UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 20-F
[
] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g)
OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT
OF 1934
For the
fiscal year ended December 31,
2017
OR
[
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT
OF 1934
For the
transition period from _______________ to
_______________
OR
[
] 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
_______________
Commission
file number 333-214067
ELECTRAMECCANICA VEHICLES
CORP.
(Exact
name of Registrant specified in its charter)
Not
Applicable
(Translation
of Registrant’s name into English)
British Columbia,
Canada
(Jurisdiction
of incorporation or organization)
102 East 1st Avenue
Vancouver, British
Columbia, Canada, V5T 1A4
(Address
of principal executive offices)
Kulwant Sandher; (604)
428-7656; kulwant@electrameccanica.com
(Name,
Telephone, Email 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
|
Name of
each exchange on which registered
|
None
|
Not applicable
|
Securities
registered or to be registered pursuant to Section 12(g) of the
Act. None
Securities
for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
Common Shares Without Par
Value
(Title
of Class)
Number of outstanding shares of each
of the issuer’s classes of capital or common stock as of the
close of business of the period covered by the annual
report.
47,588,209 Common Shares Without Par Value
Indicate
by check mark if the Registrant is a well-known seasoned issuer as
defined in Rule 405 of the Securities Act.
Yes
[
]
No [X]
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 Securities
Exchange Act of 1934
Yes
[
]
No [X]
Indicate
by check mark whether Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such
shorter period that Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past
90 days.
Yes
[
]
No [X]
Indicate
by check mark whether Registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit and post such files).
Yes
[X]
No [ ]
Indicate
by check mark whether the Registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or an emerging
growth company. See definition of “accelerated filer,”
“large accelerated filer,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large
Accelerated Filer [ ]
|
Accelerated
Filer [ ]
|
Non
Accelerated Filer [ ]
|
Emerging
Growth Company [X]
|
If an
emerging growth company that prepares its financial statements in
accordance with U.S. GAAP, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards pursuant to
Section 13(a) of the Exchange Act. [
]
Indicate
by check mark which basis of accounting the registrant has used to
prepare the financial statements included in this
filing:
U.S.
GAAP [ ]
|
International
Financial Reporting Standards as issued
|
Other
[ ]
|
|
by the
International Accounting Standards Board [X]
|
|
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 (as defined in Rule 12b 2 of the Exchange
Act):
Yes
[
]
No [X]
(APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS)
Indicate
by check mark whether 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.
Not
applicable.
TABLE OF CONTENTS
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Page
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PART I
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3
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|
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ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
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3
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ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
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3
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|
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ITEM 3.
KEY INFORMATION
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3
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|
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ITEM 4.
INFORMATION ON THE COMPANY
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15
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ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
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28
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ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
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32
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ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
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53
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ITEM 8.
FINANCIAL INFORMATION
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56
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ITEM 9.
THE OFFER AND LISTING
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56
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ITEM
10. ADDITIONAL INFORMATION
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57
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ITEM
11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
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70
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ITEM
12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES
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72
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PART II
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73
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ITEM
13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
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73
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ITEM
14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS
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73
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ITEM
15. CONTROLS AND PROCEDURES
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73
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ITEM
16. [RESERVED]
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74
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ITEM
16A. AUDIT COMMITTEE FINANCIAL EXPERT
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74
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ITEM
16B. CODE OF ETHICS
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74
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ITEM
16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
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74
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ITEM
16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
COMMITTEES
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75
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ITEM
16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
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75
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ITEM
16F. CHANGE IN REGISTRANT’S CERTIFYING
ACCOUNTANT.
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75
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ITEM
16G. CORPORATE GOVERNANCE.
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75
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ITEM
16H. MINE SAFETY DISCLOSURE.
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75
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PART III
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76
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ITEM
17. FINANCIAL STATEMENTS
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76
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ITEM
18. FINANCIAL STATEMENTS
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76
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ITEM
19. EXHIBITS
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77
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1
FORWARD LOOKING STATEMENTS
This
Annual Report on Form 20-F contains statements that constitute
“forward-looking statements”. Any statements that are
not statements of historical facts may be deemed to be
forward-looking statements. These statements appear in a number of
different places in this Annual Report and, in some cases, can be
identified by words such as “anticipates”,
“estimates”, “projects”,
“expects”, “contemplates”,
“intends”, “believes”, “plans”,
“may”, “will”, or their negatives or other
comparable words, although not all forward-looking statements
contain these identifying words. Forward-looking statements in this
Annual Report may include, but are not limited to, statements
and/or information related to: strategy, future operations, the
size and value of the order book and the number of orders, the
number and timing of building pre-production vehicles, the
projection of timing and delivery of SOLOs in the future, projected
costs, expected production capacity, expectations regarding demand
and acceptance of our products, estimated costs of machinery to
equip a new production facility, and trends in the market in which
we operate, plans and objectives of management.
Forward-looking
statements are based on the reasonable assumptions, estimates,
analysis and opinions made in light of our experience and our
perception of trends, current conditions and expected developments,
as well as other factors that we believe to be relevant and
reasonable in the circumstances at the date that such statements
are made, but which may prove to be incorrect. Management believes
that the assumption and expectations reflected in such
forward-looking statements are reasonable. Assumptions have been
made regarding, among other things: the Company’s ability to
build pre-production SOLOs and to begin production deliveries
within certain timelines; the Company’s expected production
capacity; prices for machinery to equip a new production facility,
labor costs and material costs, remaining consistent with the
Company’s current expectations; production of SOLOs meeting
expectations and being consistent with estimates; equipment
operating as anticipated; there being no material variations in the
current regulatory environment; and the Company’s ability to
obtain financing as and when required and on reasonable terms.
Readers are cautioned that the foregoing list is not exhaustive of
all factors and assumptions which may have been used.
Such
risks are discussed in Item 3.D “Risk Factors”. In
particular, without limiting the generality of the foregoing
disclosure, the statements contained in Item 4.B. –
“Business Overview”, Item 5 – “Operating
and Financial Review and Prospects” and Item 11 –
“Quantitative and Qualitative Disclosures About Market
Risk” are inherently subject to a variety of risks and
uncertainties that could cause actual results, performance or
achievements to differ significantly. Such risks, uncertainties and
other factors include but are not limited to:
●
general economic
and business conditions, including changes in interest
rates;
●
prices of other
electric vehicles, costs associated with manufacturing electric
vehicles and other economic conditions;
●
actions by
government authorities, including changes in government
regulation;
●
uncertainties
associated with legal proceedings;
●
changes in the
electric vehicle market;
●
future decisions by
management in response to changing conditions;
●
the Company’s
ability to execute prospective business plans;
●
misjudgments in the
course of preparing forward-looking statements;
●
the Company ability
to raise sufficient funds to carry out its proposed business
plan;
●
consumers’
willingness to adopt three-wheeled single passenger electric
vehicles;
●
declines in the
range of the Company’s electric vehicles on a single charge
over time may negatively influence potential customers’
decisions to purchase such vehicles;
●
developments in
alternative technologies or improvements in the internal combustion
engine;
●
inability to keep
up with advances in electric vehicle technology;
●
inability to
design, develop, market and sell new electric vehicles and services
that address additional market opportunities;
●
dependency on
certain key personnel and any inability to retain and attract
qualified personnel;
●
in experience in
mass-producing electric vehicles;
●
inability to reduce
and adequately control operating costs;
●
failure of the
Company’s vehicles to perform as expected;
●
inexperience in
servicing electric vehicles;
●
inability to
succeed in establishing, maintaining and strengthening the
Electrameccanica brand;
●
disruption of
supply or shortage of raw materials;
●
the unavailability,
reduction or elimination of government and economic
incentives;
●
failure to manage
future growth effectively; and
●
labor and
employment risks.
Although
management has attempted to identify important factors that could
cause actual results to differ materially from those contained in
forward-looking statements, there may be other factors that cause
results not to be as anticipated, estimated or intended. There is
no assurance that forward-looking statements will prove to be
accurate, as actual results and future events could differ
materially from those anticipated in such forward-looking
statements. Accordingly, readers should not place undue reliance on
forward-looking statements. We wish to advise you that these
cautionary remarks expressly qualify, in their entirety, all
forward-looking statements attributable to our Company or persons
acting on our Company’s behalf. The Company does not
undertake to update any forward-looking statements to reflect
actual results, changes in assumptions or changes in other factors
affecting such statements, except as, and to the extent required
by, applicable securities laws. You should carefully review the
cautionary statements and risk factors contained in this Annual
Report and other documents that the Company may file from time to
time with the securities regulators.
2
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISERS
Not
Applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not
Applicable.
ITEM 3. KEY INFORMATION
A. Selected financial
data
The selected historical consolidated financial information set
forth below has been derived from our financial statements for the
fiscal years ended December 31, 2017 and 2016.
Consolidated
Statement of Comprehensive Loss
|
|
Year
ended
December 31,
2017
|
Year
ended
December 31,
2016
|
Revenues
|
$109,173
|
-
|
Gross
Profit
|
$45,223
|
-
|
Net and
Comprehensive Loss
|
$11,366,372
|
$8,973,347
|
Loss per Share
– Basic and Diluted
|
$(0.35)
|
$(0.27)
|
Consolidated
Statements of Financial Position
|
|
|
|
Cash
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$8,610,996
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$3,916,283
|
Current
Assets
|
$10,007,684
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$4,437,152
|
Total
Assets
|
$12,661,381
|
$4,787,766
|
Current
Liabilities
|
$3,354,675
|
$881,176
|
Total
Liabilities
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$7,010,365
|
$881,176
|
Shareholders’
Equity (Deficiency)
|
$5,651,016
|
$3,906,590
|
Selected
Pro Forma
Financial Data
On
October 18, 2017, we acquired all of the issued share capital of
Intermeccanica pursuant to a Share Purchase Agreement in exchange
for a payment of $2.5 million. Intermeccanica is a custom car manufacturer with over 50 years of
expertise.
The
unaudited pro forma condensed combined financial information gives
effect to the acquisition as if it had been completed on January 1,
2017. Our historical consolidated financial information and that of
Intermeccanica have been adjusted in the unaudited pro forma
condensed combined financial information to give effect to events
that are (1) directly attributable to the acquisition,
(2) factually supportable, and (3) expected to have a
continuing impact on the combined results. The unaudited pro forma
adjustments are based upon currently available information and
assumptions that we believe to be reasonable. The pro forma
adjustments and related assumptions are described in the notes
accompanying the unaudited pro forma condensed combined financial
information included elsewhere in this report.
You
should read this unaudited pro forma condensed combined financial
information in conjunction with our financial and the accompanying
notes, the pro forma financial statements the accompanying notes
and the section of this report entitled "Operating and Financial Review and
Prospects", each of which are included elsewhere in this
report.
3
|
Year
Ended December 31, 2017
|
|
|
|
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Revenue
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$1,179,595
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$-
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$(501,461)
|
$678,134
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Cost
of revenue
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758,948
|
-
|
(385,971)
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372,977
|
Gross
profit
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420,647
|
-
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(115,490)
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305,157
|
|
|
|
|
|
Operating
expenses
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|
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Amortization
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26,142
|
122,468
|
|
148,610
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General and
administrative expenses
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373,947
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2,314,714
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(95,941)
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2,592,720
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Research and
development expenses
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-
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4,358,285
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(19,521)
|
4,338,764
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Sales and marketing
expenses
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4,432
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630,999
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|
635,431
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Stock-based
compensation expense
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-
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889,511
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889,511
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Share-based payment
expense
|
-
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-1,085,716
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1,085,716
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(404,521)
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(9,401,693)
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(115,462)
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(9,690,752)
|
|
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Income/(Loss)
before other items
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16,126
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(9,401,693)
|
(28)
|
(9,385,595)
|
|
|
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Other
items
|
|
|
|
|
Accretion interest
expense
|
-
|
69,561
|
|
69,561
|
Changes in fair
value of warrant derivative
|
-
|
186,269
|
|
186,269
|
Finder’s fee
on convertible loan
|
-
|
258,542
|
|
258,542
|
Impairment of
goodwill
|
-
|
-
|
1,342,794
|
1,342,794
|
Foreign exchange
(gain)/loss
|
(11,806)
|
22,068
|
|
10,262
|
|
|
|
|
|
|
|
|
|
|
Net
and comprehensive loss
|
$27,932
|
$(9,938,133)
|
$(1,342,766)
|
$(11,253,023)
|
B. Capitalization and
Indebtedness
Not
applicable.
C. Reasons for the
offer and use of proceeds
Not
applicable.
D. Risk
Factors
An investment in our common
shares carries a significant degree of
risk. You should carefully consider the following risks, as well as
the other information contained in this prospectus, including our
financial statements and related notes included elsewhere in this
prospectus, before you decide to purchase our shares. Any one of
these risks and uncertainties has the potential to cause material
adverse effects on our business, prospects, financial condition and
operating results which could cause actual results to differ
materially from any forward-looking statements expressed by us and
a significant decrease in the value of our common shares. Refer to
“Forward-Looking Statements”.
We have not be successful in preventing the material adverse
effects that any of the following risks and uncertainties may
cause. These potential risks and uncertainties may not be a
complete list of the risks and uncertainties facing us. There may
be additional risks and uncertainties that we are presently unaware
of, or presently consider immaterial, that may become material in
the future and have a material adverse effect on us. You could lose
all or a significant portion of your investment due to any of these
risks and uncertainties.
Risks Related to our Business and Industry
We have a limited operating history and have not yet generated any
revenues.
Our limited operating history makes evaluating our business and
future prospects difficult. We were formed in February 2015, and we
have not yet begun mass production or the commercial delivery of
our first vehicle. To date, we have no revenues from the sale of
electric vehicles as any amounts received from the sale of
our pre-production electric vehicles were netted off against
research and development costs as cost recovery and minimal revenue
from the sale of custom cares. We
intend in the longer term to derive revenues from the sales of our
SOLO vehicle, our Super SOLO vehicle, our Tofino vehicle and other
intended electric vehicles. The SOLO and Tofino are in development,
and we do not expect to start delivering to the SOLO customers
until the third quarter of 2018 or to the Tofino customers until
2019. Our vehicles require significant investment prior to
commercial introduction and may never be successfully developed or
commercially successful.
4
We expect that we will experience an increase in losses prior to
the launch of the SOLO, the Super SOLO or the Tofino.
For the fiscal year ended December 31, 2017, we generated a net and
comprehensive loss of $11,366,372, bringing our accumulated deficit
to $21,335,552. We anticipate
generating a significant loss for the current fiscal year. The
independent auditor’s report on our financial statements
includes an explanatory paragraph relating to our ability to
continue as a going concern.
We have minimal revenues, are currently in debt and expect
significant increases in costs and expenses to forestall profits
for the foreseeable future, even if we generate revenues in the
near term. Even if we are able to successfully develop the SOLO,
the Super SOLO or the Tofino, they might not become commercially
successful. If we are to ever achieve profitability we must have a
successful commercial introduction and acceptance of our vehicles,
which may not occur.
We expect the rate at which we will incur losses to increase
significantly in future periods from current levels as
we:
|
●
|
design,
develop and manufacture our vehicles and their
components;
|
|
|
|
|
●
|
develop
and equip our manufacturing facility;
|
|
|
|
|
●
|
build
up inventories of parts and components for the SOLO, the Super SOLO
and the Tofino;
|
|
|
|
|
●
|
open
Electrameccanica stores;
|
|
|
|
|
●
|
expand
our design, development, maintenance and repair
capabilities;
|
|
|
|
|
●
|
develop
and increase our sales and marketing activities; and
|
|
|
|
|
●
|
develop
and increase our general and administrative functions to support
our growing operations.
|
Because we will incur the costs and expenses from these efforts
before we receive any revenues with respect thereto, our losses in
future periods will be significantly greater than the losses we
would incur if we developed the business more slowly. In addition,
we may find that these efforts are more expensive than we currently
anticipate or that these efforts may not result in profits or even
revenues, which would further increase our losses.
We currently have negative operating cash flows, and if we are
unable to generate positive operating cash flows in the future our
viability as an operating business will be adversely
affected.
We have made significant up-front investments in research and
development, sales and marketing, and general and administrative
expenses to rapidly develop and expand our business. We are
currently incurring expenditures related to our operations that
have generated a negative operating cash flow. Operating cash flow
may decline in certain circumstances, many of which are beyond our
control. We might not generate sufficient revenues in the near
future. Because we continue to incur such significant future
expenditures for research and development, sales and marketing, and
general and administrative expenses, we may continue to experience
negative cash flow until we reach a sufficient level of sales with
positive gross margins to cover operating expenses. An inability to
generate positive cash flow until we reach a sufficient level of
sales with positive gross margins to cover operating expenses or
raise additional capital on reasonable terms will adversely affect
our viability as an operating business.
