other non-current non-financial liabilities as of December 31, 2022 (kEUR ) relate to government grants for long-term projects. Sono Group N.V. has received a grant from the European Climate, Infrastructure and Environmental Executive Agency (CINEA) for the development of electric vehicles and smart charging infrastructure. This project will enable and facilitate the mass deployment of electric vehicles and the accompanying smart charging infrastructure. Sono Group N.V. has received pre financing, the purpose of which is to provide the beneficiary with a float. Due to grant conditions and duration of the project, the pre-financing was classified as non-current liability as the completion of the grant conditions or the potential repayment if the grant conditions are not met wasn’t expected to occur within a year of December 31, 2022.
The decision was taken to exit the project after the termination of the Sion and the remaining balance will be claimed via the creditor claim process related to the insolvency. Income related to the project of kEUR
| 7.12 | Trade and other payables |
The below table displays details on items included in trade and other payables:
| Dec. 31, 2023 | Dec. 31, 2022 | |||||||
| kEUR | kEUR | |||||||
| Trade payables | ||||||||
| Other payables | ||||||||
| Contract liabilities | ||||||||
| Total | ||||||||
The majority of the decrease in the other current financial asset balance is due to Sono Motors’ assets and liabilities being derecognized from the consolidated position, along with the decrease in expenditure due to the termination of the Sion and the control over expenditure during the insolvency process. For further information see note 3. Basis of consolidation.
| 7.13 | Current other liabilities |
The below table displays details on items included in other current liabilities:
| Dec. 31, 2023 | Dec. 31, 2022 | |||||||
| kEUR | kEUR | |||||||
| Accruals and deferrals | ||||||||
| Employee tax liabilities (wage and church tax) | ||||||||
| Tax liabilities (taxes and interest) | ||||||||
| Current employee benefit liabilities (incl. social security) | ||||||||
| Miscellaneous other liabilities | ||||||||
| Total | ||||||||
The majority of the decrease in the other current financial asset balance is due to Sono Motors’ assets and liabilities being derecognized from the consolidated position. For further information see note 3. Basis of consolidation.
| 7.14 | Provisions |
The table below presents information on the movements and carrying amounts of provisions over the course of the reporting period.
| Balance as of | Usage | Additions | Deconsolidation | Balance as of | ||||||||||||||||
| Jan. 1, 2023 | Dec. 31, 2023 | |||||||||||||||||||
| KEUR | kEUR | kEUR | kEUR | kEUR | ||||||||||||||||
| Other provisions | ( | ) | ||||||||||||||||||
| Personnel provisions | ( | ) | ||||||||||||||||||
| Parental guarantee provision | ||||||||||||||||||||
| Financial statements | ( | ) | ||||||||||||||||||
| Total | ( | ) | ( | ) | ||||||||||||||||
| Balance as of | Usage | Additions | Reversals | Balance as of | ||||||||||||||||
| Jan. 1, 2022 | Dec. 31, 2022 | |||||||||||||||||||
| KEUR | kEUR | kEUR | kEUR | kEUR | ||||||||||||||||
| Other provisions | ( | ) | ||||||||||||||||||
| Personnel provisions | ||||||||||||||||||||
| Financial statements | ( | ) | ||||||||||||||||||
| Total | ( | ) | ||||||||||||||||||
The current provisions as of December 31, 2023 mainly relates to services to prepare consolidated annual financial statements in accordance with IFRS and services provided by the independent auditor (2023: kEUR 2022: kEUR ), and a legal case with an employee (2023: kEUR ; 2022: kEUR
Sono N.V. signed a hard comfort letter for the benefit of Sono Motors and had the obligation to provide Sono motors with financial resources in such a way that Sono Motors is able to meet all its current and future obligations as the obligations fall due for payment. This obligation is recognized as a provision in 2023.
| 7.15 | Contingencies |
In the first half of 2021, Sono Group informed its designated battery supplier that we would not purchase the battery from this supplier. The supplier has indicated that it believes it is entitled to compensation under its contract with us. In June 2022, the supplier filed an action for declaratory judgment with the Regional Court Stuttgart. Sono Group had assessed this claim would not be successful and the financial impact would be zero. On March 7, 2023, the former supplier declared the matter terminated in a written pleading.
| 8 | Disclosure of financial instruments and risk management |
| 8.1 | Type and management of financial risks |
| 8.1.1 | General information |
Sono Group is exposed to certain financial risks with respect to its financial assets and liabilities and the transactions associated with its business model. These risks generally relate to credit risk, liquidity risk and market risks (especially interest rate risk, share price risk and foreign exchange rate risk).
The aim of risk management is to limit the potential negative impact on expected cash flows and take advantage of any opportunities that arise.
| 8.1.2 | Credit risk |
Credit risk is the risk of financial loss to Sono Group if a counterparty to a financial instrument fails to meet its contractual obligations and arises from cash and cash equivalents and other financial assets. To limit credit risk, cash deposits and investments are placed only with reputable financial institutions, based on a qualitative assessment by Sono Group’s finance department under consideration of the creditworthiness of the financial institutions. Consequently, the risk of default is considered to be low.
For the reporting year and the previous year, there were no significant increases in credit risks for financial assets (no transfer from Stage 1 to Stage 2). Therefore, the loss allowance for all financial assets is measured at an amount equal to 12-month ECL (Stage 1). 12-month ECL is determined using external credit ratings as well as external recovery rates.
The table below reconciles the opening and ending balance for loss allowances for other current and noncurrent financial assets as well as cash and cash equivalents as of December 31:
| Total | ||||
| kEUR | ||||
| Opening loss allowance as of January 1, 2022 | ||||
| Additions recognized in profit or loss during the period | ||||
| Reversals recognized in profit or loss during the period | ( | ) | ||
| Closing loss allowance as of December 31, 2022 | ||||
| Opening loss allowance as of January 1, 2023 | ||||
| Reversals recognized in profit or loss during the period | ( | ) | ||
| Closing loss allowance as of December 31, 2023 | ||||
The table below displays the gross carrying amount of other current and noncurrent financial assets as well as cash and cash equivalents by credit risk rating grades.
| Credit risk rating grade | Gross carrying amount | ||||
| kEUR | |||||
| December 31, 2022 | Risk class 1 | ||||
| December 31, 2023 | Risk class 1 | ||||
Due to the small number of financial assets, Sono Group uses the ECL stages as credit risk rating grades. Risk class 1 denotes a stage 1 expected credit loss.
| 8.1.3 | Liquidity risk |
Liquidity risk is the risk that Sono Group will encounter difficulties in meeting its obligations associated with financial liabilities that are settled by delivering cash or other financial assets.