To carry out our proposed business plan to develop, manufacture,
sell and service electric vehicles, we will require a significant
amount of capital.
To carry out our proposed business plan for the next twelve months,
we estimate that we will need approximately $4.8 million at our
current burn rate and an additional $22.7 million. We intend to
raise our cash requirements for the next 12 months through the sale
of our equity securities and, if needed, shareholder loans. If we
are unsuccessful in raising enough funds through such
capital-raising efforts, we may review other financing
possibilities such as bank loans. Financing might not be available
to us or, if available, only on terms that are not acceptable to
us.
Our ability to obtain the necessary financing to carry out our
business plan is subject to a number of factors, including general
market conditions and investor acceptance of our business plan.
These factors may make the timing, amount, terms and conditions of
such financing unattractive or unavailable to us. If we are unable
to raise sufficient funds, we will have to significantly reduce our
spending, delay or cancel our planned activities or substantially
change our current corporate structure. We might not be able to
obtain any funding, and we might not have sufficient resources to
conduct our business as projected, both of which could mean that we
would be forced to curtail or discontinue our
operations.
5
Terms of subsequent financings may adversely impact your
investment.
We may have to engage in common equity, debt, or preferred stock
financing in the future. Your rights and the value of your
investment in the units could be reduced. Interest on debt
securities could increase costs and negatively impacts operating
results. Preferred stock could be issued in series from time to
time with such designation, rights, preferences, and limitations as
needed to raise capital. The terms of preferred stock could be more
advantageous to those investors than to the holders of common
shares. Likewise, if we issue warrants as part of any future
financing, the terms of those warrants could be more advantageous
to those investors than to the holders of warrants purchase in the
units. In addition, if we need to raise more equity capital from
the sale of common shares, institutional or other investors may
negotiate terms at least as, and possibly more, favorable than the
terms of your investment. Common shares which we sell could be sold into any market
which develops, which could adversely affect the market
price.
Our future growth depends upon consumers’ willingness to
adopt three-wheeled single passenger electric
vehicles.
Our growth highly depends upon the adoption by consumers of, and we
are subject to an elevated risk of any reduced demand for,
alternative fuel vehicles in general and electric vehicles in
particular. If the market for three-wheeled single passenger
electric vehicles does not develop as we expect or develops more
slowly than we expect, our business, prospects, financial condition
and operating results will be negatively impacted. The market for
alternative fuel vehicles is relatively new, rapidly evolving,
characterized by rapidly changing technologies, price competition,
additional competitors, evolving government regulation and industry
standards, frequent new vehicle announcements and changing consumer
demands and behaviors. Factors that may influence the adoption of
alternative fuel vehicles, and specifically electric vehicles,
include:
|
●
|
perceptions
about electric vehicle quality, safety (in particular with respect
to lithium-ion battery packs), design, performance and cost,
especially if adverse events or accidents occur that are linked to
the quality or safety of electric vehicles;
|
|
●
|
perceptions
about vehicle safety in general, in particular safety issues that
may be attributed to the use of advanced technology, including
vehicle electronics and braking systems;
|
|
●
|
the
limited range over which electric vehicles may be driven on a
single battery charge;
|
|
●
|
the
decline of an electric vehicle’s range resulting from
deterioration over time in the battery’s ability to hold a
charge;
|
|
●
|
concerns
about electric grid capacity and reliability, which could derail
our efforts to promote electric vehicles as a practical solution to
vehicles which require gasoline;
|
|
●
|
the
availability of alternative fuel vehicles, including plug-in hybrid
electric vehicles;
|
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improvements
in the fuel economy of the internal combustion engine;
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the
availability of service for electric vehicles;
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the
environmental consciousness of consumers;
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volatility
in the cost of oil and gasoline;
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government
regulations and economic incentives promoting fuel efficiency and
alternate forms of energy;
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access
to charging stations, standardization of electric vehicle charging
systems and consumers’ perceptions about convenience and cost
to charge an electric vehicle;
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the
availability of tax and other governmental incentives to purchase
and operate electric vehicles or future regulation requiring
increased use of nonpolluting vehicles; and
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perceptions
about and the actual cost of alternative fuel.
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The influence of any of the factors described above may cause
current or potential customers not to purchase our electric
vehicles, which would materially adversely affect our business,
operating results, financial condition and prospects.
6
The range of our electric vehicles on a single charge declines over
time which may negatively influence potential customers’
decisions whether to purchase our vehicles.
The range of our electric vehicles on a single charge declines
principally as a function of usage, time and charging patterns. For
example, a customer’s use of their vehicle as well as the
frequency with which they charge the battery of their vehicle can
result in additional deterioration of the battery’s ability
to hold a charge. We currently expect that our battery pack will
retain approximately 85% of its ability to hold its initial charge
after approximately 3,000 charge cycles and 8 years, which will
result in a decrease to the vehicle’s initial range. Such
battery deterioration and the related decrease in range may
negatively influence potential customer decisions whether to
purchase our vehicles, which may harm our ability to market and
sell our vehicles.
Developments in alternative technologies or improvements in the
internal combustion engine may materially adversely affect the
demand for our electric vehicles.
Significant developments in alternative technologies, such as
advanced diesel, ethanol, fuel cells or compressed natural gas, or
improvements in the fuel economy of the internal combustion engine,
may materially and adversely affect our business and prospects in
ways we do not currently anticipate. For example, fuel which is
abundant and relatively inexpensive in North America, such as
compressed natural gas, may emerge as consumers’ preferred
alternative to petroleum based propulsion. Any failure by us to
develop new or enhanced technologies or processes, or to react to
changes in existing technologies, could materially delay our
development and introduction of new and enhanced electric vehicles,
which could result in the loss of competitiveness of our vehicles,
decreased revenue and a loss of market share to
competitors.
If we are unable to keep up with advances in electric vehicle
technology, we may suffer a decline in our competitive
position.
We may be unable to keep up with changes in electric vehicle
technology and, as a result, may suffer a decline in our
competitive position. Any failure to keep up with advances in
electric vehicle technology would result in a decline in our
competitive position which would materially and adversely affect
our business, prospects, operating results and financial condition.
Our research and development efforts may not be sufficient to adapt
to changes in electric vehicle technology. As technologies change
we plan to upgrade or adapt our vehicles and introduce new models
to continue to provide vehicles with the latest technology, in
particular battery cell technology. However, our vehicles may not
compete effectively with alternative vehicles if we are not able to
source and integrate the latest technology into our vehicles. For
example, we do not manufacture battery cells which makes us depend
upon other suppliers of battery cell technology for our battery
packs.
If we are unable to design, develop, market and sell new electric
vehicles and services that address additional market opportunities,
our business, prospects and operating results will
suffer.
We may not be able to successfully develop new electric vehicles
and services, address new market segments or develop a
significantly broader customer base. To date, we have focused our
business on the sale of the SOLO, a three-wheeled single passenger
electric vehicle and have targeted mainly urban residents of modest
means. We will need to address additional markets and expand our
customer demographic to further grow our business. Our failure to
address additional market opportunities would harm our business,
financial condition, operating results and prospects.
Demand in the vehicle industry is highly volatile.
Volatility of demand in the vehicle industry may materially and
adversely affect our business, prospects, operating results and
financial condition. The markets in which we will be competing have
been subject to considerable volatility in demand in recent
periods. Demand for automobile sales depends to a large extent on
general, economic, political and social conditions in a given
market and the introduction of new vehicles and technologies. As a
new start-up manufacturer, we will have fewer financial resources
than more established vehicle manufacturers to withstand changes in
the market and disruptions in demand.
We depend on a third-party for our near-term manufacturing
needs.
In October 2017, we entered into a manufacturing agreement with
Zongshen, a company located in the People’s Republic of
China, to produce 75,000 SOLO vehicles over the next three years.
The delivery of SOLO vehicles to our future customers and the
revenue derived therefrom depends on Zongshen’s ability to
fulfill its obligations under that manufacturing agreement.
Zongshen’s ability to fulfill its obligations is outside of
our control and depends on a variety of factors including
Zongshen’s operations, Zongshen’s financial condition
and geopolitical and economic risks that could affect China. If
Zongshen is unable to fulfill its obligations or is only able to
partially fulfill its obligations, we will not be able to sell our
SOLO vehicle in the volumes anticipated on the timetable that we
anticipate, if at all.
7
We do not currently have arrangements in place that will allow us
to fully execute our business plan.
To sell our vehicles as envisioned, we will need to enter into
agreements and arrangements that are not currently in place. These
include, entering into agreements with dealerships, arranging for
the transportation of SOLOs delivered pursuant to our manufacturing
agreement with Zongshen, obtaining battery and other essential
supplies in the quantities that we require, entering into
manufacturing agreements for the Super SOLO and the Tofino and
acquiring additional manufacturing capability. If we are unable to
enter into such agreements or are only able to do so on terms that
are unfavorable to us, we may not be able to fully carry out our
business plans.
We depend on certain key personnel, and our success will depend on
our continued ability to retain and attract such qualified
personnel.
Our success depends on the efforts, abilities and continued service
of Jerry Kroll - Chief Executive Officer, Henry Reisner - Chief
Operating Officer, Kulwant Sandher - Chief Financial Officer, and
Ed Theobald – General Manager. A number of these key
employees and consultants have significant experience in the
automobile manufacturing industry. A loss of service from any one
of these individuals may adversely affect our operations, and we
may have difficulty or may not be able to locate and hire a
suitable replacement. We have not obtained any “key
person” insurance on certain key personnel.
Since we have little experience in mass-producing electric
vehicles, any delays or difficulties in transitioning from
producing custom vehicles to mass-producing vehicles may have a
material adverse effect on our business, prospects and operating
results.
Our management team has experience in producing custom designed
vehicles and is now switching focus to mass producing electric
vehicles in a rapidly evolving and competitive market. If we are
unable to implement our business plans in the timeframe estimated
by management and successfully transition into a mass-producing
electric vehicle manufacturing business, then our business,
prospects, operating results and financial condition will be
negatively impacted and our ability to grow our business will be
harmed.
We are subject to numerous environmental and health and safety laws
and any breach of such laws may have a material adverse effect on
our business and operating results.
We are subject to numerous environmental and health and safety
laws, including statutes, regulations, bylaws and other legal
requirements. These laws relate to the generation, use, handling,
storage, transportation and disposal of regulated substances,
including hazardous substances (such as batteries), dangerous goods
and waste, emissions or discharges into soil, water and air,
including noise and odors (which could result in remediation
obligations), and occupational health and safety matters, including
indoor air quality. These legal requirements vary by location and
can arise under federal, provincial, state or municipal laws. Any
breach of such laws and/or requirements would have a material
adverse effect on our company and its operating
results.
Our vehicles are subject to motor vehicle standards and the failure
to satisfy such mandated safety standards would have a material
adverse effect on our business and operating results.
All vehicles sold must comply with federal, state and provincial
motor vehicle safety standards. In both Canada and the United
States vehicles that meet or exceed all federally mandated safety
standards are certified under the federal regulations. In this
regard, Canadian and U.S. motor vehicle safety standards are
substantially the same. Rigorous testing and the use of approved
materials and equipment are among the requirements for achieving
federal certification. Failure by us to have the SOLO, the Super
Solo, the Tofino or any future model electric vehicle satisfy motor
vehicle standards would have a material adverse effect on our
business and operating results.
If we are unable to reduce and adequately control the costs
associated with operating our business, including our costs of
manufacturing, sales and materials, our business, financial
condition, operating results and prospects will
suffer.
If we are unable to reduce and/or maintain a sufficiently low level
of costs for designing, manufacturing, marketing, selling and
distributing and servicing our electric vehicles relative to their
selling prices, our operating results, gross margins, business and
prospects could be materially and adversely impacted.
If our vehicles fail to perform as expected, our ability to
develop, market and sell our electric vehicles could be
harmed.
Our vehicles may contain defects in design and manufacture that may
cause them not to perform as expected or that may require repair.
For example, our vehicles use a substantial amount of software code
to operate. Software products are inherently complex and often
contain defects and errors when first introduced. While we have
performed extensive internal testing, we currently have a very
limited frame of reference by which to evaluate the performance of
our SOLO in the hands of our customers and currently have no frame
of reference by which to evaluate the performance of our vehicles
after several years of customer driving. A similar evaluation of
the Super SOLO and the Tofino is further behind.
8
We have very limited experience servicing our vehicles. If we are
unable to address the service requirements of our future customers
our business will be materially and adversely
affected.
If we are unable to successfully address the service requirements
of our future customers our business and prospects will be
materially and adversely affected. In addition, we anticipate the
level and quality of the service we will provide our customers will
have a direct impact on the success of our future vehicles. If we
are unable to satisfactorily service our customers, our ability to
generate customer loyalty, grow our business and sell additional
vehicles could be impaired.
We have very limited experience servicing our vehicles. As
of April 11, 2018, we had not
sold any vehicles and had only delivered four pre-production
vehicles to customers. We do not plan for mass production to begin
for SOLO vehicles until the end of the second quarter or during the
third quarter of 2018 or for the Tofino until 2019. The total
number of SOLOs that we have produced is 25. Throughout its
history, Intermeccanica has produced approximately 2,500 cars,
which includes, providing after sales support and servicing. We do
not have any experience servicing the SOLO or the Tofino as a
limited number of SOLOS have been produced and the Tofino has not
yet been produced. Servicing electric vehicles is different than
servicing vehicles with internal combustion engines and requires
specialized skills, including high voltage training and servicing
techniques.
We may not succeed in establishing, maintaining and strengthening
the Electrameccanica brand, which would materially and adversely
affect customer acceptance of our vehicles and components and our
business, revenues and prospects.
Our business and prospects heavily depend on our ability to
develop, maintain and strengthen the Electrameccanica brand. Any
failure to develop, maintain and strengthen our brand may
materially and adversely affect our ability to sell our planned
electric vehicles. If we are not able to establish, maintain and
strengthen our brand, we may lose the opportunity to build a
critical mass of customers. Promoting and positioning our brand
will likely depend significantly on our ability to provide high
quality electric cars and maintenance and repair services, and we
have very limited experience in these areas. In addition, we expect
that our ability to develop, maintain and strengthen the
Electrameccanica brand will also depend heavily on the success of
our marketing efforts. To date, we have limited experience with
marketing activities as we have relied primarily on the internet,
word of mouth and attendance at industry trade shows to promote our
brand. To further promote our brand, we may be required to change
our marketing practices, which could result in substantially
increased advertising expenses, including the need to use
traditional media such as television, radio and print. The
automobile industry is intensely competitive, and we may not be
successful in building, maintaining and strengthening our brand.
Many of our current and potential competitors, particularly
automobile manufacturers headquartered in Detroit, Japan and the
European Union, have greater name recognition, broader customer
relationships and substantially greater marketing resources than we
do. If we do not develop and maintain a strong brand, our business,
prospects, financial condition and operating results will be
materially and adversely impacted.
Increases in costs, disruption of supply or shortage of raw
materials, in particular lithium-ion cells, could harm our
business.
We may experience increases in the cost or a sustained interruption
in the supply or shortage of raw materials. Any such increase or
supply interruption could materially negatively impact our
business, prospects, financial condition and operating results. We
use various raw materials in our business including aluminum,
steel, carbon fiber, non-ferrous metals such as copper and cobalt.
The prices for these raw materials fluctuate depending on market
conditions and global demand for these materials and could
adversely affect our business and operating results. For instance,
we are exposed to multiple risks relating to price fluctuations for
lithium-ion cells. These risks include:
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the
inability or unwillingness of current battery manufacturers to
build or operate battery cell manufacturing plants to supply the
numbers of lithium-ion cells required to support the growth of the
electric or plug-in hybrid vehicle industry as demand for such
cells increases;
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disruption in the
supply of cells due to quality issues or recalls by the battery
cell manufacturers; and
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an
increase in the cost of raw materials, such as cobalt, used in
lithium-ion cells.
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Our business depends on the continued supply of battery cells for
our vehicles. We do not currently have any agreements for the
supply of batteries and depend upon the open market for their
procurement. Any disruption in the supply of battery cells from our
supplier could temporarily disrupt the planned production of our
vehicles until such time as a different supplier is fully
qualified. Moreover, battery cell manufacturers may choose to
refuse to supply electric vehicle manufacturers to the extent they
determine that the vehicles are not sufficiently safe. Furthermore,
current fluctuations or shortages in petroleum and other economic
conditions may cause us to experience significant increases in
freight charges and raw material costs. Substantial increases in
the prices for our raw materials would increase our operating
costs, and could reduce our margins if we cannot recoup the
increased costs through increased electric vehicle prices. We might
not be able to recoup increasing costs of raw materials by
increasing vehicle prices. We have also already announced an
estimated price for the base model of our planned SOLO, Super SOLO
and Tofino. However, any attempts to increase the announced or
expected prices in response to increased raw material costs could
be viewed negatively by our potential customers, result in
cancellations of SOLO, Super SOLO and Tofino reservations and could
materially adversely affect our brand, image, business, prospects
and operating results.
9
The unavailability, reduction or elimination of government and
economic incentives could have a material adverse effect on our
business, financial condition, operating results and
prospects.
Any reduction, elimination or discriminatory application of
government subsidies and economic incentives because of policy
changes, the reduced need for such subsidies and incentives due to
the perceived success of the electric vehicle, fiscal tightening or
other reasons may result in the diminished competitiveness of the
alternative fuel vehicle industry generally or our electric
vehicles in particular. This could materially and adversely affect
the growth of the alternative fuel automobile markets and our
business, prospects, financial condition and operating
results.
If we fail to manage future growth effectively, we may not be able
to market and sell our vehicles successfully.
Any failure to manage our growth effectively could materially and
adversely affect our business, prospects, operating results and
financial condition. We plan to expand our operations in the near
future in connection with the planned production of our vehicles.
Our future operating results depend to a large extent on our
ability to manage this expansion and growth successfully. Risks
that we face in undertaking this expansion include:
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training new
personnel;
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forecasting
production and revenue;
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controlling
expenses and investments in anticipation of expanded
operations;
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establishing or
expanding design, manufacturing, sales and service
facilities;
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implementing and
enhancing administrative infrastructure, systems and
processes;
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addressing new
markets; and
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establishing
international operations.
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We intend to continue to hire a number of additional personnel,
including design and manufacturing personnel and service
technicians for our electric vehicles. Competition for individuals
with experience designing, manufacturing and servicing electric
vehicles is intense, and we may not be able to attract, assimilate,
train or retain additional highly qualified personnel in the
future. The failure to attract, integrate, train, motivate and
retain these additional employees could seriously harm our business
and prospects.
Our business may be adversely affected by labor and union
activities.
Although none of our employees are currently represented by a labor
union, it is common throughout the automobile industry generally
for many employees at automobile companies to belong to a union,
which can result in higher employee costs and increased risk of
work stoppages. We have a manufacturing agreement with Chongqing
Zongshen Automobile Co., Ltd. to produce 75,000 SOLO vehicles over
the next three years. Zongshen’s workforce is not currently
unionized, though they may become so in the future or industrial
stoppages could occur in the absence of a union. We also directly
and indirectly depend upon other companies with unionized work
forces, such as parts suppliers and trucking and freight companies,
and work stoppages or strikes organized by such unions could have a
material adverse impact on our business, financial condition or
operating results. If a work stoppage occurs within our business,
that of Zongshen or that of our key suppliers, it could delay the
manufacture and sale of our electric vehicles and have a material
adverse effect on our business, prospects, operating results or
financial condition. Additionally, if we expand our business to
include full in-house manufacturing of our vehicles, our employees
might join or form a labor union and we may be required to become a
union signatory.
We may become subject to product liability claims, which could harm
our financial condition and liquidity if we are not able to
successfully defend or insure against such claims.
We may become subject to product liability claims, which could harm
our business, prospects, operating results and financial condition.
The automobile industry experiences significant product liability
claims and we face inherent risk of exposure to claims in the event
our vehicles do not perform as expected or malfunction resulting in
personal injury or death. Our risks in this area are particularly
pronounced given we have limited field experience of our vehicles.
A successful product liability claim against us could require us to
pay a substantial monetary award. Moreover, a product liability
claim could generate substantial negative publicity about our
vehicles and business and inhibit or prevent commercialization of
other future vehicle candidates which would have material adverse
effect on our brand, business, prospects and operating results. We
plan to maintain product liability insurance for all our vehicles
with annual limits of approximately $5 million on a claims-made
basis, but any such insurance might not be sufficient to cover all
potential product liability claims. Any lawsuit seeking significant
monetary damages either in excess of our coverage, or outside of
our coverage, may have a material adverse effect on our reputation,
business and financial condition. We may not be able to secure
additional product liability insurance coverage on commercially
acceptable terms or at reasonable costs when needed, particularly
if we do face liability for our products and are forced to make a
claim under our policy.
10
Our patent applications may not result in issued patents, which may
have a material adverse effect on our ability to prevent others
from interfering with our commercialization of our
products.
The status of patents involves complex legal and factual questions
and the breadth and effectiveness of patented claims is uncertain.
We cannot be certain that we are the first creator of inventions
covered by pending patent applications or the first to file patent
applications on these inventions, nor can we be certain that our
pending patent applications will result in issued patents or that
any of our issued patents will afford sufficient protection against
someone creating a knockoff of our products, or as a defensive
portfolio against a competitor who claims that we are infringing
its patents. In addition, patent applications filed in foreign
countries are subject to laws, rules and procedures that differ
from those of the United States, and thus we cannot be certain that
foreign patent applications, if any, will result in issued patents
in those foreign jurisdictions or that such patents can be
effectively enforced, even if they relate to patents issued in the
U.S. In addition, others may obtain patents that we need to take a
license to or design around, either of which would increase costs
and may adversely affect our business, prospects, financial
condition and operating results.
We may need to defend ourselves against patent or trademark
infringement claims, which may be time-consuming and would cause us
to incur substantial costs.
Companies, organizations or individuals, including our competitors,
may hold or obtain patents, trademarks or other proprietary rights
that would prevent, limit or interfere with our ability to make,
use, develop, sell or market our vehicles or components, which
could make it more difficult for us to operate our business. From
time to time, we may receive communications from holders of patents
or trademarks regarding their proprietary rights. Companies holding
patents or other intellectual property rights may bring suits
alleging infringement of such rights or otherwise assert their
rights and urge us to take licenses. In addition, if we are
determined to have infringed upon a third party’s
intellectual property rights, we may be required to do one or more
of the following:
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cease
selling, incorporating certain components into, or using vehicles
or offering goods or services that incorporate or use the
challenged intellectual property;
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pay
substantial damages;
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seek a
license from the holder of the infringed intellectual property
right, which license may not be available on reasonable terms or at
all;
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redesign our
vehicles or other goods or services; or
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establish and
maintain alternative branding for our products and
services.
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In the event of a successful claim of infringement against us and
our failure or inability to obtain a license to the infringed
technology or other intellectual property right, our business,
prospects, operating results and financial condition could be
materially adversely affected. In addition, any litigation or
claims, whether or not valid, could result in substantial costs,
negative publicity and diversion of resources and management
attention.
You may face difficulties in protecting your interests, and your
ability to protect your rights through the U.S. federal courts may
be limited because we are incorporated under the laws of the
Province of British Columbia, a substantial portion of our assets
are in Canada and all of our directors and executive officers
reside outside the United States
We are organized under the laws of the Business Corporations
Act (British Columbia)
(the “Business Corporation Act”) and our executive
offices are located outside of the United States in Vancouver,
British Columbia. All of our officers, our auditor and all but one
of our directors reside outside the United States. In addition, a
substantial portion of their assets and our assets are located
outside of the United States. As a result, you may have difficulty
serving legal process within the United States upon us or any of
these persons. You may also have difficulty enforcing, both in and
outside of the United States, judgments you may obtain in U.S.
courts against us or these persons in any action, including actions
based upon the civil liability provisions of U.S. Federal or state
securities laws. Furthermore, there is substantial doubt as to the
enforceability in Canada against us or against any of our
directors, officers and the expert named in this prospectus who are
not residents of the United States, in original actions or in
actions for enforcement of judgments of U.S. courts, of liabilities
based solely upon the civil liability provisions of the U.S.
federal securities laws. In addition, shareholders in British
Columbia companies may not have standing to initiate a shareholder
derivative action in U.S. federal courts.
As a result, our public shareholders may have more difficulty in
protecting their interests through actions against us, our
management, our directors or our major shareholders than would
shareholders of a corporation incorporated in a jurisdiction in the
United States.
11
Risks Related to Our Common Shares
Our executive officers and directors beneficially own 70.8% of our
common shares.
Our executive officers and directors beneficially own, in the
aggregate, 70.8% of our common shares, which includes shares that
our executive officers and directors have the right to acquire
pursuant to warrants and stock options which have vested. As a
result, they will be able to exercise a significant level of
control over all matters requiring shareholder approval, including
the election of directors, amendments to our Articles and approval
of significant corporate transactions. This control could have the
effect of delaying or preventing a change of control of our company
or changes in management and will make the approval of certain
transactions difficult or impossible without the support of these
shareholders.
The continued sale of our equity securities will dilute the
ownership percentage of our existing stockholders and may decrease
the market price for our common shares.
Our Notice of Articles authorize the issuance of an unlimited
number of common shares and the
issuance of preferred shares. The Board of Directors has the
authority to issue additional shares of our capital stock to
provide additional financing in the future and designate the rights
of the preferred shares, which may include voting, dividend,
distribution or other rights that are preferential to those held by
the common shareholders. The issuance of any such common or
preferred shares may result in a reduction of the book value or
market price, if one exists at the time, of the outstanding common
shares. Given our lack of revenues, we will likely have to issue
additional equity securities to obtain working capital we require
for the next 12 months. Our efforts to fund our intended business
plans will therefore result in dilution to our existing
stockholders. If we do issue any such additional common shares,
such issuance also will cause a reduction in the proportionate
ownership and voting power of all other stockholders. As a result
of such dilution, if you acquire common shares, your proportionate
ownership interest and voting power could be decreased. Further,
any such issuances could result in a change of control or a
reduction in the market price for our common
shares.
Additionally, we have approximately 35,244,271 vested options and
23,713,716 warrants outstanding as of December 31, 2017. The
exercise price of the majority of these options and warrants is
significantly below our current market price. If the holders of
these options and warrants elect to exercise them, your ownership
position will be diluted as may be the per share value at which you
purchased our shares. As a result, the market value of our shares
could significantly decrease as well.
Issuances of our preferred stock may adversely affect the rights of
the holders of our common shares and reduce the value of our common
shares.
Our Notice of Articles authorize the issuance of an unlimited
number of shares of preferred stock. Our Board of Directors has the
authority to create one or more series of preferred stock and,
without shareholder approval, issue shares of preferred stock with
rights superior to the rights of the holders of common
shares. As a result, shares of
preferred stock could be issued quickly and easily, adversely
affecting the rights of holder of common shares and could be issued with terms calculated
to delay or prevent a change in control or make removal of
management more difficult. Although we currently have no plans to
create any series of preferred stock and have no present plans to
issue any shares of preferred stock, any creation and issuance of
preferred stock in the future could adversely affect the rights of
the holders of common shares and reduce the value of our common
shares.
The market price of our common shares may be volatile and may
fluctuate in a way that is disproportionate to our operating
performance.
Our common shares began trading
on the OTCQB in September 2017. The volume of trading has been low
and the share price has fluctuated significantly. Although we have
applied to list our common shares on the Nasdaq Capital Market,
such listing might not be approved or, if approved, affect the
volume or price volatility of our common shares. The value of your
investment could decline due to the impact of any of the following
factors upon the market price of our common
shares:
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sales
or potential sales of substantial amounts of our common
shares;
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announcements
about us or about our competitors;
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litigation
and other developments relating to our patents or other proprietary
rights or those of our competitors;
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conditions
in the automobile industry;
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governmental
regulation and legislation;
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variations
in our anticipated or actual operating results;
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change
in securities analysts’ estimates of our performance, or our
failure to meet analysts’ expectations;
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change
in general economic trends; and
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investor
perception of our industry or our prospects.
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Many of these factors are beyond our control. The stock markets in
general, and the market for automobile companies in
particular, have historically experienced extreme price and volume
fluctuations. These fluctuations often have been unrelated or
disproportionate to the operating performance of these companies.
These broad market and industry factors could reduce the market
price of our common shares, regardless of our actual operating
performance.
12
We do not intend to pay dividends and there will thus be fewer ways
in which you are able to make a gain on your
investment.
We have never paid any cash or stock dividends and we do not intend
to pay any dividends for the foreseeable future. To the extent that
we require additional funding currently not provided for in our
financing plan, our funding sources may prohibit the payment of any
dividends. Because we do not intend to declare dividends, any gain
on your investment will need to result from an appreciation in the
price of our common shares. There will therefore be fewer ways in
which you are able to make a gain on your investment.
Because the SEC imposes additional sales practice requirements on
brokers who deal in securities that are deemed penny stocks, some
brokers may be unwilling to trade our securities. This means that
you may have difficulty reselling your shares, which may cause the
value of your investment to decline.
Our shares are classified as penny stocks and are covered by
section 15(g) of the Exchange Act, which imposes additional sales
practice requirements on broker-dealers who sell our securities in
the aftermarket. For sales of our securities, broker-dealers must
make a special suitability determination and receive a written
agreement from you prior to making a sale on your behalf. Because
of the imposition of the foregoing additional sales practices, it
is possible that broker-dealers will not want to make a market in
our shares. This could prevent you from reselling your shares and
may cause the value of your investment to decline.
FINRA sales practice requirements may limit your ability to buy and
sell our common shares, which could depress the price of our
shares.
FINRA rules require broker-dealers to have reasonable grounds for
believing that an investment is suitable for a customer before
recommending that investment to the customer. Prior to recommending
speculative low-priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain
information about the customer’s financial status, tax status
and investment objectives, among other things. Under
interpretations of these rules, FINRA believes that there is a high
probability such speculative low-priced securities will not be
suitable for at least some customers. Thus, FINRA requirements may
make it more difficult for broker-dealers to recommend that their
customers buy our common shares, which may limit your ability to
buy and sell our shares, have an adverse effect on the market for
our shares and, thereby, depress their market prices.
You may face significant restrictions on the resale of your shares
due to state “blue sky” laws.
Each state has its own securities laws, often called “blue
sky” laws, which: (1) limit sales of securities to a
state’s residents unless the securities are registered in
that state or qualify for an exemption from registration; and (2)
govern the reporting requirements for broker-dealers doing business
directly or indirectly in the state. Before a security is sold in a
state, there must be a registration in place to cover the
transaction, or it must be exempt from registration. The applicable
broker must also be registered in that state.
We do not know whether our securities will be registered or exempt
from registration under the laws of any state. A determination
regarding registration will be made by the broker-dealers, if any,
who agree to serve as market makers for our common shares. There
may be significant state blue sky law restrictions on the ability
of investors to sell, and on purchasers to buy, our securities. You
should therefore consider the resale market for our common shares
to be limited, as you may be unable to resell your shares without
the significant expense of state registration or
qualification.
Our common shares are thinly traded, and you may be unable to sell
at or near ask prices or at all if you need to sell your shares to
raise money or otherwise desire to liquidate your
shares.
Our common shares are currently quoted on the OTC Market Group
Inc.’s Venture Market (the “OTCQB”) under the
symbol “ECCTF”. In the first three months of 2018, our
average daily trading volume was approximately 1,670 shares.
Although we have applied to list our shares on the Nasdaq Capital
Market, we might not be approved and, even if approved, our common
shares may continue to be “thinly-traded” after that
listing, meaning that the number of persons interested in
purchasing our common shares at or near bid prices at any given
time may be relatively small or non-existent. This situation may be
attributable to a number of factors, including that we are
relatively unknown to stock analysts, stock brokers, institutional
investors and others in the investment community that generate or
influence sales volume, and that even if we came to the attention
of such persons, they tend to be risk-averse and might be reluctant
to follow an unproven company such as ours or purchase or recommend
the purchase of our shares until such time as we became more
seasoned. As a consequence, there may be periods of
several days or more when trading activity in our shares is minimal
or non-existent, as compared to a seasoned issuer which has a large
and steady volume of trading activity that will generally support
continuous sales without an adverse effect on share
price. Broad or active public trading market for our
common shares may not develop or be sustained.
Volatility in our common shares or warrant price may subject us to
securities litigation.