In the past, Sono Group has mainly relied on equity financing from shareholders and private investors. Although the IPO proceeds have served to increase the Group’s level of liquidity in 2021, Sono Group was exposed to liquidity risk arising mainly from financial liabilities from the operating business (trade payables, salaries) as well as from subordinated loans from crowdfunding activities and other loans. In addition, the received advance payments from customers could also potentially be requested to be repaid. As a result, management concluded in the past that Sono Group was exposed to high liquidity risk and consequently a risk of going concern.
In order to reach production of the Sion, Sono Group had to seek further financing during 2022 to meet its liquidity obligations. Sono was highly dependent on successful equity offerings or private investors.
Due to deteriorating market conditions during 2022, Sono was not successful in raising further funding from equity. However, in order to meet the planned start of production, Sono Group had to accelerate prepayments to suppliers which considerably decreased available liquidity. The considerably increased number of employees also had a negative impact on liquidity during 2022. Moreover, there was the risk of customers canceling their reservations and reclaiming their advance payments, and the risk of having to repay the customer prepayments in full in case the start of production, which had been postponed several times in the past already, could not be realized. For details on advance payments received, refer to note 7.9 Advance payments received from customers.
In December 2022, lacking more favorable financing offers, the Company issued convertible debentures in an aggregate nominal amount of kUSD
In the past, given that management was aware of the high liquidity risk, Sono Group’s liquidity management focused on the availability of cash and cash equivalents for operational activities, repayments of liabilities, development expenses and further fixed asset investments by means of budget planning and appropriate reactions to expected cash restrictions. Sono Group has established an appropriate approach to managing short-, medium- and long-term financing and liquidity requirements. It originally managed liquidity risks by holding cash reserves, raising funding through share issues and debt financial instruments, as well as by monitoring forecasted and actual cash flows. To monitor the availability of liquidity, cash flow forecasts are developed on a regular basis. Based on these cash flow forecasts, a run rate, which displays the period Sono Group is able to carry on its current operations without additional financing, is determined. As a safeguard for legal risks associated with liquidity issues, due to the high liquidity risk, especially during 2022 when financing attempts proved unsuccessful and the reserve initially held for the potential risk to repay customer prepayments was partially used for Sion related payment obligations, external legal advice has been sought in order to comply with German insolvency laws. This finally led to the decision of management in May 2023 to file for insolvency.
As part of the restructure which resulted in the successful emergence from insolvency, the Yorkville Agreements became effective in January 2024 (see note 9.7.3 Funding and restructuring agreement). This funding is closely linked to the underlying Solar Bus Kit business plan and therefore management’s focus related to managing liquidity will be on the close control that the business plan assumptions will be met. Due to the limited funding that is planned to be provided by Yorkville until end of the second quarter of 2025 (2022: end of 2024) and based on the due date of the repayment obligation of the modified convertibles in July 2025 together with the dependency to successfully raise further funding from investors, Sono Management continues to assess liquidity risk to be high. Also refer to note 4.12.1 Going concern.
The table below summarizes the maturity profile of Sono Group’s financial liabilities based on contractual undiscounted payments:
| Carrying amount | < 1 year | 1 to 5 years | >5 years | |||||||||||||
| kEUR | kEUR | kEUR | kEUR | |||||||||||||
| Trade and other payables | ||||||||||||||||
| Loans* | ||||||||||||||||
| Lease liabilities | ||||||||||||||||
| Total December 31, 2023 | ||||||||||||||||
* As of the balance sheet date it was likely that the full amount outstanding of the convertible debentures will be converted, however the impact of the convertible loans being repaid is shown.
| Carrying amount | < 1 year | 1 to 5 years | >5 years | |||||||||||||
| kEUR | kEUR | kEUR | kEUR | |||||||||||||
| Trade and other payables | ||||||||||||||||
| Loans* | ||||||||||||||||
| Lease liabilities | ||||||||||||||||
| Total December 31, 2022 | ||||||||||||||||
| 8.1.4 | Interest rate risk |
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Sono Group’s exposure to the risk of changes in market interest rates relates primarily to cash and cash equivalents, as financial liabilities bear either no interest (trade and other payables) or fixed interest (loans and lease liabilities).
In 2022 and prior, Sono Group was exposed to the risk of being charged negative interest rates on its bank deposits at a fixed interest rate. In the reporting period, negative interest charges amount to kEUR - (2022: kEUR 2021: kEUR ) and is disclosed as part of bank charges in note 6.4 General and administrative expenses. In 2023, the market interest rate has increased in comparison to prior years and there is likely no longer the risk of being charged negative interest on bank deposits based on current conditions.
Interest rate exposure is monitored on an ongoing basis. As a measure to reduce such risk, payment of trade and other payables is streamlined accordingly.
| 8.1.5 | Share price risk |
Share price risk relates to the risk of losses resulting from the unfavorable development of share prices. Sono Group is exposed to its own share price risk due to the conversion rights for Yorkville embedded in the 2022 and modified convertible debentures. For details relating to the 2022 and modified convertible debentures, please refer to note 7.10.1 Financial liabilities overview. As of December 31, 2023 and December 31, 2022, the convertible debentures were subjected to a sensitivity analysis with regard to share price risk. The hypothetical effects to profit or loss in case of a change in Sono Group N.V.’s share price are presented in section 8.3.2 Carrying amounts and fair values. Currently, the shares are not listed on Nasdaq or any other exchange due to the delisting (see note 9.7.6 Nasdaq delisting) and quoted on over-the-counter markets. Share price development is monitored regularly and it is determined on a case by case basis whether any specific action is required.
| 8.1.6 | Currency risk |
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group’s exposure to currency risk relates to cash balances, recognized convertible debentures and trade payables in a currency other than the functional currency of the Group. Currency risk is managed by closely monitoring account balances in foreign currencies and exchange rates to assess the exposure to currency risk on an ongoing basis. Hedging has been discussed and analyzed for usefulness and was not deemed necessary at that point in time, however, the topic is revisited regularly to continuously assess the situation.
Sono Group had the following carrying amounts of exposures in foreign currency:
| December 31, 2023 | December 31, 2022 | |||||||
| kEUR | kEUR | |||||||
| Cash | ||||||||
| USD | ||||||||
| Convertible debentures (all components) | ||||||||
| USD | ||||||||
| Trade payables | ||||||||
| USD | ||||||||
| SEK | ||||||||
| GBP | ||||||||
| CHF | ||||||||
| PLN | ||||||||
At the end of the reporting period and of the previous year, Sono Group had
Based on the respective exchange rates, a hypothetical appreciation of the EUR compared to the foreign currencies by
| EUR appreciation by 10 % | December 31, 2023 | December 31, 2022 | ||||||
| kEUR | kEUR | |||||||
| USD | ||||||||
| SEK | ||||||||
| GBP | ||||||||
| CHF | ||||||||
| PLN | ||||||||
Based on the respective exchange rates at the end of the reporting period, a hypothetical depreciation of the EUR compared to the foreign currencies by
| EUR depreciation by 10 % | December 31, 2023 | December 31, 2022 | ||||||
| kEUR | kEUR | |||||||
| USD | ( | ) | ( | ) | ||||
| SEK | ( | ) | ||||||
| GBP | ( | ) | ||||||
| CHF | ( | ) | ||||||
| PLN | ( | ) | ||||||
| ( | ) | ( | ) | |||||
| 8.2 | Capital management |
For the purpose of Sono Group’s capital management, capital includes share capital and all other equity reserves attributable to equity holders. The total amount of capital in the reporting year was kEUR (
As of December 31, 2023, based on the stage of the business cycle of Sono Group’s solar product, the Group relies almost exclusively on external financing.