The market for our common shares may have, when compared to
seasoned issuers, significant price volatility, and we expect that
our share or warrant price may continue to be more volatile than
that of a seasoned issuer for the indefinite future. In the past,
plaintiffs have often initiated securities class action litigation
against a company following periods of volatility in the market
price of its securities. We may, in the future, be the target of
similar litigation. Securities litigation could result in
substantial costs and liabilities and could divert
management’s attention and resources.
13
We are a foreign private issuer within the meaning of the rules
under the Exchange Act, and as such we are exempt from certain
provisions applicable to United States domestic public
companies.
We are a foreign private issuer within the meaning of the rules
under the Exchange Act. As such, we are exempt from certain
provisions applicable to United States domestic public companies.
For example:
●
we
are not required to provide as many Exchange Act reports, or as
frequently, as a domestic public company;
●
for
interim reporting, we are permitted to comply solely with our home
country requirements, which are less rigorous than the rules that
apply to domestic public companies;
●
we
are not required to provide the same level of disclosure on certain
issues, such as executive compensation;
●
we
are exempt from provisions of Regulation FD aimed at preventing
issuers from making selective disclosures of material
information;
●
we
are not required to comply with the sections of the Exchange Act
regulating the solicitation of proxies, consents or authorizations
in respect of a security registered under the Exchange Act;
and
●
we
are not required to comply with Section 16 of the Exchange Act
requiring insiders to file public reports of their share ownership
and trading activities and establishing insider liability for
profits realized from any “short-swing” trading
transaction.
Our shareholders may not have access to certain information they
may deem important and are accustomed to receive from US reporting
companies.
As an “emerging growth company” under applicable law,
we will be subject to lessened disclosure requirements. Such
reduced disclosure may make our common shares less attractive
to investors.
For as long as we remain an “emerging growth company”,
as defined in the JOBS Act, we will elect to take advantage of
certain exemptions from various reporting requirements that are
applicable to other public companies that are not “emerging
growth companies”, including, but not limited to, not being
required to comply with the auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act, reduced disclosure
obligations regarding executive compensation in our periodic
reports and proxy statements, and exemptions from the requirements
of holding a non-binding advisory vote on executive compensation
and shareholder approval of any golden parachute payments not
previously approved. Because of these lessened
regulatory requirements, our shareholders would be left without
information or rights available to shareholders of more mature
companies. If some investors find our common shares less attractive
as a result, there may be a less active trading market for such
securities and their market prices may be more
volatile.
We incur significant costs as a result of being a public company,
which costs will grow after we cease to qualify as an
“emerging growth company.”
We incur significant legal, accounting and other expenses as a
public company that we did not incur as a private company. The
Sarbanes-Oxley Act of 2002, as well as rules subsequently
implemented by the SEC and NASDAQ Capital Market, impose various
requirements on the corporate governance practices of public
companies. We are an “emerging growth company,” as
defined in the JOBS Act and will remain an emerging growth company
until the earlier of (1) the last day of the fiscal year (a)
following May 23, 2022, (b) in which we have total annual gross
revenue of at least $1.07 billion, or (c) in which we are deemed to
be a large accelerated filer, which means the market value of our
common shares that is held by non-affiliates exceeds $700 million
as of the prior June 30th, and (2) the date on which we have issued
more than $1.0 billion in non-convertible debt during the prior
three-year period. An emerging growth company may take
advantage of specified reduced reporting and other requirements
that are otherwise applicable generally to public companies. These
provisions include exemption from the auditor attestation
requirement under Section 404 in the assessment of the
emerging growth company’s internal control over financial
reporting and permission to delay adopting new or revised
accounting standards until such time as those standards apply to
private companies.
Compliance with these rules and regulations increases our legal and
financial compliance costs and makes some corporate activities more
time-consuming and costly. After we are no longer an emerging
growth company, we expect to incur significant expenses and devote
substantial management effort toward ensuring compliance with the
requirements of Section 404 and the other rules and
regulations of the SEC. For example, as a public company, we have
been required to increase the number of independent directors and
adopt policies regarding internal controls and disclosure controls
and procedures. We have incurred additional costs in obtaining
director and officer liability insurance. In addition, we incur
additional costs associated with our public company reporting
requirements. It may also be more difficult for us to find
qualified persons to serve on our board of directors or as
executive officers. We are currently evaluating and monitoring
developments with respect to these rules and regulations, and we
cannot predict or estimate with any degree of certainty the amount
of additional costs we may incur or the timing of such
costs.
14
ITEM 4. INFORMATION ON THE COMPANY
Summary
We were
incorporated on February 16, 2015 under the laws of British
Columbia, Canada, and have a December 31, fiscal year end. We are
engaged in the planning, development and manufacturing of single
person electric vehicles.
Our
principal executive offices are located at 102 East 1st Avenue,
Vancouver, British Columbia, Canada, V5T 1A4. Our telephone number
is (604) 428-7656. Our website address is www.electrameccanica.com.
Information on our website does not constitute part of this Annual
Report. Our registered and records office is located at Suite 1500,
1055 West Georgia Street, P.O. Box 11117, Vancouver, British
Columbia, Canada, V6E 4N7.
A. History and
development of the Company
Electrameccanica Vehicles Corp. is a development-stage electric
vehicle (“EV”) production company incorporated on
February 16, 2015 under the laws of British Columbia, Canada. The
concept for our company was developed by Jerry Kroll after years of
research and development on advanced EVs.
Upon returning to Vancouver in 2011, Mr. Kroll decided that new
electric drive systems could revolutionize car assembly and the
concept for our company’s flagship EV called the
“SOLO” was born. With the help of long time automotive
expert and friend, Henry Reisner, President of Intermeccanica
International Inc. (“Intermeccanica”), and
Intermeccanica’s vast experience in automotive craftsmanship,
our company’s first prototype was finished in January 2015.
To solidify our presence and branding in the EV market, we
incorporated in February of 2015 under the name Electrameccanica
Vehicles Corp. For the past 10 years, Mr. Kroll has been
researching and developing technologies for autonomous drive
systems and dynamic induction charging. We have plans for ongoing
refinements to performance, style, value and efficiency as drive
systems, computerization and materials are developed.
In 2015, we entered into an arrangement with Intermeccanica to
leverage Intermeccanica’s over 50 years of experience.
Pursuant to a Joint Operating Agreement entered into between us,
Intermeccanica and Mr. Reisner, dated July 15, 2015, and as amended
on September 19, 2016, we agreed on an arrangement dealing with
leased premises, production assembly and an option to acquire
Intermeccanica. We exercised this option in October 2017 to further
enhance the combination of our proprietary SOLO design with
Intermeccanica’s manufacturing expertise.
We currently have a modern furnished showroom near the downtown
core of Vancouver, British Columbia where interested consumers may
receive more information on the SOLO, review its specs and
technical design, and even test-drive one of the existing
prototypes.
As of April 6, 2018, we have a
number of marketing efforts that have succeeded in helping us
achieve a non-binding order book of approximately $2.4 billion,
including 824 private and 59,900 corporate pre-sales. Interested
individuals are able to place reservations for the SOLO and the
Tofino with a refundable deposit of $250 and $1,000 respectively.
We have private orders for 700 SOLOs, each with a refundable
deposit of $250, 14 Super SOLOs; each with a refundable deposit of
$1,000 and 110 Tofinos, each with a refundable deposit of $1,000.
The 59,900 corporate orders are from entities that have provided
non-binding letters of interest and are comprised of 20,330 orders
for the SOLO and 39,570 orders for the Tofino.
We have been funding operations to date through equity financings
by our founders and through private placements of
$25,165,436 from investors. Our
management maintains a majority control of our company. As
our April 11, 2018, our
directors and executive officers beneficially owned 70.8% of our
outstanding shares, including shares that our executive officers
and directors have the right to acquire within the next 60 days
pursuant to warrants and stock options which have
vested.
Our principal executive offices are located at 102 East
1st Avenue, Vancouver, British Columbia, Canada, V5T 1A4. Our
phone number is (604) 428-7656.
15
B. Business
Overview
General
We are a development-stage EV company focusing on the market demand
for EVs that are efficient, cost-effective and environmentally
friendly methods for urban residents to commute. We believe that
our flagship EV called the SOLO is the answer to such market
demand. In addition, we have two other EV candidates in an advanced
stage of development, the Super SOLO and the Tofino.
SOLO
We created the SOLO’s first prototype in January of 2015.
Since the completion of the prototype, our engineers and designers
have devoted efforts to provide the SOLO with an appealing design,
and have engaged in proprietary research and development leading to
a high performance electric rear drive motor.
The SOLO features a lightweight aerospace composite chassis to
allow for a top speed of 130km/h, an attainable cruise speed of
110km/h and is able to go from 0 km/h to 100 km/h in approximately
eight seconds. Our SOLO features a lithium ion battery system that
requires only three hours of charging time on a 220-volt charging
station or six hours from a 110-volt outlet. The lithium battery
system utilizes approximately 8.64 kW/h for up to 160 km in range.
We also offer a comprehensive warranty package for two years of
unlimited mileage which is included in the price of the SOLO.
Standard equipment in the SOLO includes, but is not limited to the
following:
|
●
|
LCD
Digital Instrument Cluster;
|
|
|
|
|
●
|
Power
Windows;
|
|
|
|
|
●
|
AM/FM
stereo with Bluetooth/ CD/USB;
|
|
|
|
|
●
|
Remote
keyless entry system;
|
|
|
|
|
●
|
Rear
view backup camera;
|
|
|
|
|
●
|
285
liters of cargo space; and
|
|
|
|
|
●
|
Heater
and defogger.
|
Optional equipment will include air conditioning at an additional
cost.
The purchase price for our SOLO is $19,888.
Our production department has completed twenty five pre-production
SOLOs as of April 6, 2018, and we intend to produce up to six
further pre-production SOLOs by the end of June 30, 2018. Producing
the pre-production SOLOs allows us to determine and assess the
entire production process. Currently, we have increased our
production space, organized a production line, ordered components
and are in the process of fine tuning the production process
through the pre-production SOLOs. We have entered into a
manufacturing agreement with Zongshen and expect to begin mass
production of the SOLO in the third quarter of 2018. We anticipate
our production costs to be $15,000 per SOLO, providing a gross
margin of 25% based on a sale price of $19,888.
16
Super Solo
We also plan on launching the Super SOLO, which is a sports car
model within our EV product line. The Super SOLO is intended to
boast a longer range and a higher top speed, sleek, aerodynamic
design and features that will rival existing super sports cars such
as the Ferrari 488 and Lamborghini Gallardo.
Refundable deposits have been accepted for the planned Super SOLO
and such deposits are able to be returned at any time. Mechanical
development on the Super SOLO has begun and progress will determine
when this and any other variants can be launched. No set date has
been declared at this time. The Super SOLO is intended to be a
high-performance version of the SOLO.
The Tofino
We announced on March 28, 2017, at the Vancouver International Auto
Show that we intend to build the Tofino, an all-electric,
two-seater roadster representing an evolution of the Intermeccanica
Roadster. We are designing the Tofino to be equipped with a
high-performance, all-electric motor with a top speed of 200 kph
(125 mph) and a 0-100 kph (0-60 mph) in less than seven seconds.
The chassis and body are expected to be made of a lightweight
aerospace-grade composite with the car expected to be capable of up
to 400 km (250 miles) of range on a full charge. We are accepting a
refundable deposit of $1,000 to reserve the Tofino.
17
Future EV candidates
We have identified other vehicles that we would like to add to our
candidate list such as the “Cargo” and the
“Twinn”, although no timeline has been set for their
development and production. We have plans in the future to release
the “Cargo,” a larger vehicle than the SOLO that is
designed for use as a fleet vehicle with ample storage space which
would be best suited for delivery companies such as FedEx, the
United States Postal Service and Canada Post. We expect that the
Cargo will offer the appropriate compartment space for fleet
vehicle uses such as delivery, while offering long range capability
and cleaner technology. We envision the Twinn featuring two seats,
suitable for urban families, young commuters, empty nesters, and
environmentally-conscious consumers.
Sources and Availability of Raw Materials
We continue to source duplicate suppliers for all of our
components, and in particular, we are currently sourcing our
lithium batteries from Panasonic, Samsung and LT Chem. Lithium is
subject to commodity price volatility which is not under our
control and could have a significant impact on the price of lithium
batteries.
At present, we are subject to the supply of our chassis from one
supplier for the production of the SOLO, the Super SOLO and the
Tofino. We are exploring adding additional suppliers of the chassis
to mitigate the risk of depending on only one
supplier.
Patents and Licenses
We have filed patents on items that our legal counsel deem
necessary to protect our products. We do not rely on any licenses
from third-party vendors at this time.
Our success depends, at least in part, on our ability to protect
our core technology and intellectual property. To accomplish this,
we rely on a combination of patent and design applications, trade
secrets, including know-how, employee and third party
non-disclosure agreements, copyright laws, trademarks and other
contractual rights to establish and protect our proprietary rights
in our technology. As at April 11, 2018, we had one issued design registration, two
allowed design application and six pending patent and design
applications with various countries which we consider core to our
business in a broad range of areas related to the design of the
SOLO and its powertrain. We intend to continue to file additional
patent applications with respect to our technology. We do not know
whether any of our pending patent applications will result in the
issuance of patents or whether the examination process will require
us to narrow our claims. Even if granted, these pending patent
applications might not provide us with adequate
protection.
Trademarks
We operate under the trademark “ELECTRA MECCANICA
SOLO”, which is registered under applicable intellectual
property laws. We have also registered the trademark for the name
“Tofino” in Japan and applied to register the trademark
in Canada, the United States, the European Union and China. This
prospectus contains references to our trademarks and service marks
and to those belonging to other entities. Solely for convenience,
trademarks and trade names referred to in this prospectus may
appear without the ® or TM symbols, but
such references are not intended to indicate, in any way, that we
will not assert, to the fullest extent possible under applicable
law, our rights or the rights of the applicable licensor to these
trademarks and trade names. We do not intend our use or display of
other companies’ trade names, trademarks or service marks to
imply a relationship with, or endorsement or sponsorship of us by,
any other companies.
Market Overview
Investment in clean technology has been trending for several years
as nations, governments, and society overall become more aware of
the damaging effects pollution and greenhouse gas emissions
(“GHG”) have on the environment. In an attempt to
prevent and/or slow-down these damaging effects and create a more
sustainable environment, nations and government agencies have
announced their proposals to reduce GHGs, contribute funding into
research and development in clean technology, and offer
incentives/rebates for clean technology investments by businesses
and consumers.
Electric vehicle (“EV”) is a broad term for vehicles
that do not solely operate on gas or diesel. Within this
alternative vehicle group, there are more categories that further
segment into alternative vehicles that embrace different innovative
technologies such as: (i) battery electric vehicles
(“BEV”); (ii) fuel-cell electric vehicles
(“FCV”); or (iii) plug-in hybrid electric vehicles
(“PHEV”).
18
BEVs draw on power from battery management systems to power
electric motors instead of from an internal combustion engine, a
fuel cell, or a fuel tank. The Nissan Leaf, Tesla Model S, and our
SOLO are BEVs.
FCVs typically utilize a hydrogen fuel cell that, along with oxygen
from the air, converts chemical energy into electricity which
powers the vehicle’s motor. Emissions from a FCV are water
and heat, hence making FCVs true zero-emission vehicles. The
Honda Clarity, Hyundai Tucson and
Toyota Mirai are FCVs.
PHEVs are the hybrid vehicles that have both an electric motor and
an internal combustion engine. A PHEV can alternate between using
electricity while in its all-electric range and relying on its
gas-powered engine. The Chevrolet Volt and the Toyota Prius are
examples of PHEVs.
The popularity of EVs have also been met with difficulties in
charging convenience. There are far more gas stations available
than public EV charging stations: a search on Yellow Pages reveals
that there are 439 gas stations alone in the City of Vancouver
whereas the entire Province of British Columbia has approximately
500 public EV charging stations. The convenience and availability
of public EV charging stations may prove to be an obstacle of mass
adoption of EVs.
Consumers may be afraid that their EVs may run out of charge while
they are out on the road and this fear is recognized by the public
and has been popularized with the term “range anxiety”.
Despite this fear, the distance travelled by most urban commuters
is a lot lower than the typical range of an EV. Data from
Statistics Canada’s National Household Survey in 2011
reported the average Canadian takes 25 minutes to commute to
work.