For information on the capital raised in 2022 and 2023, please refer to note 7.8 Equity. For events after the balance sheet date see note 9.7. Subsequent events.
| 8.3 | Additional information on financial instruments |
| 8.3.1 | Offsetting of financial assets and liabilities |
Sono Group neither applies offsetting in the balance sheet nor has any instruments that are subject to a legally enforceable master netting arrangement or a similar agreement.
| 8.3.2 | Carrying amounts and fair values |
The table below displays information on fair value measurements, carrying amounts and categorization of financial instruments of Sono Group.
| December 31, 2023 | ||||||||||||||||
| kEUR | carrying amount | category | fair value | fair value | ||||||||||||
| Noncurrent financial assets | ||||||||||||||||
| Other financial assets | ||||||||||||||||
| Sublease asset | AC | 2 | ||||||||||||||
| Security deposits | AC | 2 | ||||||||||||||
| Current financial assets | ||||||||||||||||
| Other financial assets | ||||||||||||||||
| Sublease asset | AC | 2 | ||||||||||||||
| Debtor creditors | AC | n/a* | n/a | |||||||||||||
| Cash and cash equivalents | AC | n/a* | n/a | |||||||||||||
| Noncurrent financial liabilities | ||||||||||||||||
| Financial liabilities | ||||||||||||||||
| Lease liabilities | - | - | - | |||||||||||||
| Current financial liabilities | ||||||||||||||||
| Financial liabilities | ||||||||||||||||
| Loans | FLAC | n/a* | n/a | |||||||||||||
| Affiliate payable | FLAC | n/a* | n/a | |||||||||||||
| Convertible debentures (host contracts) | FLAC | 3 | ||||||||||||||
| Convertible debentures (embedded derivatives) | FVTPL | 3 | ||||||||||||||
| Convertible debentures (deferred day-one gain) | - | - | ||||||||||||||
| Lease liabilities | - | - | - | |||||||||||||
| Trade Payables | FLAC | n/a* | n/a | |||||||||||||
| Other payables | FLAC | n/a* | n/a | |||||||||||||
| Contract liabilities | - | - | - | |||||||||||||
| * | The carrying amount approximately equals the fair value, thus no separate fair value disclosure is needed according to IFRS 7.29 |
| December 31, 2022 | ||||||||||||||||
| kEUR | carrying amount | category | fair value | fair value | ||||||||||||
| Noncurrent financial assets | ||||||||||||||||
| Other financial assets | ||||||||||||||||
| Security deposits | AC | 2 | ||||||||||||||
| Other assets | AC | n/a* | n/a | |||||||||||||
| Current financial assets | ||||||||||||||||
| Other financial assets | ||||||||||||||||
| Paypal reserve | AC | n/a* | n/a | |||||||||||||
| Receivables from crowdfunding and deposits | AC | n/a* | n/a | |||||||||||||
| Debtor creditors | AC | n/a* | n/a | |||||||||||||
| Current trade receivables | AC | n/a* | n/a | |||||||||||||
| Current trade receivables (affiliated companies) | AC | n/a* | n/a | |||||||||||||
| Other | AC | n/a* | n/a | |||||||||||||
| Cash and cash equivalents | AC | n/a* | n/a | |||||||||||||
| Noncurrent financial liabilities | ||||||||||||||||
| Financial liabilities | ||||||||||||||||
| Loans | FLAC | 3 | ||||||||||||||
| Lease liabilities | - | - | - | |||||||||||||
| Current financial liabilities | ||||||||||||||||
| Financial liabilities | ||||||||||||||||
| Loans | FLAC | n/a* | n/a | |||||||||||||
| Convertible debentures (host contracts) | FLAC | 3 | ||||||||||||||
| Convertible debentures (embedded derivatives) | FVTPL | 3 | ||||||||||||||
| Convertible debentures (deferred day-one losses) | ( | ) | - | - | ||||||||||||
| Lease liabilities | - | - | - | |||||||||||||
| Trade Payables | FLAC | n/a* | n/a | |||||||||||||
| Other payables | FLAC | n/a* | n/a | |||||||||||||
| Contract liabilities | - | - | - | |||||||||||||
| * | The carrying amount approximately equals the fair value, thus no separate fair value disclosure is needed according to IFRS 7.29 |
The carrying amounts of each of the categories listed above as defined according to IFRS 9 as of the reporting dates were as follows:
| Dec. 31, 2023 | Dec. 31, 2022 | |||||||
| kEUR | kEUR | |||||||
| Financial assets measured at amortized cost (AC) | | | ||||||
| Financial liabilities measured at amortized cost (FLAC) | | | ||||||
| Financial liabilities measured at fair value through profit or loss (FVTPL) | | | ||||||
All financial assets and liabilities for which the fair value is measured or disclosed in the consolidated financial statements are categorized according to the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
| • | Level 1 — Inputs are quoted prices in (unadjusted) active markets for identical assets or liabilities |
| • | Level 2 — Inputs are inputs, other than quoted prices included within Level 1, which are directly or indirectly observable |
| • | Level 3 — Inputs are unobservable for the asset or liability |
In 2022, the fair values of the two components of each of the 2022 convertible debentures, i.e., the host contract and the combined embedded derivatives, were determined as follows: First, the fair value of the hybrid financial instrument was determined by applying a simulation model (valuation technique) in which expected cash flows were based on expectations regarding the volume and point in time of conversion. In this simulation model with 50,000 simulated paths, the daily share prices were modeled based on a geometric Brownian motion with a drift rate equal to the risk-free interest rate over a one-year period. The conversion price was determined as the minimum of the simulated share prices during the seven-day period immediately preceding each assumed conversion date. As long as the simulated share price remained at or above USD
In 2023, the fair value of the two components of the modified convertible debentures were determined with a similar model as used in 2022. However, this model takes into account the amended terms and conditions and the financing situation under the restructuring agreement with Yorkville. Due to the greater stability of the simulation model only 20,000 price paths were used. The most important changes of the terms and conditions are reflected by the new fixed conversion price of USD
Due to their short-term nature, the carrying amounts of the cash and cash equivalents and other current financial assets and liabilities approximate their fair value (except of the convertible debentures). The fair value of noncurrent financial assets and liabilities is determined by applying the discounted cash flow method (valuation technique). In doing so, future cash flows resulting from the financial asset or liability are discounted using an interest rate derived from an estimated credit rating.