There currently exists different categories of charging stations
depending on the voltage they provide. EV owners can often charge
at home on a regular 110-volt outlet which may take between 10
hours to 20 hours depending on the model and make of the EV. This
type of outlet and charging is termed level 1 charging. Level 2
charging means the voltage at the charging station is typically
around 240 volts and this type of outlet is usually available at
public charging stations, shopping malls and big box retailer
parking lots, and even located in certain residential hi-rises.
Charging at a level 2 station typically cuts down the level 1
charge time in half and may require a small fee for the service
which may vary depending on the provider and the
location.
Electric Vehicles/Automotive – Global Market
EVs have been around for a number of years, but have only recently
gained mass adoption and public interest due to open discussions of
GHG emission levels, government and international policies on
climate change and pollution, increased literature on EVs,
fluctuating fuel costs, and improved battery management systems and
EV range. According to Navigant Research, the global light duty EV
market is estimated to grow from 2.6 million vehicle sales in 2015
to over 6.0 million vehicle sales in 2024.
EVs in the global market are gaining adoption by the general public
and these efforts have also been aided by traditional automotive
manufacturers’ entry into the market. The majority of growth
in the EV industry has been led by the following top five EV
models: (1) Nissan Leaf; (2) Chevrolet Volt (PHEV); (3) Toyota
Prius (PHEV); (4) Tesla Model S; and, (5) Mitsubishi Outlander
(PHEV). There are few manufacturers that are solely devoted to
the manufacturing of EVs, the most well-known and popular one being
Tesla Motors.
On a global scale, EVs are gaining popularity, particularly in
countries where there is high population density, narrow roads, and
limited urban space. According to an April 2016 article from
Pedestrian Observations, an online website dedicated to
transit-oriented developments, several European countries are
formulating programs that ban cars fueled by petrol or diesel. This
initiative was introduced by Norway’s Minister for the
Environment and co-spokesperson for the Green Party, which expects
to implement the ban completely by 2025.
In France, the Paris region has been calling for a phase-out of the
internal combustion engine due to rising levels of particulate
pollution from diesel vehicles and the local government is looking
into implement more battery charging stations to help commuters
refuel along the way. The German government is expecting
German automakers to spend more money on research and development
for improved battery range and charging stations.
In Belgium, Switzerland, and the Netherlands, such governments
would like a similar phase-out program akin to that of
Norway’s. These countries expect the phase-out to be
complete by 2030. In some of these countries, however, there
remain opposing parties to the phase-out program and it is
uncertain as to how it will ultimately play out.
We believe that the aforementioned initiatives show that there is
significant demand for EVs and with government support, adoption of
EVs and changes to the industry can be made more rapidly. Our
management believes that these initiatives will materialize and are
optimistic at the prospects of an overall cleaner environment and
bigger market for EVs.
19
Electric Vehicles/Automotive – Canadian Market
Data from FleetCarma.com (“FleetCarma”), a clean
technology information and communications technology website,
reported 2015 EV sales in Canada to be 6,933. Although this
number pales in comparison to the total 1.898 million internal
combustion vehicles sold in Canada in 2015, the 2015 EV sales
numbers represent an approximate 32% increase in sales over 2014.
The graph below from FleetCarma further breaks down the number of
vehicles sold by each EV automaker in Canada in 2014 and
2015.
As can be seen from the graph above, Tesla Motor’s Model S
made huge strides in sales, recording a 137% increase in 2015 over
2014. Nissan Leaf sales also increased by 23% in 2015 while
Chevrolet Volt sales were down 8% in 2015 as compared to the
previous year.
FleetCarma also states the total number of EVs on the road in
Canada at 18,451. 54% of Canada’s total EVs are BEVs
with the rest being PHEVs. FleetCarma’s data also highlights
that the Province of Quebec currently leads the rest of Canada with
the most registered EVs at 8,500 vehicles, representing 46% of the
entire Canadian EV population. The bar chart below from FleetCarma
indicates the provinces and their respective number of registered
EVs as at December 31, 2015.
20
Data from British Columbia Air Quality, a government division
focused on transportation emissions, indicates that pollutant
emissions from conventional gasoline vehicles produce almost five
times as much volatile organic compounds (“VOCs”) than
gasoline/electric hybrid vehicles.
* NOx refers to Nitrogen Oxides | PM2.5refers to particles in
air pollutants that are 2.5 micrometers or less in
size
Data from Environment and Climate Change Canada indicates that
Canada is one of the top countries with large ratios of emissions
to GDP. Canada has been working towards reducing its air pollutant
emissions alongside other member countries of the Organisation for
Economic Co-operation and Development (“OECD”). As can
be seen in the bar chart and table below, Canada’s nitrogen
levels in 2014 were reduced by 23.3% from 2004 levels.
Countries
|
2004 nitrogen oxide emissions
(kilotonnes)
|
2014 nitrogen oxide emissions
(kilotonnes)
|
2004 nitrogen oxide emissions intensity (tonnes per million US
dollars of gross domestic product)
|
2014 nitrogen oxide emissions intensity (tonnes per million US
dollars of gross domestic product)
|
United States
|
19,248
|
11,092
|
1.38
|
0.69
|
Canada
|
2,506
|
1,923
|
2.01
|
1.28
|
21
The below bar chart and table also illustrates the 23.6% decrease
in VOC emissions in 2014 from 2004 levels. The table compares
Canada’s VOC emission levels with that of the United
States.
Countries
|
2004 VOC emissions
(kilotonnes)
|
2014 VOC emissions
(kilotonnes)
|
2004 VOC emissions intensity (tonnes per million US dollars of
gross domestic product)
|
2014 VOC emissions intensity (tonnes per million US dollars of
gross domestic product)
|
United States
|
14,787
|
12,917
|
1.06
|
0.80
|
Canada
|
2,823
|
2,157
|
2.26
|
1.44
|
The above presented data also points out opportunities for EV
markets in countries that have difficulties reducing the air
pollution. From the bar charts above, it appears that Australia,
Turkey and the United Kingdom will also be ideal markets for EVs
which allow for substantial reduction in VOC and
NOXemissions.
A February 2016 article from the Globe and Mail provides more
insights on the expected levels of emissions in the coming years.
According to the article, in 2020, emissions will hit 768 megatons
of carbon dioxide – way above Canada’s target of 622
megatons. By 2030, they will have jumped to 815 megatons, compared
with a target for that year of 524 megatons. As a result,
provincial governments in Canada are carefully monitoring GHG
emissions and providing funding and incentives to help reduce these
emission levels.
Another reason EVs have become popular is due to variable fuel
costs and vehicle maintenance costs that have become a burden for
conventional gasoline automobile owners. According to the American
Automobile Association, the owner of an average sedan would incur
US$8,876 a year in driving costs and an average cost per mile of
US$0.592 cents (US$0.367 cents per km). In comparison to the
above statistic, an October 2015 Globe and Mail article reports
electric vehicles typically cost owners $0.016 per km to
drive.
Canada is seen as a leader in many industries, but clean-tech and
EVs seems not to be one of them. However, research and data reveals
significant interest in EVs from Canadians. According to a 2015
study completed by Ipsos, a market research firm, 80% of Canadians
believe electric cars are the way of the future and 75% would like
to drive a car not powered by gasoline.
Normally, it is difficult for innovative breakthrough technology to
be rapidly adopted by the mass public unless they are well-educated
on the technology and the technology is affordable and sufficiently
promoted via incentives from the government. In the case of Canada,
government incentives and initiatives allow for affordable EVs and
convenient free or low-cost charging stations, further promoting
the benefits of clean-tech to the general public. Below is an
overview of current and prospective provincial government
incentives that encourage consumers to embrace EVs. As Ontario,
Quebec and British Columbia are the top three most populous
provinces in Canada, the overview will focus on these
provinces.
22
In Ontario, 35% of GHGs are created from transportation
emissions. In an effort to reduce GHGS, the Province of
Ontario has established government rebates for consumers purchasing
EVs. The government of Ontario has plans to allocate $325 million
for investments in green technology, a portion of it will be
devoted to EV programs.
The Province of British Columbia has allotted $7.5 million funding
for the Clean Energy Vehicle Program (the “CEVforBC
Program”) which provides a $5,000 rebate to consumers of a
qualifying battery electric, fuel-cell electric, or plug-in hybrid
electric vehicle. The SOLO qualifies for such funding. A
further $1.59 million in funding will be invested by the Province
of British Columbia into charging infrastructure and hydrogen
fueling infrastructure.
In British Columbia, there are over 500 public electric vehicle
charging stations to allow for convenient charging. The City of
Vancouver alone boasts over 90 public electric charging stations.
According to the City of Vancouver website, the municipality now
has the biggest municipal EV fleet in Canada, consisting of 26
Mitsubishi iMiEVS and one Nissan Leaf.
British Columbia is not the only province in Canada offering
incentives for EVs. According to a February 2016 article from CBC
News, the Province of Ontario has announced, effective as of
February 10, 2016, a boost to its incentives from the current range
of $5,000 to $8,500 per vehicle up to $6,000 to $10,000 for
the purchase or lease of eligible plug-in EVs. Additional
incentives are available for EVs with larger battery capacity or a
five-seater vehicle. CBC News reports there are currently 5,800 EVs
in Ontario alone.
According
to a CBC News article in December 2015, the Ontario government is
expected to allot $20 million in grants to encourage public and
private sector partners to construct a network of public EV
charging stations which will be available in cities, offices,
residential high-rises, and along commuter highways. The EV
rebates, along with the EV charging station network, are expected
to help reduce Ontario GHGs by 80% of
1990 levels by the year 2050.
The Province of Quebec announced plans to allocate $420 million to
promote EVs over the five years between 2015 to 2020. Denis
Coderre, the former Mayor of Montreal expected the city to have a
total of 1,000 charging stations by 2020. Curbside charging
stations will allow EV owners easier access compared to current
charging stations that are often located in underground parking
lots. The proposed charging stations will primarily be level 2
chargers (which have 240 volts and typically 16 to 30 amps), with
approximately six stations being level 3 chargers (which can
provide up to 80% of a full charge in 30 minutes). Costs of
utilizing the stations are $1 per hour for the level 2 stations
(parking costs extra) and $10 per hour for level 3
stations.
Manufacturing Plan
As of April 11, 2018, we have
built 25 pre-production vehicles. We have used some of these
pre-production vehicles as prototypes, have delivered four to
customers upon payment of the purchase price, and have used others
as test drive models in our two showrooms. At our facilities
located in British Colombia, we can manufacture approximately two
to four vehicles per month. Our ability to build EVs at our own
facilities has been enhanced by our recent acquisition of
Intermeccanica which has over 50 years of custom car manufacturing
expertise. Intermeccanica commenced operations during 1959
in Turin, Italy selling speed equipment kits. This led to the
production of a Formula Junior racer and eventually to the first
unique bodied, hand assembled road car called the InterMeccanica
Puch or IMP (21). The car competed at the Nurburgring, a 13.75 mile
race circuit in Germany, where it won its 500 cc class. The success
of the IMP led Intermeccanica to build the Apollo (101), Griffith
(14), Italia (500) and Indra (125) during the period 1959 to 1975.
Thereafter, Intermeccanica moved to North America where it started
to construct the Porsche 356 Speedster replica and later
Intermeccanica moved to Vancouver, Canada, where it developed the
tooling to produce the Roadster RS based on the 1959 Porsche 356 D,
Intermeccanica incorporated its own tubular chassis in 1986 and
offered various powertrains from the original VW air-cooled engine
to a six-cylinder engine from a Porsche 911. Intermeccanica,
throughout its operating history, has built approximately 2,500
vehicles.
To enable us to mass produce our EVs, we have entered into a
manufacturing agreement with Zongshen located in Chongqing, China.
Under the agreement, Zongshen has begun the process of establishing
tooling and has contracted to produce 75,000 SOLO vehicles.
Zongshen, through its subsidiary, Chongqing Zongshen Engine
Manufacturing Co., Ltd. is a subsidiary of Zongshen Power. Since
its establishment in 1992, Zongshen Power has grown into a
large-scale scientific and technical enterprise capable of
researching, developing, manufacturing and selling a diverse range
of motorcycles and motorcycle engines in China. Its products
include over 130 models of two-wheeled motorcycles, electric
motorcycles, three-wheeled motorcycles, cross-country vehicles and
ATVs with motors ranging from 35CC to 500CC. Zongshen Power has
been an industry leader for many successive years. Zongshen has
purchased $1,017,532 of our common shares from us and beneficially
owns approximately 11.1% of our common shares. If we complete this
offering, we expect to begin placing orders with Zongshen in the
first or second quarter of 2018 and to begin sales of SOLOs in
August 2018. We anticipate that Zongshen will produce up to 5,000
of our cars in 2018, 20,000 of our cars in 2019 and 50,000 of our
cars in 2020.
23
Marketing Plan
We recognize that marketing efforts must be focused on customer
education and establishing brand presence and visibility which is
expected to allow our vehicles to gain traction and subsequently
gain increases in orders. Marketing and promotional efforts must
emphasize the SOLO’s image as an efficient, clean, and
affordable EV for the masses to commute on a daily basis. If we can
successfully promote the SOLO on these points, we expect growth in
sales and customer base to occur rapidly.
A key point to the marketing plan is to target metropolitan cities
with high population density, expensive real estate, high commuter
traffic load, and pollution levels which are becoming an enormous
concern. Accordingly, our management has identified cities in
Canada and the United States that fit the aforementioned criteria
and have plans to seek out suitable locations in the following
cities for additional showrooms in the second and third quarters of
2018: Toronto; Seattle; Los Angeles; San Francisco; and
Manhattan.
Key aspects of our marketing plan are highlighted below. We plan to
develop a marketing strategy that will generate interest and media
buzz based on the SOLO’s selling points.
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Organic
engagement on social media with engaging posts aimed to educate the
public about EVs and develop interest in our SOLO, which to date
has had positive traction.
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Earned
media – we have already received press coverage from several
traditional media sources and expect these features and news
stories to continue as we embark on our commercial
launch.
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Investor Relations/
Press Releases – our in-house investor relations team will
provide media releases/kits for updates and news on our
progress.
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Industry shows and
events – we displayed the SOLO at the Vancouver International
Autoshow in March 2017 and at the Consumer Electronics Show in Las
Vegas in January 2018. Promotional merchandise giveaways will
enhance and further solidify our branding in consumer minds.
Computer stations and payment processing software will be readily
on hand at to accept SOLO reservations.
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First-hand
experience - Test-drives and public viewings are available at our
existing showrooms in and near the Vancouver downtown
core.
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We anticipate that our marketing strategy and tactics will evolve
over time as our SOLO gains momentum and we identify appropriate
channels and media that align with our long-term objectives. In all
of our efforts, we plan to focus on the features that differentiate
our SOLO from the existing EVs on the market.
Reservation System
We have an online reservation system which allows a potential
customer to reserve a SOLO by paying a refundable $250 deposit, a
Super SOLO by paying a refundable $1,000 deposit and a Tofino by
paying a refundable $1,000 deposit. Once reserved, the potential
customer is allocated a reservation number and the reservation will
be fulfilled as the respective vehicles are produced. As of
April 11, 2018, we have received
deposits for 700 SOLOs, 14 Super SOLOs and 110 Tofinos. In
addition, we have received non-binding letters of intent for 59,900
vehicles from corporate entities that are not required to make a
deposit.
We will earn revenue once a vehicle has been delivered to the
customer who has pre-ordered their vehicle. Each order is placed in
line as received and fulfilled once the vehicle becomes available.
The customer may, at any time, for any reason, cancel their order
and have their deposit returned. We do not consider any order as
being secured until the vehicle has been delivered and full receipt
of the remaining balance of the vehicle purchase price has been
received.
Sales and Service Model
Sales Model
We sell our vehicles online via our website
(www.electrameccanica.com), while we develop our planned corporate
owned dealerships in key markets and franchise dealer network in
other market areas. As each franchise dealer is established, any
vehicles sold within such dealers designated territory will be
delivered to such dealer to fulfill online orders as well as such
franchise dealer’s orders.
We are unable to identify where we hope to establish franchise
dealers as opposed to corporate owned dealerships. The
establishment of franchise dealers will depend on regional demand,
available candidates and local regulations. We are currently
accepting expressions of interest and applications for franchised
dealerships from individuals, and do not have any franchise or
dealer agreements. Our vehicles will initially be available
directly from Electrameccanica.
We plan to only establish and operate corporate owned dealerships
in those states in the U.S. that do not restrict or prohibit
certain retail sales models by vehicle manufacturers. In all other
instances, we plan to establish franchise dealerships to comply
with local regulations.