In case of noncurrent financial assets, the counterparties are reputable financial institutions, thus credit risk has no significant influence on fair value, which leads to a classification as level 2 fair value.
At the end of fiscal year 2022 and 2023, the fair values of noncurrent financial liabilities measured at amortized cost are classified as level 3 as the credit rating is a non-observable input factor with significant influence on the fair value.
The Sono Group performs valuations including level 3 fair value measurements with the involvement of external consultants (valuation specialists). As part of the valuation process, Sono Group reviewed the contents of the contracts, concluded on the key assumptions, held discussions with the valuation specialists to ensure a consistent valuation in relation to all financial instruments and evaluated the valuation results.
The following tables summarize the quantitative information about significant observable and unobservable inputs used in level 3 recurring fair value measurements and shows the effect on the fair value when the input parameters increase or decrease:
| Description | Fair value | Observable* /unobservable input factor | Range of increase/ decrease of input factor | Relationship of change in observable/unobservable input factor to fair value | |
|
| Effect of increase of input parameter (in kEUR) | Effect of decrease of input parameter (in kEUR) | |||
| Convertible debentures (embedded derivative) | | Share price* |
|
|
|
| Exchange rate USD/EUR* |
|
|
| ||
| Risk-free interest rate* |
|
|
| ||
| Share price volatility |
|
|
| ||
| Credit spread |
|
|
| ||
| (Partial) conversion in equity | accelerated schedule/ decelerated schedule | ||||
| * | Share price, exchange rate and risk-free interest rate are observable input parameters |
| Description | Fair value | Observable* /unobservable input factor | Range of increase/ decrease of input factor | Relationship of change in observable/unobservable input factor to fair value | |
|
| Effect of increase of input parameter (in kEUR) | Effect of decrease of input parameter (in kEUR) | |||
| Convertible debentures (embedded derivative) | | Share price* |
|
|
|
| Exchange rate USD/EUR* |
|
|
| ||
| Risk-free interest rate* |
|
|
| ||
| Share price volatility |
|
|
| ||
| Credit spread |
|
|
| ||
| Probability of default |
|
|
| ||
| Recovery rate in case of event of default |
|
| - | ||
| (Partial) conversion in equity | accelerated schedule/ decelerated schedule |
|
| ||
| * | Share price, exchange rate and risk-free interest rate are observable input parameters |
For the unobservable input factors in 2022, there is a relationship between the credit spread (used as an input for the valuation of the host contract) and the probability of default (used as a direct input for the valuation of the hybrid instrument). If the rating-based credit spread increases, it can be assumed that the probability of default will also increase, as this is also determined on the basis of ratings. For small incremental changes, a higher credit spread leads to a lower value of the host contract and accordingly to a higher value assigned to the embedded derivatives. An incrementally higher probability of default leads to a lower value of the hybrid contract and accordingly a lower value assigned to the embedded derivatives. Hence, the effect of the individual input factors on the change in fair value of the embedded derivatives is weakened in each case. As of the balance sheet date, conversions were expected to occur over a relatively short time horizon, so a sharp increase in credit spread or probability of default was not expected. However, when the increase reaches a critical level, the fair value of both the host contract and the embedded derivatives begin to approach zero, because economically beneficial conversions become less likely and repayments of principal and interest on the host contract also become less likely.
In addition, in 2022, there is also a correlation between the extent and timing of conversions of 2022 convertible debentures into equity and the probability of default. The probability of default has a greater impact on the fair value the later the conversions take place (e.g., in the case of minimum conversions).
The following table presents the changes in the recurring level 3 fair value measurements (i.e., derivatives embedded in the convertible debentures) for the period ended December 31, 2023, and December 31, 2022:
| 2023 | 2022 | |||||||
| kEUR | kEUR | |||||||
| Balance at beginning of year | ||||||||
| Additions (convertible debentures issued) | ||||||||
| Modification | ||||||||
| Conversion in equity (capital and other reserves) | ( | ) | ( | ) | ||||
| Fair value changes presented in profit or loss (interest and similar income) | ( | ) | ( | ) | ||||
| Income from currency revaluation (interest and similar income) | ( | ) | ( | ) | ||||
| Balance at end of year | ||||||||
In 2023, the amount of the total gains or losses for the period presented in the table above that affect the profit and loss statement include unrealized gains from fair value changes of kEUR
In 2022, the amount of the total gains or losses for the period presented in the table above that affect the profit and loss statement are all unrealised.
The table below reconciles the opening and ending balance for the deferred day-one losses as of December 31:
| 2023 | 2022 | |||||||
| kEUR | kEUR | |||||||
| Balance at beginning of year | ||||||||
| Additions | ||||||||
| Expense from currency revaluation | ( | ) | ( | ) | ||||
| Amortization recognized in profit or loss during the period | ( | ) | ( | ) | ||||
| Balance at end of year | ||||||||
The table below reconciles the opening and ending balance for the deferred day-one gain as of December 31:
| 2023 | ||||
| kEUR | ||||
| Balance at beginning of year | ||||
| Additions | ||||
| Expense from currency revaluation | ( | ) | ||
| Amortization recognized in profit or loss during the period | ( | ) | ||
| Balance at end of year | ||||
| 8.3.3 | Income and expenses |
Total interest income and total interest expense are calculated by applying the EIR method to the gross carrying amount of financial assets and liabilities measured at amortized cost. Total interest expenses were as follows:
| 2023 | 2022 | 2021 | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Total interest expense for financial assets at amortized cost | ||||||||||||
| Total interest expense for financial liabilities at amortized cost | ||||||||||||
The presented total interest expense for financial assets at amortized cost is included in other general and administrative expenses as it results from negative interest charges. See note 8.1.4 Interest rate risk for further details.
The table below shows the net gains or losses of financial instruments by measurement categories:
| 2023 | 2022 | 2021 | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Net (loss) for financial assets at amortized cost | ( | ) | ( | ) | ||||||||
| Net (loss) for financial liabilities at amortized cost | ( | ) | ( | ) | ( | ) | ||||||
| Net gain for financial liabilities at FVTPL | ||||||||||||
In 2022 and 2021, net losses for financial assets at amortized cost include reversals in the loss allowance as well as losses due to negative interest charges, disclosed as bank charges. Net losses for financial liabilities at amortized cost include interest expenses and currency revaluations.
Net gain for financial liabilities at FVTPL includes changes in the fair value measurement of the convertible debentures embedded derivatives and currency revaluations. In 2021, net gain for financial liabilities at FVTPL included changes in the fair value measurement of mandatory convertible notes, including fair value changes due to own credit risk.
| 9 | Other disclosures |
| 9.1 | Defined contribution plans (government-run pension plans) |
Sono Group makes payments under defined contributions plans, related to government-run pension plans. In the financial year 2023, the total expense recognized amounted to kEUR
| 9.2 | Government grants |
In fiscal year 2023, other operating income includes an amount of kEUR
The amount recognized in 2023 relates to the SCALE project. For further information see note 7.11 Other noncurrent non-financial liabilities.
The government grant income in 2022 relates to a research grant in the form of tax subsidies for expenses related to solar projects that were incurred in 2020. The entire amount was awarded, received and recognized in 2022.
The amounts recognized in 2021 related to a grant that Sono Motors received from the EU to promote the development of open-source hardware as part of the “OPEN_NEXT” project.
| 9.3 | Remuneration based on shares (share-based payment) |
| 9.3.1 | Staff members and managers - CSOP |
In December 2020, Management offered eligible employees (
In November 2021, Sono Group successfully completed an IPO and was listed on the Nasdaq.
Immediately prior to the pricing of the IPO on November 16, 2021, additional ordinary shares were issued to all of our existing shareholders, replicating the effect of a share split. Each of the existing shareholders received
For all staff members as well as manager in the CSOP, all granted share options are fully vested as of December 31, 2022 (also fully vested as of December 31, 2021). They became exercisable one year after the IPO in November 2022. All unexercised share options expire years after the IPO.
Two managers in the CSOP have a vesting period of
Sono N.V. measures the fair value of the received services by reference to the fair value of the equity instruments (share options) granted and the number of share options contractually agreed on with each participant. Sono N.V. recognizes the fair value of the services as expenses and a corresponding increase in equity when the services are received. If Sono N.V. and the participant did not agree on service conditions (86 participants) and the participant is unconditionally entitled to the share options, Sono N.V. presumes that the services have been received on grant date and recognizes the services received in full, with a corresponding increase in equity. If Sono N.V. and the participant did agree on service conditions (two participants), Sono N.V. accounts for the services as they are rendered by the participant during the vesting period, with a corresponding increase in equity.
The following table illustrates the volume of the program, the weighted average fair value at grant date as well as the total expense of the period and the corresponding increase in equity:
| December 31, 2023 | ||||
| Number of options granted | ||||
| Number of options exercised | ||||
| Weighted average fair value at grant date (EUR) | ||||
| Expense for the period (kEUR) | ||||
| Increase in equity (kEUR) |
| December 31, 2022 | ||||
| Number of options granted | ||||
| Number of options exercised | ||||
| Weighted average fair value at grant date (EUR) | ||||
| Expense for the period (kEUR) | ||||
| Increase in equity (kEUR) |
The following table illustrates the number of, and movements in, share options during the year:
| 2023 | 2022 | |||||||
| As of January 1 | ||||||||
| Granted during the period | ||||||||
| Forfeited during the period | ||||||||
| Exercised during the period | ( | ) | ( | ) | ||||
| As of December 31 | ||||||||
| Weighted average remaining contractual life (in years) |
|
| ||||||
As of December 31, 2023,
When participants exercise their options, they are entitled to a bonus share issue of
The exercise price of all share options is EUR
The fair value of the share options for the equity-settled share-based transactions was measured using Black-Scholes Model on the grant date and the following inputs:
| Input factor | ||||
| Weighted average share price (EUR) | ||||
| Exercise price (EUR) | ||||
| Expected volatility | % | |||
| Option life (yrs.) | ||||
| Expected dividends (EUR) | ||||
| Risk-free interest rate | ( | )% | ||
| Lack of marketability discount | % |
The expected life of the share options was based on current expectations and was not necessarily indicative of exercise patterns that may occur. The expected volatility was based on an evaluation of historical volatilities of comparable listed peer group companies. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may not necessarily be the actual outcome.
| 9.3.2 | Staff members - ESOP |
In April 2022, Management offered all permanent employees, except the top management, the opportunity to join a new employee participation program (Employee Stock Option Program or ESOP), which is equity-settled. Every employee will be granted the equivalent of percent of their annual gross salary in stock options, with a minimum of kEUR
As of December 31, 2023, no employees had signed the ESOP because the drafting of the contracts has not been finalized yet. However, since the employees are already rendering service for the ESOP, expense has been recognized from the second quarter of 2022. As of December 31, 2023, it was the intention of Management to implement this program however there is a large amount of uncertainty over the future of the ESOP program due to the changes in financing, the Nasdaq delisting decision, change in management or ownership structures of the Group may result in the share options not being formally granted.
The table below shows the expected entitlement status as of December 31, 2023:
| Dec. 31, 2023 | Dec. 31, 2022 | |||||||
| Number of entitlements for 2021 tranche | ||||||||
| Number of entitlements for 2022 tranche | ||||||||
| Number of entitlements for 2023 tranche | ||||||||
Tranches for the years 2021 and 2022 have a cliff vesting that requires staff members to remain employed at Sono Motors until a certain date. The cliff date for the 2021 tranche is September 30, 2022 and for the 2022 tranche it is June 30, 2023. If the employment of the staff with Sono Motors should end before the cliff date, the share options are forfeited. After the vesting period all granted share options will become immediately exercisable. The contractual life of the option has not yet been finalized.
Sono Group initially measures the fair value of the received services by reference to the fair value of the equity instruments (share options) which are planned to be granted and the number of share options planned in relation to each participant and which is expected to vest. In 2022, the fair value was calculated as equal to the share price on the valuation date less the exercise price. In 2023, the fair value was calculated as trivial. The measurement of the fair value is provisional and will be updated on the grant date. Sono Group recognizes the fair value of the services as expenses and a corresponding increase in equity when the services are received.
The following table illustrates the planned volume of the program, the weighted average fair value at reporting date December 31, 2023, as well as the total expense of the period and the corresponding increase in equity:
| December 31, 2023 | ||||
| Number of options | ||||
| Weighted average fair value at reporting date (EUR) | ||||
| (Income) for the period (kEUR) | ( | ) | ||
| (Decrease) in equity (kEUR) | ( | ) |
| December 31, 2022 | ||||
| Number of options | ||||
| Weighted average fair value at reporting date (EUR) | ||||
| Expense for the period (kEUR) | ||||
| Increase in equity (kEUR) |
Sono N.V. recognized the proportionate fair value as other general and administrative expense (2023: kEUR (
The exercise price of all share options will be EUR
| 9.3.3 | Supervisory Board - RSUs |
In November 2021, Sono Group established a supervisory board. As of December 31, 2021, the supervisory board consisted of
Sono Group considers the RSU a transaction in which the terms of the arrangement provide Sono Group with a choice of settlement. Management determined that Sono Group does not have an obligation to settle in cash and therefore accounts for the transactions with the requirements applying to equity-settled share-based payment transactions.