24
Service Model
We plan to have our vehicles serviced through our corporate and
franchised dealerships.
Government Regulation
As a vehicle manufacturer established in Canada, we are required to
ensure that all vehicle production meets applicable safety and
environmental standards. Issuance of the National Safety Mark (the
“NSM”) by the Minister of Transport for Canada will be
our authorization to manufacture vehicles in Canada. Receipt of the
NSM is contingent on us demonstrating that our vehicles are
designed and manufactured to meet or exceed the applicable sections
of the Canadian Motor Vehicle Safety Act (C.R.C. Chapter 1038) and
that appropriate records are maintained. Unique to Canada, the SOLO
and the Super SOLO are under the three-wheeled vehicle category and
are subject to the safety standards listed in Schedule III of the
Canadian Motor Vehicle Safety Regulations (“CMVSR”),
which can be found at (http://laws-lois.justice.gc.ca/eng/regulations/C.R.C.,_c._1038/section-sched3.html).
For sale into the United States, we and our vehicles must meet the
applicable parts of the U.S. Code of Federal Regulations
(“CFR”) Title 49 - Transportation. This includes
providing Manufacture Identification information (49 CFR Part 566),
VIN-deciphering information (49 CFR Part 565), and certifying that
our vehicles meet or exceeds the applicable sections of the Federal
Motor Vehicle Safety Standards (40 CFR Part 571) and Environmental
Protection Agency noise emission standards (40 CFR 205). Since the
U.S. regulations do not have a specific class for three-wheeled
‘autocycles’, the SOLO and the Super SOLO fall under
the definition of a motorcycle pursuant to Sec. 571.3 of 49 CFR
Part 571.
We obtained U.S. compliance certification for the SOLO in the first
quarter of 2018 at a testing facility in Quebec, Canada. Compliance
certification of the SOLO for Canada began in 2018, and we
estimate, depending on the weather and results, that it will be
complete in the second quarter of 2018.
Within the three wheel vehicle classification in Canada, CMVSR
Standard 305 sets out the regulation for prevention of injury to
the occupant during and after a crash as related to the
vehicle’s batteries. Under this standard, the security and
integrity of electric drive system components and their isolation
from the occupant are evaluated in the course of a frontal barrier
crash test in accordance with Technical Standard Document No. 305.
There is no such regulation applicable to the motorcycle category
under the U.S. regulations.
Although the SOLO and the Super SOLO fall under the definition of a
motorcycle under U.S. regulations, a motorcycle license is not
required to drive them in all but two U.S. states.
Competition
The worldwide automotive market, particularly for alternative fuel
vehicles, is highly competitive today and we expect it will become
even more so in the future as we move towards production of the
SOLO, the Super SOLO and the Tofino and the introduction of other
models such as the anticipated “Twinn” and the
“Cargo.” Other manufacturers have entered the electric
vehicle market and we expect additional competitors to enter this
market within the next several years. As they do, we expect that we
will experience significant competition. With respect to the SOLO,
we also face strong competition from established automobile
manufacturers, including manufacturers of EVs, such as the Tesla
Model S, the Chevrolet Volt and the Nissan Leaf.
A matrix of our SOLO compared to the top three selling EVs in
Canada is presented below (note: in the below matrix, each vehicle
may be available in different models, and only the lowest
model’s specs and prices are quoted in the matrix), which
information is readily available from each manufacturer’s
website. Information in the below matrix analyzes key
considerations of a potential purchaser of an EV.
25
We believe the primary competitive factors in our market include
but are not limited to:
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technological
innovation;
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product
quality and safety;
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service
options;
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product
performance;
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design
and styling;
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brand
perception;
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product
price; and
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manufacturing
efficiency.
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Most of our current and potential competitors have significantly
greater financial, technical, manufacturing, marketing and other
resources than we do and may be able to devote greater resources to
the design, development, manufacturing, distribution, promotion,
sale and support of their products. Virtually all of our
competitors have more extensive customer bases and broader customer
and industry relationships than we do. In addition, almost all of
these companies have longer operating histories and greater name
recognition than we do. Our competitors may be in a stronger
position to respond quickly to new technologies and may be able to
design, develop, market and sell their products more
effectively.
Furthermore, certain large manufacturers offer financing and
leasing options on their vehicles and also have the ability to
market vehicles at a substantial discount, provided that the
vehicles are financed through their affiliated financing company.
We do not currently offer any form of direct financing on our
vehicles. The lack of our direct financing options and the absence
of customary vehicle discounts could put us at a competitive
disadvantage.
We expect competition in our industry to intensify in the future in
light of increased demand for alternative fuel vehicles, continuing
globalization and consolidation in the worldwide automotive
industry. Our ability to successfully compete in our industry will
be fundamental to our future success in the EV market and our
market share. We might not be able to compete successfully in our
market. If our competitors introduce new cars or services that
compete with or surpass the quality, price or performance of our
vehicles or services, we may be unable to satisfy existing
customers or attract new customers at the prices and levels that
would allow us to generate attractive rates of return on our
investment. Increased competition could result in price reductions
and revenue shortfalls, loss of customers and loss of market share,
which could harm our business, prospects, financial condition and
operating results.
Research and Development
We have allocated substantial resources in developing our first
vehicles. We expended $4,430,386 during the fiscal year ended
December 31, 2017 and $2,778,295 during the fiscal year ended
December 31, 2016 on research and development costs which include
labor and materials.
Employees
As of April 11, 2018, we
employed a total of 44 full-time and no part-time people at our principal executive
offices in Vancouver, British Columbia. None of our employees are
covered by a collective bargaining agreement.
The breakdown of employees by main category of activity is as
follows:
Activity
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Engineering/R&D
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29
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Sales &
Marketing
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4
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General &
Administration
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5
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Executives
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6
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26
Legal Proceedings
We are not involved in, or aware of, any legal or administrative
proceedings contemplated or threatened by any governmental
authority or any other party. As of the date of this prospectus, no
director, officer or affiliate is a party adverse to us in any
legal proceeding, or has an adverse interest to us in any legal
proceeding.
Intermeccanica Business
In
October 2017, we acquired Intermeccanica. In addition to the
manufacturing and design experience that the acquisition provided
us, we acquired a business of custom car manufacturing.
Intermeccanica, throughout its operating history, has built
approximately 2,500 vehicles, and in in the year ended December 31,
2017, Intermeccanica sold eight vehicles. We intend to continue the
legacy business of Intermeccanica, but we do not envision that it
will be central our operations, represent a material portion of our
revenue if we develop our business as planned or account for a
material portion of our expenses.
C. Organizational
structure
We have one subsidiary, Intermeccanica International Inc., a
corporation subsisting under the laws of the Province of British
Columbia, Canada.
D. Property, plant
and equipment
Our principal office is located at 102 East 1st Avenue,
Vancouver, British Columbia, Canada, V5T 1A4. On July 25, 2015, we
together with Intermeccanica as tenants entered into a light
industrial lease agreement with Cressey (Quebec Street) Development
LLP (the “Landlord”) for the premises located at 102
East 1st Avenue, Vancouver, British Columbia. The lease
agreement is for a term of five years which commenced on November
1, 2015, with a monthly minimum rent of $3,918.86 plus additional
rent, which includes operating costs, property taxes, utilities and
a management fee of 4% of the minimum rent for the particular lease
year. The leased premises is 7,235 sq. ft. in size and we are not
allowed to assign the lease or grant a sublease of the whole or any
part of the leased premises without the written consent of the
Landlord.
Currently, our development and manufacturing facility is located at
47 Braid Street, New Westminster, British Columbia, Canada and is
capable of producing four to ten SOLOs per month. Our existing
production facilities are being used to build four pre-production
SOLOS and for the development of the Super SOLO, and they are
adequate for production of the low volume required for the Super
SOLO. We together with Intermeccanica as tenants entered into a
lease agreement with Astron Realty Group Inc. for Unit 47, which
commenced on August 1, 2016 and expires on July 31, 2020. Unit 47
is approximately 7,270 sq. ft. and the minimum rent per month is
$3,938 until July 31, 2017 and $4,089 from August 1, 2017 to July
31, 2020, and we are responsible for all associated lease costs
such as strata fees, property taxes, utility fees and other charges
associated with the occupancy of such premises. Our management has
met with several groups to discuss the possibility of a production
facility located in Canada and internationally.
Ideally, the new production facility will be 50,000 to 200,000
square feet, which will allow our company to produce 25,000 to
50,000 SOLOs per year. We have also consulted a process design
company, which will form a suitable manufacturing flow production
process and facility layout for our anticipated 10 production lines
that will maximize labor and equipment usage and minimize
manufacturing and assembly time. Our management estimates the full
assembly of a SOLO in the new production facility will take
approximately four hours. An example of the layout of the new
production facility is presented below. We estimate that the cost
of the machinery to equip a new production facility will range from
$10 million to $15 million for the assembly of vehicles. Experts in
the field of designing and equipping a manufacturing facility
presented to us that a facility of 50,000 to 200,000 square feet
will be able to produce between 25,000 to 50,000 vehicles per year.
The level of automation will determine if the equipment cost will
be on the lower-end of the range ($10 million) for a semi-automated
facility, to the upper-end of the range ($15 million) for a fully
automated facility. While it is difficult to forecast any sales, we
believe that there are enough expressions of interest to satisfy
the production capabilities of the above mentioned facility.
However, we do not anticipate building a new production facility
until sometime in 2018 or later if the demand for the SOLO
materializes.

27
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
General
This report should be read in conjunction with the accompanying
financial statements and related notes. The discussion and analysis
of the financial condition and results of operations are based upon
the financial statements, which have been prepared in accordance
with International Financial Reporting Standards (IFRS), as adopted
by the International Accounting Standards Board
(IASB).
The preparation of financial statements in conformity with these
accounting principles requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
disclosure of contingent liabilities at the financial statement
date and reported amounts of revenue and expenses during the
reporting period. On an on-going basis, we review our estimates and
assumptions. The estimates were based on historical experience and
other assumptions that we believe to be reasonable under the
circumstances. Actual results are likely to differ from those
estimates or other forward-looking statements under different
assumptions or conditions, but we do not believe such differences
will materially affect our financial position or results of
operations. Our actual results may differ materially as a result of
many factors, including those set forth under the headings entitled
“Forward-Looking
Statements” and
“Risk
Factors”.
Critical accounting policies, the policies we believe are most
important to the presentation of our financial statements and
require the most difficult, subjective and complex judgments, are
outlined below under the heading “Critical Accounting Policies
and Estimates”, and have
not changed significantly since our founding.
Overview
ElectraMeccanica
Vehicles Corp., (the “Company”) was incorporated on
February 16, 2015, under the laws of the province of British
Columbia, Canada, and our principal activity is the development and
manufacturing of single occupancy electric vehicles. Our head
office and principal address is located at 102 East 1st Avenue,
Vancouver, British Columbia, Canada, V5T 1A4.
Going Concern
The accompanying financial statements have been prepared under the
assumption that our company will continue as a going concern. We
are a development stage company and have incurred losses since our
inception. As shown in the accompanying financial statements, we
have had minimal revenues and have incurred a net loss and
comprehensive loss of $11,366,372 during the year ended December
31, 2017 and have a cash balance and a working capital surplus of
$8,610,996 and $6,653,009, respectively, as at December 31, 2017.
We raised $3,177402 subsequent to December 31, 2017, which may not
be sufficient to enable us to operate for the next 12 months and
execute our business plan.
Our ability to meet our obligations as they fall due and to
continue to operate as a going concern depends on the continued
financial support of our creditors and our shareholders. In the
past, we have relied on sales of our equity securities to meet our
cash requirements. Funding from this or other sources might not be
sufficient in the future to continue our operations. Even if we are
able to obtain new financing, it may not be on commercially
reasonable terms or terms that are acceptable to us. Failure to
obtain such financing on a timely basis could cause us to reduce or
terminate our operations. The above indicates the existence of a
material uncertainty that may cast significant doubt on our ability
to continue as a going concern.
The financial statements do not include any adjustments that might
be necessary should we be unable to continue as a going concern. If
the going concern basis was not appropriate for these financial
statements, adjustments would be necessary in the carrying value of
assets and liabilities, the reported expenses and the balance sheet
classifications used.
As at
December 31, 2017, we had not commenced commercial production, and
we are currently unable to finance day-to-day activities through
operations. Our continuation as a going concern depends upon the
successful results from our electric vehicles manufacturing
activities and our ability to attain profitable operations and
generate funds there from and/or raise equity capital or borrowings
sufficient to meet current and future obligations. These factors
indicate the existence of a material uncertainty that may cast
significant doubt about our ability to continue as a going concern.
Management intends to finance its operations over the next twelve
months through the proceeds derived from this offering. Should we
be unable to continue as a going concern, the net realizable value
of our assets may be materially less than the amounts on our
statement of financial position.
28
A. Operating
Results
Results of Operations for the Year ended December 31, 2017 as
Compared to the Year Ended December 31, 2016
Revenues
Revenue for the year ended December 31, 2017 was $109,173 (2016:
$nil). Our revenue was derived by the sale of one roadster by
Intermeccanica during the period from acquisition to December 31,
2017. As Intermeccanica was our sole source of revenue and we
acquired Intermeccanica in October 2017, we had no revenue prior to
October 2017.
Operating Expenses
We incurred costs and expenses in the amount of $9,534,379 for the
fiscal year ended December 31, 2017, an increase from costs and
expenses of $8,942,022 for the period ended December 31,
2016.
This increase in incurred costs and expenses is primarily
attributable to the collective results of the following
factors:
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General
and administrative expenses for year ended December 31, 2017 were
$2,373,251 compared to $1,205,835 for the period ended December 31,
2016. The following items are included in general and
administrative expenses:
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Rent,
which increased to $269,716 for the year ended December 2017 from
$141,957 for the period ended December 31, 2016. The increase was
caused by the increase in our production premises as we expand our
production capabilities to produce the SOLO, an increase in our
retail presence and the addition of rental space on the acquisition
of Intermeccanica;
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Office
expenses, which increased to $345,986 for the year ended December
31, 2017 from $113,158 for the period ended December 31, 2016. The
increase was caused by travel costs to China and New York, an
increase in directors and officers liability insurance as we
migrated from a private company in 2016 to a public company in 2017
and a donation of our first SOLO vehicle to Loving Spoonful, a
non-profit organization;
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Legal
& Professional expenses, which increased to $912,347 for the
year ended December 31, 2017 from $643,725 for the period ended
December 31, 2016. The majority of the legal expenses was due to
the filing of our application for a ticker symbol to the Financial
Industry Regulation Authority (FINRA) in the United States of
America, other legal costs associated with contracts, together with
professional fees associated with the filing of our amended F1
registration statement, the purchase of Intermeccanica, and fees
related to the filing and receiving of our Scientific, Research and
Experimental Development (SRED) claim;
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Consulting fees,
which increased to $405,176 for the year ended December 31, 2017
from $186,437 for the period ended December 31, 2016. Consulting
fees relate to services provided for accounting, finance and
corporate advisory services. The increase in fees related to the
use of additional consultants for investor relations and executive
advisory services; and
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Salaries &
Employees related expenses, which increased to $326,770 for the
year ended December 31, 2017, from $120,558 for the corresponding
year ended December 31, 2016. Increases relate to the addition of
new employees and the addition of employees related to the
acquisition of Intermeccanica.