Sono Group measures the fair value of the received services by reference to the fair value of the equity instruments (share options) granted and the number of share options contractually agreed on with members of the supervisory board. The fair value was calculated as equal to the share price on the valuation date less the exercise price. Sono Group recognizes the fair value of the services as expenses and a corresponding increase in equity when the services are rendered by the members of the supervisory board during the vesting period, with a corresponding increase in equity.
The following table illustrates the volume of the program, the weighted average fair value at measurement date as well as the total expense of the period and the corresponding increase in equity:
| December 31, 2023 | ||||
| Number of options | ||||
| Weighted average fair value at measurement date (EUR) | ||||
| (Income) for the period (kEUR) | ( | ) | ||
| (Decrease) in equity (kEUR) | ( | ) |
| December 31, 2022 | ||||
| Number of options | ||||
| Weighted average fair value at measurement date (EUR) | ||||
| Expense for the period (kEUR) | ||||
| Increase in equity (kEUR) |
Sono N.V. recognized the proportionate fair value as other general and administrative expense.
The following table illustrates the number of, and movements in, share options during the year:
| 2023 | 2022 | |||||||
| As of January 1 | ||||||||
| Granted during the period | ||||||||
| Forfeited during the period | ( | ) | ( | ) | ||||
| Exercised during the period | ||||||||
| As of December 31 | ||||||||
| The weighted average remaining contractual life (in years) | ||||||||
As of December 31, 2023,
The forfeited RSUs are due to a board member that joined in November 2021 resigning from the board in January 2022 and therefore forfeiting the granted options. In 2023,
The exercise price of all share options will be EUR
| 9.3.4 | Supervisory Board - Bonus RSUs |
In March 2022, the Supervisory Board were offered bonus RSUs, in addition to those described in note 9.3.2.These bonus share options were committed to, but not granted as there are no contracts signed and no AGM resolution approving this compensation. However, since the supervisory board members had already rendered service the expense had been recognized in 2022. During 2023,
The vesting period was intended to be
Sono Group considers the RSU a transaction in which the terms of the arrangement provide Sono Group with a choice of settlement. Management determined that Sono Group does not have an obligation to settle in cash and therefore accounts for the transactions with the requirements applying to equity-settled share-based payment transactions.
Sono Group initially measures the fair value of the received services by reference to the fair value of the equity instruments (share options) granted and the number of share options contractually agreed on with members of the supervisory board. The fair value was calculated as equal to the share price on the valuation date less the exercise price. The measurement of the fair value is provisional and will be updated on the grant date. Sono Group recognizes the fair value of the services as expenses and a corresponding increase in equity when the services are rendered by the members of the supervisory board during the vesting period, with a corresponding increase in equity.
The following table illustrates the volume of the program, the weighted average fair value at measurement date as well as the total expense of the period and the corresponding change in equity:
| December 31, 2023 | ||||
| Number of options | ||||
| Weighted average fair value at measurement date (EUR) | ||||
| (Income) for the period (kEUR) | ( | ) | ||
| (Decrease) in equity (kEUR) | ( | ) |
| December 31, 2022 | ||||
| Number of options | ||||
| Weighted average fair value at measurement date (EUR) | ||||
| Expense for the period (kEUR) | ||||
| Increase in equity (kEUR) |
Sono N.V. recognized the proportionate fair value as other general and administrative expense. The exercise price of all share options will be EUR
| 9.4 | Loss per share |
Basic loss per share is calculated by dividing earnings attributable to Sono N.V. shareholders by the weighted average number of ordinary and high voting shares outstanding during the reporting period. The high voting shares entitle the shareholders to additional voting rights, but not to higher dividend rights. There are currently no factors resulting in a dilution of earnings per share due to the loss for each period presented. As a result, basic loss per share equals diluted loss per share.
Loss per share
| 2023 | 2022 | 2021 | ||||||||||
| EUR | EUR | EUR | ||||||||||
| From continuing operations attributable to the ordinary equity holders of the company | ( | ) | ( | ) | ( | ) | ||||||
| ( | ) | ( | ) | ( | ) | |||||||
The capital increases have resulted in an increase in the number of shares in the reporting year. Moreover, the weighted number of shares was adjusted retroactively in accordance with IAS 33.28 to reflect the issue of bonus shares in 2021. The adjusted weighted number of shares increased to
| 9.5 | Related parties |
Related parties of Sono Group include the following persons as well as their close family members:
| ● | C-level Management |
| ● | Significant shareholders - Jona Christians and Laurin Hahn |
| ● | Supervisory Board members |
Further, related parties of Sono Group also include the following entities:
| ● | Sono Motors Management UG |
| ● | Sono Motors Investment UG |
Sono N.V. is not controlled by any other entity, but controlled Sono Motors GmbH as of December 31, 2022. In 2023, there is a loss of control, expected to be temporary. See note 3 Basis for consolidation.
The below table displays the compensation of key management personnel:
| 2023 | 2022 | 2021 | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Short-term employee benefits | ||||||||||||
| Share-based payments | ( | ) | ||||||||||
| Total compensation | ||||||||||||
The share-based payments as of December 31, 2023 relate to the CSOP (kEUR 2022: kEUR 2021: kEUR ) and to the share-based payment program of the supervisory board RSU (kEUR (
Since the establishment of the supervisory board in November 2021, the members have received share-based payments based on awarded restricted stock units (RSU) as part of their remuneration. See note 9.3.3 Supervisory Board - RSUs and note 9.3.4. Supervisory Board - Bonus RSUs for further information on supervisory board share-based payments.
Below are other related party transactions during the financial year.
| 2023 | 2022 | 2021 | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Expenses for marketing activities | ||||||||||||
| Expenses for employee events | ||||||||||||
| Total expenses | ||||||||||||
The table below displays loans and advance payments received from key management personnel and other related parties:
| 2023 | 2022 | 2021 | ||||||||||
| kEUR | kEUR | kEUR | ||||||||||
| Affiliate company balance (see note 7.10.3) | ||||||||||||
| Loans from key management personnel (subordinated crowdfunding loan II) | ||||||||||||
| Advance payments received from key management personnel* | ||||||||||||
| Total | ||||||||||||
* for which 10 Sono points have been granted
For the terms and conditions of the subordinated loans (crowdfunding), we refer to note 7.10.2 Noncurrent financial liabilities.
The main shareholders of Sono N.V. had significant influence over Sono Motors Investment UG, Munich. Therefore, Sono Motors Investment UG was considered a related party. Sono Motors had received a loan amounting to kEUR
| 9.6 | Reconciliation of changes in liabilities arising from financing activities |
The statement of cash flows presents information on the cash flow from operating, financing and investing activities. In fiscal year 2023 and previous years, non-cash financing and investing activities include the acquisition of right-of-use assets (see note 7.3 Right-of-use assets). The table below presents a reconciliation of liabilities arising from financing activities.
| Jan. 1, | Cash | Non-cash changes | Dec. 31, | |||||||||||||||||||||
| EIR method | Additions | Other | ||||||||||||||||||||||
| kEUR | kEUR | kEUR | kEUR | kEUR | kEUR | |||||||||||||||||||
| Financial liabilities* | ||||||||||||||||||||||||
| Loans | ( | ) | ||||||||||||||||||||||
| Lease liabilities | ( | ) | ( | ) | ||||||||||||||||||||
| Total | ( | ) | ( | ) | ||||||||||||||||||||
* including current and noncurrent financial liabilities
| Jan. 1, | Cash | Non-cash changes | Dec. 31, | |||||||||||||||||||||
| EIR method | Additions | Other | ||||||||||||||||||||||
| kEUR | kEUR | kEUR | kEUR | kEUR | kEUR | |||||||||||||||||||
| Financial liabilities* | ||||||||||||||||||||||||
| Loans | ( | ) | ||||||||||||||||||||||
| Lease liabilities | ( | ) | ( | ) | ||||||||||||||||||||
| Total | ( | ) | ||||||||||||||||||||||
* including current and noncurrent financial liabilities
| Jan. 1, | Cash | Non-cash changes | Dec. 31, | |||||||||||||||||||||
| EIR method | Additions | Other | ||||||||||||||||||||||
| kEUR | kEUR | kEUR | kEUR | kEUR | kEUR | |||||||||||||||||||
| Financial liabilities* | ||||||||||||||||||||||||
| Loans | ( | ) | ( | ) | ||||||||||||||||||||
| Lease liabilities | ( | ) | ||||||||||||||||||||||
| Total | ( | ) | ( | ) | ||||||||||||||||||||
* including current and noncurrent financial liabilities
The column “EIR method” includes both interest paid and non-cash interest expenses.
In 2023, the presented other non-cash changes include the transfer of one portion of the 2022 and modified convertible debentures to equity, foreign exchange effects, amortization of the deferred day-one losses and gains and the fair value changes of the bifurcated embedded derivatives. In 2022, the presented other non-cash changes include the transfer of one portion of the 2022 convertible debentures to equity, foreign exchange effects, amortization of the deferred day-one losses and the fair value changes of the bifurcated embedded derivatives. In 2021, other non-cash changes included the transfer of the mandatory convertible notes to equity and the fair value changes of the mandatory convertible notes. For further details, we refer to note 7.10.1 Financial liabilities overview.
| 9.7 | Subsequent events |
There were various material non-adjusting events that occurred after the end of the reporting period and are described below in more detail.
| 9.7.1 | Exit from insolvency |
On May 15, 2023, Sono N.V. applied to the Court to permit the opening of a self-administration proceeding (Eigenverwaltung) with respect to Sono Group N.V. pursuant to Section 270 (b) of the German Insolvency Code (Insolvenzordnung). See note 1.1 Insolvency proceedings for more detail.
Yorkville, one of the main creditors of Sono N.V., started negotiations in the course of the Self-Administration Proceedings regarding a new investment which, after negotiations, finally resulted in the Yorkville Agreements. For more detail see note 9.7.4 “Funding and restructuring”. On December 7, 2023, Sono Motors submitted the Plan to the Court for approval that set out how Sono Motors intended to restructure its debt and procure the inflow of new money, including in connection with the First Commitment, and subsequently exit the Subsidiary Self-Administration Proceedings. Approval by the creditors and confirmation by the Court was obtained in the creditors meeting on December 21, 2023 and the Court confirmed on January 26, 2024 that the Plan became legally binding. On January 31, 2024, the Company withdrew its application for its Preliminary Self-Administration Proceedings with the Court. The Subsidiary exited its Self-Administration Proceedings on February 29, 2024. Any creditor payments will be made in accordance with the Plan.
Since the Plan has been accepted, and the settlement payments have been paid by the Company (kEUR
| 9.7.2 | Regaining control of the Subsidiary |
Due to the opening of the self-administration proceedings and the appointment of a custodian (Sachwalter), Sono N.V. lost control of Sono Motors, its wholly-owned subsidiary, on May 19, 2023. See note 3. Basis of consolidation.
The loss of control was temporary, with control being regained when Sono Motors exited the Subsidiary Self-Administration Proceedings on February 29, 2024, and Sono Motors being consolidated again with the Group. The effect on the balance sheet and profit and loss has not yet been calculated or estimated. The assets and liabilities of Sono Motors on February 29, 2024, would be recognized in the consolidated statement of financial position, and intercompany balances would be eliminated, including the hard comfort letter liability.
| 9.7.3 | Funding and restructuring |
On November 20, 2023, Sono N.V. and Yorkville, one of the main creditors, entered into the Yorkville Agreements in connection with the First Commitment. On April 30, 2024, the Company and Yorkville entered into an amendment to the Funding Commitment Letter in connection with the Second Commitment. The Companies expect the Yorkville Investment to position the Group to obtain sufficient funding for the restructured business operations of the Group, with an initial focus on the Solar Bus Kit, through June 30, 2025, based on the Budget.
In addition to the Restructuring Agreement between Sono N.V. and Yorkville, there is a) an agreement between Sono N.V. and Sono Motors pursuant to which a settlement amount was agreed for intercompany claims (the “Settlement Agreement”), b) an agreement between Sono N.V. and Sono Motors relating to the satisfaction of intercompany claims, the further financing of Sono Motors by Sono N.V. and key aspects of Sono Motors’ self-administration proceedings and the Plan submitted by Sono Motors to the Court (the Continuation Agreement”), c) the Funding Commitment Letter between Sono N.V. and Yorkville to provide Sono N.V. with sufficient financial resources to fund the business operations of Sono Group through June 30, 2025, based on a budget agreed with Yorkville, d) an agreement between Sono N.V. and Yorkville to postpone the repayment date of the existing convertible debentures, issued to Yorkville in December 2022 (the “Existing Convertible Debentures”), to July 1, 2025, with the possibility of further extensions at Yorkville’s discretion (the “Prolongation Agreement”), e) an agreement between the Sono Group founders, Laurin Hahn and Jona Christians (the “Founders”), Sono N.V. and Sono Motors pursuant to which the companies were entitled to request that each of the founders enters into a share sale and transfer agreement (the “Sale and Transfer Agreements”) under the terms of which the respective Founder would sell and transfer, if so requested, a portion of their ordinary shares of Sono N.V. to a trustee to be appointed for the benefit of the Sono Motors’s creditors (the “Trustee”) and a portion of their ordinary shares of Sono N.V. and all of their high voting shares in Sono N.V. to the new members of the management board (the “Shareholders Commitment Letter”), (f) Sale and Transfer Agreements executed by each of the Founders to carry out the transfers contemplated in the Shareholders Commitment Letter, and (g) a back-to-back letter of comfort from Sono N.V: to Sono GmbH, which was subsequently amended on May 8, 2024, to provide funding for Sono GmbH’s business operations, with an initial focus on the Solar Bus Kit, which the companies currently expect to be sufficient at least until, and including, June 30, 2025 (as amended from time to time, the “Back-to-Back Letter of Comfort”). The funds to be provided under the Back-to-Back Letter of Comfort will be provided by way of intercompany loan(s).