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Research and
development expenses increased to $4,430,386 for the year ended
December 31, 2017, from $2,778,295 for the period ended December
31, 2016 primarily as a result of an increase in the costs of
materials to $2,763,355 from $1,266,730 over the two periods. We
continue to develop our first electric vehicles. All costs related
to pre-production vehicles are being expensed to research and
development. During the year ended December 31, 2017, the Company
received $193,534 (2016: $203,997) in government grants related to
the Industrial Research Assistance Program (“IRAP)
administered by the National Research Council. In addition, the
Company received $111,380 (2016: $nil), in Scientific Research and
Experimental Development (“SRED”) grant..
|
|
|
|
|
●
|
Sales
and marketing expenses increased to $631,381 for the year ended
December 31, 2017 from $209,455 for the period ended December 31,
2015. We have increased our sales and
marketing efforts by opening retail stores, increasing our social
media presence and increasing our staff as our first electric
vehicle, the SOLO, nears production.
|
|
|
|
|
●
|
Stock-based
compensation charges for the year ended December 31, 2017 were
$889,511 (2016: $1,461,189). We issued 1,120,000 stock options at
an exercise price of $1.00 per share during the year ended December
31, 2017. In addition, the stock-based compensation charges relate
to stock options issued during previous quarters where charges are
recognized over the stock option vesting period. We use the
Black-Scholes method of calculating the stock-based compensation
expense under the graded method.
|
|
|
|
|
●
|
Share-based payment
expense decreased to $1,085,716
for the year ended December 31, 2017 as compared to $3,264,681 for
the corresponding year ended December 31, 2016. During the year
ended December 31, 2017, the Company issued 45,045 warrants to a
consultant to provide marketing services which were fair valued at
$274,407 and shares provided for corporate advisory services were
fair valued and resulted in a non-cash amount of
$811,309.
|
29
Other Items
We incurred an interest accretion expense of $69,562 for the year
ended December 31, 2017 (2015: $25,908) relating to a convertible
loan (note 11 in the financial statements for the year ended
December 31, 2017). We valued our finder’s fee related to the
convertible loan at $258,542 (2016: $nil).
We incurred changes in fair values of warrant derivative of
$186,269 (2016: $Nil), caused by warrants priced in US dollars,
while our functional currency is in Canadian dollars. As a result
of this difference in currencies, the proceeds that will be
received by us are not fixed and will vary based on foreign
exchange rates and the warrants are a derivative under IFRS, and
are required to be recognized and measured at fair value at each
reporting period. Any changes in fair value from period to period
are recorded as non-cash gain or loss in the consolidated statement
of net loss and comprehensive loss.
We impaired our goodwill arising from the acquisition of
Intermeccanica, after a third-party valuation report was
commissioned to value the acquisition and apportion the purchase
price to the net assets of Intermeccanica, which amounted to
$1,342,794 (2016: $nil).
In addition, other items include a foreign exchange loss of $20,048
for the year ended December 31, 2017 (2015: $5,417). Some of our
expenses are paid to suppliers based in the United States who
invoice us in US dollars.
Net and Comprehensive Income (Loss)
As a result of the above factors, we reported a net loss and
comprehensive loss for the year ended December 31, 2017 of
$11,366,372 (2016: $8,973,347).
B. Liquidity and
Capital Resources
Our
operations consist of the designing, developing and manufacturing
of electric vehicles. Our financial success depends upon our
ability to market and sell our electric vehicles; and to raise
sufficient working capital to enable us to execute our business
plan. Our historical capital needs have been met by the sale of
common shares. Equity funding might not be possible at the times
required by us. If no funds are can be raised and sales of our
electric vehicles do not produce sufficient net cash flow, then we
may require a significant curtailing of operations to ensure our
survival.
The
financial statements have been prepared on a going concern basis
which assumes that we will be able to realize our assets and
discharge our liabilities in the normal course of business for the
foreseeable future. We incurred a net loss and comprehensive loss
of $11,366,372 during the year ended December 31, 2017 and had a
cash balance and a working capital surplus of $8,610,996 and
$6,653,009, respectively, as at December 31, 2017. Our ability to
meet our obligations as they fall due and to continue to operate as
a going concern depends on the continued financial support of the
creditors and the shareholders. In the past, we have relied on
sales of our equity securities to meet our cash requirements.
Funding from this or other sources might not be sufficient in the
future to continue our operations. Even if we are able to obtain
new financing, it may not be on commercially reasonable terms or
terms that are acceptable to us. Failure to obtain such financing
on a timely basis could cause us to reduce or terminate our
operations. The above indicates the existence of a material
uncertainty that may cast significant doubt on our ability to
continue as a going concern.
As of
December 31, 2017, we had 47,588,209 issued and outstanding shares
and 128,504,425 shares on a fully-diluted basis. We began trading
on the over the counter market on September 1, 2017.
We had
$6,653,009 of working capital surplus as at December 31, 2017
compared to $3,555,976 of working capital surplus as at December
31, 2016. The increase in working capital surplus resulted from
cash used in operations of $7,320,080 (2016: $4,162,835); cash used
in investing activities of $2,104,816 (2016: $357,372) resulting
from the additions to property, plant and equipment and the
purchase of Intermeccanica; which was offset by financing
activities generating cash of $14,119,609 (2016: $8,330,133) due to
the issuance of 3,820,499 common shares for net cash proceeds of
$10,837,902 (2016: $8,063,633); net proceeds from the issuance of a
convertible loan of $2,441,191 (2016: $300,000); and proceeds
received in fiscal 2017 from share subscriptions of $750,000 (2016:
$101,500) for shares that were issued in 2018.
As at
December 31, 2017, we had cash and cash equivalents of $8,610,996
(2016: $3,464,108).
As of
December 31, 2017, we had no outstanding commitments, other than
rent and lease commitments and $7.8 million payable to our
manufacturing partner for the production of the SOLO (see note 9 to
our financial statements for the year ended December 31, 2017). On October
16, 2017, Jerry Kroll, our President and CEO, entered into a Share
Pledge Agreement with Zongshen to guarantee our payment for the
cost of the prototype tooling and molds estimated to be $1.8
million through the pledge of 800,000 common shares of the Company
at a deemed price of USD $2.00. Apart from our agreement to
reimburse Mr. Kroll for liabilities under his Share Pledge
Agreement, we have not pledged any of our assets as security for
loans, or otherwise and are not subject to any debt
covenants.
30
As of December 31, 2017, we had total current assets of $10,007,684
and total current liabilities in the amount of $3,354,675. As a
result, we had working capital surplus of $6,653,009 as of December
31, 2017 (2016: $3,555,976).
Subsequent to December 31, 2017, we issued 1,526,669 common shares
for proceeds of $3,177,402, net of share issue costs.
Our monthly burn rate is currently $400,000 per month.
Cash Used in Operating Activities
Operating activities used $7,320,080 in cash for the fiscal year
ended December 31, 2017, compared to $4,162,835 in cash used in
operating activities for the year ended December 31, 2016. Our
negative cash flow from operating activities for the fiscal year
ended December 31, 2017 was caused by our being in development
phase of our overall business plan (which overall business plan
excludes Intermeccanica’s business), and we do not expect to
realize any revenues from our overall business plan until the third
quarter of 2018.
Cash Used in Investing Activities
Cash flows used in investing activities for the fiscal year ended
December 31, 2017 was $2,104,816 compared to $357,372 cash flows
used in investing activities for the fiscal year ended December 31,
2016. The increase in cash flows used in investing activities for
the fiscal year ended December 31, 2017, was caused primarily by
increases in expenditures in equipment to $1,264,265 (2016:
$232,027) and investment to $900,000 (2015: $100,000).
Cash flows from Financing Activities
Cash flows generated from financing activities for the fiscal year
ended December 31, 2017 were $14,119,609, compared to $8,330,133
for the fiscal year ended December 31, 2016. During the fiscal year
ended December 31, 2017, we repaid a shareholder loan of $33,155
(2016: $135,000), generated net cash proceeds from the issuance of
common shares net of share issue costs of $10,837,902 (2016:
$8,063,633), received $2,441,225 from convertible loans which
converted to equity (2016: $300,000) and generated proceeds of
$750,000 from share subscriptions (2016: $101,500).
C. Research and
Development, Patents and Licenses, etc.
Research costs are expensed when incurred. Development costs
including direct material, direct labor and contract service costs
are capitalized as intangible assets when we can demonstrate that
the technical feasibility of a project has been established; that
we intend to complete the asset for use or sale and have the
ability to do so; that the asset can generate probable future
economic benefits; that the technical and financial resources are
available to complete the development; and that we can reliably
measure the expenditure attributable to the intangible asset during
its development. After initial recognition, internally- generated
intangible assets are recorded at cost less accumulated
amortization and accumulated impairment losses. These costs are
amortized on a straight-line basis over the estimated useful life.
To date, we have not met the criteria to capitalize development
costs.
The following table specifies the amounts spent on research and
development for the fiscal years ended December 31, 2017 and
2016:
|
Fiscal year ended December
31, 2017
|
Fiscal year ended December
31, 2016
|
Labor
|
$1,971,946
|
$1,715,562
|
Materials
|
2,763,355
|
1,266,730
|
Government
grants
|
(304,914)
|
(203,997)
|
Total
|
$4,430,387
|
$2,778,295
|
31
D. Trend
Information
Due to our short operating history, we are not aware of any trends
that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.
However, as of April 11, 2018,
we had an order backlog of 700 SOLOs, 14 Super SOLOs and 110
Tofinos.
E. Off-Balance Sheet
Arrangements
As of December 31, 2017, we did not have any off-balance sheet debt
nor did we have any transactions, arrangements, obligations
(including contingent obligations) or other relationships with any
unconsolidated entities or other persons that may have material
current or future effect on financial conditions, changes in the
financial conditions, results of operations, liquidity, capital
expenditures, capital resources, or significant components of
revenue or expenses.
F. Tabular Disclosure
of Contractual Obligations
|
|
|
Contractual
obligations
|
|
|
|
4-5
years
|
More than 5 years
|
Operating Lease
Obligations
|
$817,070(1)
|
$310,034
|
$507,036
|
|
|
Other Long-Term
Liabilities Reflected on the Registrant’s Balance Sheet under
IFRS
|
Nil
|
|
|
|
|
Total
|
$817,070
|
$310,034
|
$507,036
|
|
|
|
(1)
|
Office
and warehouse rent, based on $17,410.68 per month October through
December 2016; $18,422.62 per month January through December 2017.
Amounts are estimated due to fluctuations in common area
maintenance charges.
|
G. Safe
Harbor
Not
applicable.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and
Senior Management
Directors and Executive Officers
The following table sets forth the names and ages of all of our
directors and executive officers.
Name, Province/State and Country of Residence
|
|
Position
|
Director/Officer
Since
|
Jerry Kroll (1)(2)(3), British
Columbia, Canada
|
57
|
President, CEO and
director
|
February 16,
2015
|
|
|
|
|
Kulwant Sandher (2)(5), British
Columbia, Canada
|
56
|
Chief Financial
Officer and Secretary
|
June 15,
2016
|
|
|
|
|
Iain Ball, British Columbia,
Canada
|
63
|
Vice-President,
Finance
|
February 16,
2015
|
|
|
|
|
Henry Reisner (2), British
Columbia, Canada
|
53
|
Chief Operating
Officer and director
|
February 16,
2015
|
|
|
|
|
|
|
|
|
Ed Theobald, British Columbia,
Canada
|
65
|
General
Manager
|
February 16,
2015
|
|
|
|
|
Shaun
Greffard (2)(3)(6)(8), British Columbia,
Canada
|
43
|
Director
|
August 8,
2016
|
|
|
|
|
Louisa Ingargiola (3)(4)(6)(7)(8),
Florida, USA
|
50
|
Director
|
March 16,
2018
|
|
|
|
|
Steven Sanders (4)(6)(7)(8), New York,
USA
|
72
|
Director
|
March 16,
2018
|
|
|
|
|
Robert Tarzwell (2)(3)(4)(6)(7)(8),
British Columbia, Canada
|
47
|
Director
|
August 8,
2016
|
|
|
|
|
Mark West British Columbia,
Canada
|
50
|
Vice-President,
Sales & Dealerships
|
November 1,
2016
|
|
|
|
|
|
(1)
|
Mr.
Kroll was appointed President, CEO and a director of the Company
effective February 16, 2015.
|
|
(2)
|
Member
of the Social Media Committee.
|
|
(3)
|
Member
of the Enterprise Risk Oversight Committee.
|
|
(4)
|
Member
of the Nominating Committee
|
|
(5)
|
Mr.
Sandher was appointed CFO of the Company on June 15, 2016. Mr.
Sandher was appointed as Secretary of the Company on August 8,
2016.
|
|
(6)
|
Member
of the Corporate Governance and Human Resources
Committee.
|
|
(7)
|
Member
of the Compensation Committee
|
|
|
|
32
Business Experience
The following summarizes the occupation and business experience
during the past five years or more for our directors, and executive
officers as of the date of this prospectus:
Jerry Kroll – President, Chief Executive Officer and a
director
Mr. Kroll has an extensive background working in small businesses
and start-ups. His career began when he managed the production,
strategic planning, and sales operations of Kroll Greenhouses, his
family business. From there, Mr. Kroll served in other management
roles in the floral and food services industries, overseeing the
import/export of floral products, managing employees, managing food
franchises, and establishing supplier/distributor
relationships.
In 1996, Mr. Kroll became involved in air racing as the owner of
Vancouver International Air Races and Airshow, which featured large
scale events attracting over 15,000 spectators and 31 corporate
sponsors. From then on, Mr. Kroll became increasingly involved in
air racing and motor races. He eventually became the president and
CEO of Corbin Motors Vancouver Inc. in 2001 where he organized the
sales of the firm’s three-wheeled commuter vehicle in
Canada.
In 2007, Mr. Kroll founded KleenSpeed Technologies, a firm focused
on stationary energy storage products. He began researching and
developing an EV for the everyday commuter. As an entrepreneur, Mr.
Kroll also founded Ascend Sportmanagement Inc., a sports property
and technology management firm.
Mr. Kroll’s experience and skillset in innovative technology
and start-ups, coupled with his passion for clean technology
developments, allows Mr. Kroll to coordinate, manage, and execute
strategies for our company.
Mr. Kroll is also actively involved in the Vancouver venture
capital scene and has been a member of the Vancouver Angel
Technology Network, an investing and mentoring network for new
technology start-ups, since 2003.
Kulwant Sandher, Chief Financial Officer and Secretary
Kulwant Sandher is a Chartered Professional Accountant with over 25
years of experience in business and finance. Mr. Sandher graduated
from Queen Mary, University of London (formerly known as Queen Mary
College) in 1986 with a B.Sc. degree (Eng.) in Avionics. Mr.
Sandher became a Chartered Accountant in England in 1991 and
received his Chartered Professional Accountant designation in
Canada in 1997.
Mr. Sandher has considerable private and public company experience.
He served as CFO of MineSense Technologies Inc. from August 2013
until July 2015; as CFO of Alba Mineral Ltd. from June 2017 to the
present; as CFO of Delta Oil & Gas from October 2008 to
September 2017; as CFO of Astorius Resources Ltd. from June 2017 to
the present; as CFO of Hillcrest Petroleum from December 2011 to
April 2015; as CFO of Intigold Mines Ltd. from December 2010 to
April 2017; and as COO & CFO for Marketrend Interactive Inc.,
from March 2004 to March 2006.
Mr. Sandher has also served as CFO of several publicly listed
companies, including: Hillcrest Petroleum (TSX-V), Millrock
Resources Inc. (TSX-V) and St. Elias Mines (TSX-V). Currently, Mr.
Sandher serves as President of Hurricane Corporate Services Ltd.
and as CFO of Alba Resources Ltd. (TSX-V). Furthermore, Mr. Sandher
is currently serving as a director and CFO of Delta Oil and Gas
Inc. since 2007 and Director of The Cloud Nine Education Group Inc
since December 2015.
Iain Ball, Vice-President, Finance
Mr. Ball is an experienced financial executive with over 25 years
of international corporate financial and general management
experience. He has been providing CFO services, along with
strategic and financial advice, to growing companies and start-ups
since 2012, and served as our CFO from June 2015 to June
2016.
He is the former Chief Financial Officer and Director of
Progressive Solutions Inc. (“Progressive Solutions”),
an enterprise resource planning software company that grew (both
organically and by acquisition) from 40 employees to 135 employees
in the United States, the United Kingdom, and Canada. Mr. Ball was
responsible for debt and equity financings that were instrumental
to Progressive Solutions’ acquisitions and international
growth. Progressive Solutions was successfully sold to a strategic
buyer in 2012.
Mr. Ball graduated from the University of Aberdeen in 1975 with a
Bachelor of Science (Honours), as well as a Master of Business
Administration from Simon Fraser University in 1999. He became a
Chartered Accountant in Scotland in 1979 and obtained his Chartered
Professional Accountant designation in 1982 from the Canadian
Institute of Chartered Professional Accountants.
Henry Reisner, Chief Operating Officer
Mr. Reisner is the current President of Intermeccanica, a
subsidiary of our company, which is an automobile manufacturer, and
has held this position since 2001. He is experienced in the
automotive industry and has a background in
manufacturing.
Mr. Reisner holds a Bachelor of Arts degree in political science
from the University of British Columbia in 1989.