Under the Funding Commitment Letter, Yorkville has offered to secure the financing of the Sono Group’s expected operational costs, with an initial focus on the Solar Bus Kit, during the period from December 1, 2023, until the end of the the second quarter of 2025 up to a maximum amount of mEUR
In connection with the Yorkville Investment, the Founders entered into respective Sale and Transfer Agreements, pursuant to which they agreed to cumulatively transfer
In connection with the Funding Commitment Letter, SVSE and Yorkville entered into both a pledge agreement (the “Pledge Agreement”) and a security agreement (the “Security Agreement”), each dated February 5, 2024, pursuant to which SVSE agreed to pledge and grant to Yorkville, as a third-party pledge, a security interest in certain financial assets, including, among others, all of the ordinary shares and high voting shares of the Company that SVSE currently holds or at any time acquires (collectively, the “Pledged Ownership Interests”). The Pledged Ownership Interests serve as collateral for the repayment of Sono N.V.’s obligations to Yorkville. In the event that Sono N.V. is in default of its payment obligations to Yorkville, following notification thereof to SVSE, the voting rights and dividend rights in the Pledged Ownership Interests would accrue to Yorkville. In certain instances, Yorkville may also have the right to enforce its right of pledge and sell the Pledged Ownership Interests, thereby using the proceeds from the sale to repay the amounts owed by Sono N.V. to Yorkville.
On June 20, 2024, in connection with the Yorkville Investment, Sono Motors and SVSE entered into a guaranty agreement (the “Guaranty”) for the benefit of Yorkville. Under the terms of the Guaranty, each of Sono Motors and SVSE have agreed, among other things (i) to jointly and severally guarantee the payment of obligations owed by Sono N.V. to Yorkville in full when due and (ii) to guarantee the performance of all of the terms, covenants and conditions required to be kept, observed or performed by Sono N.V. in the Guaranty, the Funding Commitment Letter, the new convertible debentures, the Security Agreement and the Pledge Agreement. The Guaranty is irrevocable, absolute and unconditional and applies to all obligations owed by Sono N.V. to Yorkville whenever arising. Under the terms of the Guaranty, certain events of default would enable Yorkville, at its option and in its discretion, to accelerate some or all of the obligations so that they become immediately due and payable.
The Yorkville Investment remains subject to a number of contingencies and risks, including, among others, (i) whether the Companies are able to successfully comply with the terms of the Yorkville Agreements so as to gain access to the unused portion of the funding offered by Yorkville under the Yorkville Investment, and (ii) the risk of the potential occurrence of any Termination Event (as defined herein) or any event of default.
In accordance with the Yorkville Agreements, Sono N.V. held its annual general meeting of shareholders (the “AGM”) and submitted certain agenda items for shareholder vote on December 29, 2023. A subsequent extraordinary general meeting of shareholders (the “EGM”) was held on January 31, 2024 in order to propose certain required agenda items in connection with the Yorkville Agreements. In connection with the Yorkville Investment, certain agenda items were proposed and accepted at the EGM, including, without limitation: (1) a proposal to effect a reverse share split of the ordinary shares of the Company (“Ordinary Shares”) and the high voting shares of the Company (“High Voting Shares”) at an exchange ratio to be determined and established by the management board; (2) a proposal to reduce the nominal value per Ordinary Share to EUR
In addition, Yorkville’s funding commitment is subject to the absence of termination events as laid out in the Funding Commitment Letter. If such an event occurs, Yorkville would have the right, at its sole discretion, to cancel any funding commitments still available, meaning that the Company would no longer be able to draw down on unused portions of the commitment amount, and to exercise all of its rights under any of the new convertible debentures as if an event of default had occurred. The following are each a termination event (each a “Termination Event”):
| ● | The Budget is exceeded as a result of incorrect or misleading work. |
| ● | The Budget is exceeded and Yorkville and the Company cannot agree on an adjustment, or Yorkville requests information regarding the Budget and the Company fails to provide it within ten business days. |
| ● | An event of default occurs with regard to the convertible debentures. |
| ● | The Companies fail to materially comply with the Yorkville Agreements and fail to rectify their noncompliance within ten business days following a request from Yorkville to such effect. |
| ● | Other than with regard to the Self-Administration Proceedings, the Companies are unable or admit inability to pay their debts as they fall due, suspend making payments on any of their debts, or, by reason of actual or anticipated financial difficulties, commence negotiations with one or more of their creditors (excluding any finance party in its capacity as such) with a view to rescheduling any of their indebtedness. |
| ● | An entity incorporated in Germany is unable to pay its debts as they fall due (zahlungsunfähig) within the meaning of section 17 of the German Insolvency Code (Insolvenzordnung) or is over-indebted within the meaning of section 19 of the Germany Insolvency Code (Insolvenzordnung). |
| ● | Except in relation to the Self-Administration Proceedings, any corporate action, legal proceedings or other procedure or step is taken in relation to, amongst others, the suspension of payments, an arrangement with a creditor of the Company, the appointment of a liquidator or administrative receiver or the enforcement of a security over any asset of the Company or the Subsidiary. |
| ● | It is or becomes unlawful for the Company to perform any of its obligations under the Yorkville Agreements. |
| 9.7.4 | Tax loss carryforwards |
Tax loss carryforwards may be forfeit since a change in shareholders exceeding 50% takes place and the hidden reserve clause cannot be used. This would apply to tax loss carryforwards for Sono Motors GmbH and Sono Group N.V. amounting to kEUR
| 9.7.5 | Nasdaq delisting |
On December 11, 2023, Sono Group received notice advising the Company that Nasdaq has determined to delist the Company’s ordinary shares from the Nasdaq Stock Exchange. Nasdaq filed a Form 25 Notification of Delisting with the U.S. Securities and Exchange Commission (the “SEC”) on February 15, 2024 to complete the delisting.