33
Ed Theobald, General Manager
Mr. Theobald is a seasoned operational manager with over 40 years
of experience in finance, industrial sales, construction, retail,
and oil & gas industries. This experience includes over 20
years as at Envirotest Canada from when he started in 1995 through
to his current position as general manager which he has held since
January 2015. He also oversaw the operations of 16 automotive
repair shops as Regional Manager of Speedy Glass. Mr, Theobald
became our General Manager in February 2015.
Shaun Greffard, Director
Mr. Greffard is a management professional with over 20 years of
experience in telecommunications, information technology and
government. During his career as a management professional, Mr.
Greffard has been responsible for Ledcor's over $80M Canadian
telecommunications division and responsible for negotiating
commercial and contractual terms for the largest P3
telecommunications deal in North America valued at close to US$600M
over a three-year Design/Build contract and 30 year Operations
contract. He was also responsible for negotiating numerous US
contracts between the public and private sectors, working with and
for local and federal government entities including delivery of one
of the largest Canadian telecommunications deals with the Federal
government. He has been responsible for conducting labor
negotiations and transforming people, culture and corporate image
after a prolonged labor dispute and has run the marketing
organization for a $100M division of Telus. He is adept at
overhauling under-performing business units and analyzing and
removing operational flaws to improve operational performance and
profitability.
Mr. Greffard accumulated his experience and skill set from roles at
Telus Communications Inc., the City of Surrey, and Ledcor Group. He
is currently the Vice President of Strategic Projects at the Ledcor
Group.
Mr. Greffard holds a Master’s in Business Administration from
Royal Roads University.
Dr. Robert Tarzwell, Director
Dr. Tarzwell began his career as a psychiatrist at St. Paul’s
Hospital in 2006. His experience and expertise led him to other
clinical/consultant roles in medicine and academia, serving as
external faculty member for Green College of the University of
British Columbia, medical advisor for virtual healthcare
application Medeo, and clinical assistant professor in the faculty
of medicine at the University of British Columbia. Dr. Tarzwell is
currently Clinical Director of Research for Mental Health at Lions
Gate Hospital. For over five years, Dr. Tarzwell has run his own
private medical practice.
In addition to his background in academia and medicine, Dr.
Tarzwell is an enthusiast of high tech industries, multimedia
innovations, and race cars. He is an investor/advisor for a number
of Vancouver-based start-ups, including Medeo, Hothead Games, EM,
and Viewers Like You Productions.
Dr. Tarzwell holds a Bachelor’s Degree in English and
Literature from Simon Fraser University, a Doctor of Medicine from
the University of Manitoba, a Psychiatrist certification from the
Royal College of Physicians of Canada at Dalhousie University, and
a Nuclear Medicine certification from the Royal College of
Physicians of Canada at the University of British
Columbia.
Louisa Ingargiola
Ms. Ingargiola has been the Chief Financial Officer of Avalon
GloboCare, a leading biotech health care company that is developing
cell based therapeutic technologies for cancer and neuromuscular
disease. Luisa also serves as a director and audit chair of FTE
Networks, a leading international network infrastructure solutions
and cyber security company. Luisa is a former chief financial
officer and current board member of MagneGas Corporation. In
addition, she has served as Audit Chair for several public
companies in the technology, environmental and energy
industries.
Steven Sanders
Since January 2017, Mr. Sanders has been Of Counsel to the law firm
of Ortoli Rosenstadt LLP. From July 2007 until January 2017, Mr.
Sanders was a Senior Partner of Ortoli Rosenstadt LLP. From January
1, 2004 until June 30, 2007, he was of counsel to the law firm of
Rubin, Bailin, Ortoli, LLP. From January 1, 2001 to
December 31, 2003, he was counsel to the law firm of Spitzer &
Feldman PC. Mr. Sanders also serves as a Director of
Helijet International, Inc. Additionally, he is a
Director of the Roundabout Theatre (the largest not-for-profit
theatre in North America), Town Hall New York City, and he is a
director at Trustee, American Academy of Dramatic Arts. Mr. Sanders
received his JD from Cornell University and his BBA from The City
College of New York.
Mark West, Vice-President, Sales & Dealerships
Mark West has over 25 years of experience directing and expanding
operations in the highly competitive food and beverage industry.
Mr. West was instrumental in the local and international growth of
Blenz Coffee from 10 stores to over 70 stores in Canada and Asia.
Mr. West was the President of Blenz Coffee from September 2012 to
December 2016 and previously held the positions of President,
Vice-President, Manager of Operations and Manager of Franchising
from 1996 to 2007. Mr. West was the Vice-President and an owner of
MyCup Coffee and Tea from 2008 to 2012. Mr. West joined our team in
November 2016.
34
Advisory Board
We have a full Advisory Board in place, complete with individuals
who have various backgrounds and experience to complement our
operations, mission, and business strategy. The Advisory
Board provides suggestions to our management on an as-needed
basis. The Advisory Board does not have a charter and does not meet
on a scheduled basis. It is comprised
of the following individuals:
|
Name
|
State/province of residence
|
Position
|
|
John
Douglas Reynolds
|
British
Columbia, Canada
|
Chairperson
of Advisory Board
|
|
Myron
Trenne
|
Michigan,
USA
|
Advisory
Board member
|
|
Anthony
Luzi
|
Nevada,
USA
|
Advisory
Board member
|
|
Bill
Calsbeck
|
British
Columbia, Canada
|
Advisory
Board member
|
|
Mike
Volker
|
British
Columbia, Canada
|
Advisory
Board member
|
|
Jim
Fletcher
|
British
Columbia, Canada
|
Advisory
Board member
|
|
Ted
Wilkinson
|
British
Columbia, Canada
|
Advisory
Board member
|
Myron Trenne, Advisory Board
Mr. Trenne’s background in the automotive industry includes
research and development roles at the General Motors Technical
Center before becoming a founding member and Vice President of
Engineering at TRW Transportation Electronics.
Mr. Trenne further developed his management skills through his role
of General Manager of Eaton’s automotive research and
development center and Yazaki North America, Inc. During his time
at Yazaki North America, Inc., Mr. Trenne was the Vice President of
research and development and marketing and was the General Manager
responsible for overseeing a US$100 million business
unit.
As a pioneer of automotive digital technology, Mr. Trenne led the
first team to apply a programmable microcomputer to a car, which
integrated anti-lock braking system, traction, cruise control,
ignition and digital instruments with a single digital processor.
Subsequent system developments included gas and diesel electronic
fuel injection, EVs, vehicle electrical architectures, vehicle
fiber optics, high voltage EV components, and Intelligent
Transportation Systems. Furthermore, Mr. Trenne has authored over a
dozen vehicle system and control patents.
Mr. Trenne had previously served as Treasurer for the Convergence
Transportation Electronics Association which merged with the
Society of Automotive Engineers in 2009. Mr. Trenne has served many
roles in the SAE including Committee Chair and Board
positions.
Mr. Trenne received a Bachelor of Science in electrical engineering
from Kettering University, formerly known as the General Motors
Institute. He also received his Master of Science in electrical
engineering from the University of Colorado and is a licensed
Professional Engineer.
Mike Volker, Advisory Board
Mr. Volker is an entrepreneur and angel investor active in the
development of new high technology ventures. Shortly after
completing his education at the University of Waterloo, Mr. Volker
founded Volker-Craig Ltd, a video terminal manufacturer, in 1973.
After the sale of Volker-Craig Ltd. in 1981, Mr. Volker focused on
supporting entrepreneurs in building their business and investing
in start-ups. Mr. Volker’s dedication in helping
entrepreneurs has led him to expand his reach into public education
and leading entrepreneurship-centric organizations.
As an instructor, Mr. Volker teaches a business course and an
intellectual property management course at Simon Fraser University
where he is also the Director of the SFU’s Innovation Office,
which facilitates the creation of new university-industry research
and development partnerships and commercializes the
university’s research results.
His recent projects include: GreenAngel Energy Corp, a public
company that invests in green technologies and the Western
Universities Technology Innovation Fund, an angel fund for
start-ups. Mr. Volker runs the Vancouver Angel Technology Network
and is actively involved with New Ventures BC, an annual business
competition.
Mr. Volker holds a Bachelor’s degree in engineering and a
Masters in Applied Science from the University of
Waterloo.
Family Relationships
There are no family relationships among any of our directors and
executive officers.
35
Term of Office
Each director of our company is to serve for a term of one year
ending on the date of the subsequent annual meeting of stockholders
following the annual meeting at which such director was elected.
Notwithstanding the foregoing, each director is to serve until his
successor is elected and qualified or until his death, resignation
or removal. Our Board of Directors appoints our officers and each
officer is to serve until his successor is appointed and qualified
or until his or her death, resignation or removal.
Involvement in Certain Legal Proceedings
During the past ten years, none of our directors or executive
officers have been the subject of the following
events:
1.
|
a
petition under the Federal bankruptcy laws or any state insolvency
law was filed by or against, or a receiver, fiscal agent or similar
officer was appointed by a court for the business or property of
such person, or any partnership in which he was a general partner
at or within two years before the time of such filing, or any
corporation or business association of which he was an executive
officer at or within two years before the time of such
filing;
|
|
|
2.
|
convicted
in a criminal proceeding or is a named subject of a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
|
|
|
3.
|
the
subject of any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from, or
otherwise limiting, the following activities;
|
|
i)
|
acting
as a futures commission merchant, introducing broker, commodity
trading advisor, commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by the Commodity
Futures Trading Commission, or an associated person of any of the
foregoing, or as an investment adviser, underwriter, broker or
dealer in securities, or as an affiliated person, director or
employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or continuing any
conduct or practice in connection with such activity;
|
|
|
|
|
ii)
|
engaging
in any type of business practice; or
|
|
|
|
|
iii)
|
engaging
in any activity in connection with the purchase or sale of any
security or commodity or in connection with any violation of
Federal or State securities laws or Federal commodities
laws;
|
4.
|
the
subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any Federal or State authority
barring, suspending or otherwise limiting for more than 60 days the
right of such person to engage in any activity described in
paragraph 3.i in the preceding paragraph or to be associated with
persons engaged in any such activity;
|
|
|
5.
|
was
found by a court of competent jurisdiction in a civil action or by
the SEC to have violated any Federal or State securities law, and
the judgment in such civil action or finding by the SEC has not
been subsequently reversed, suspended, or vacated;
|
6.
|
was
found by a court of competent jurisdiction in a civil action or by
the Commodity Futures Trading Commission to have violated any
Federal commodities law, and the judgment in such civil action or
finding by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended or vacated;
|
|
|
7.
|
was the
subject of, or a party to, any Federal or State judicial or
administrative order, judgment, decree, or finding, not
subsequently reversed, suspended or vacated, relating to an alleged
violation of:
|
|
i)
|
any
Federal or State securities or commodities law or regulation;
or
|
|
ii)
|
any law
or regulation respecting financial institutions or insurance
companies including, but not limited to, a temporary or permanent
injunction, order of disgorgement or restitution, civil money
penalty or temporary or permanent cease-and-desist order, or
removal or prohibition order, or
|
|
iii)
|
any law
or regulation prohibiting mail or wire fraud or fraud in connection
with any business entity; or
|
8.
|
was the
subject of, or a party to, any sanction or order, not subsequently
reversed, suspended or vacated, of any self-regulatory organization
(as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C.
78c(a)(26))), any registered entity (as defined in Section 1(a)(29)
of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any
equivalent exchange, association, entity or organization that has
disciplinary authority over its members or persons associated with
a member.
|
36
Director Independence
Our Board has determined that the following directors are
“independent” as such directors do not have a direct or
indirect material relationship with our company. A material
relationship is a relationship which could, in the view of our
Board of Directors, be reasonably expected to interfere with the
exercise of a director’s independent judgment.
|
●
|
Shaun
Greffard;
|
|
|
|
|
●
|
Robert
Tarzwell;
|
|
|
|
|
●
|
Luisa
Ingargiola; and
|
|
|
|
|
●
|
Steven
Sanders.
|
Code of Business Conduct and Ethics
On December 22, 2017, we adopted a Code of Conduct and Ethics that
applies to our directors, officers and other
employees.
B. Compensation
Compensation Discussion and Analysis
This
section sets out the objectives of our Company’s executive
compensation arrangements, our Company’s executive
compensation philosophy and the application of this philosophy to
our Company’s executive compensation arrangements. It also
provides an analysis of the compensation design, and the decisions
that the Board made in fiscal 2016 with respect to the Named
Executive Officers. When determining the compensation arrangements
for the Named Executive Officers, our Board of Directors acting as
the Compensation Committee considers the objectives of: (i)
retaining an executive critical to the success of the Company and
the enhancement of shareholder value; (ii) providing fair and
competitive compensation; (iii) balancing the interests of
management and our Company’s shareholders; and (iv) rewarding
performance, both on an individual basis and with respect to the
business in general.
Benchmarking
Our Board of Directors established a Compensation Committee in
March 2018. Prior to that, our Board of Directors acted as the
Compensation Committee.
The Compensation Committee will consider a variety of factors when
designing and establishing, reviewing and making recommendations
for executive compensation arrangements for all our executive
officers. The Compensation Committee does not intend to position
executive pay to reflect a single percentile within the industry
for each executive. Rather, in determining the compensation level
for each executive, the Compensation Committee will look at factors
such as the relative complexity of the executive’s role
within the organization, the executive’s performance and
potential for future advancement and pay equity
considerations.
Elements of Compensation
The
compensation paid to Named Executive Officers in any year consists
of two primary components:
|
(a)
|
base
salary; and
|
|
|
|
|
(b)
|
long-term
incentives in the form of stock options granted under our Stock
Option Plan.
|
The key
features of these two primary components of compensation are
discussed below:
1. Base
Salary
Base
salary recognizes the value of an individual to our Company based
on his or her role, skill, performance, contributions, leadership
and potential. It is critical in attracting and retaining executive
talent in the markets in which the Company competes for talent.
Base salaries for the Named Executive Officers are intended to be
reviewed annually. Any change in base salary of a Named Executive
Officer is generally determined by an assessment of such
executive’s performance, a consideration of competitive
compensation levels in companies similar to the Company (in
particular, companies in the EV industry) and a review of the
performance of the Company as a whole and the role such executive
officer played in such corporate performance.
2. Stock
Option Awards
The
Company provides long-term incentives to Named Executive Officers
in the form of stock options as part of its overall executive
compensation strategy. Our Board of Directors acting as the
Compensation Committee believes that stock option grants serve the
Company’s executive compensation philosophy in several ways:
firstly, it helps attract, retain, and motivate talent; secondly,
it aligns the interests of the Named Executive Officers with those
of the shareholders by linking a specific portion of the
officer’s total pay opportunity to the share price; and
finally, it provides long-term accountability for Named Executive
Officers.
37
Risks Associated with Compensation Policies and
Practices
The
oversight and administration of the Company’s executive
compensation program requires the Board of Directors acting as the
Compensation Committee to consider risks associated with the
Company’s compensation policies and practices. Potential
risks associated with compensation policies and compensation awards
are considered at annual reviews and also throughout the year
whenever it is deemed necessary by the Board of Directors acting as
the Compensation Committee.
The
Company’s executive compensation policies and practices are
intended to align management incentives with the long-term
interests of the Corporation and its shareholders. In each case,
the Corporation seeks an appropriate balance of risk and reward.
Practices that are designed to avoid inappropriate or excessive
risks include (i) financial controls that provide limits and
authorities in areas such as capital and operating expenditures to
mitigate risk taking that could affect compensation, (ii) balancing
base salary and variable compensation elements and (iii) spreading
compensation across short and long-term programs.
Compensation Governance
The
Compensation Committee intends to conduct a yearly review of
directors’ compensation having regard to various reports on
current trends in directors’ compensation and compensation
data for directors of reporting issuers of comparative size to the
Company. Director compensation is currently limited to the grant of
stock options pursuant to the Stock Option Plan. It is anticipated
that the Chief Executive Officer will review the compensation of
executive officers of the Company for the prior year and in
comparison to industry standards via information disclosed publicly
and obtained through copies of surveys. The Board expects that the
Chief Executive Officer will make recommendations on compensation
to the Compensation Committee. The Compensation Committee will
review and make suggestions with respect to compensation proposals,
and then makes a recommendation to the Board.
The
Compensation Committee is currently comprised of Jerry Kroll, Shaun
Greffard and Robert Tarzwell, which is currently the entire Board
of Directors.
The
Compensation Committee’s responsibility will be to formulate
and make recommendations to the directors of the Company in respect
of compensation issues relating to directors and executive officers
of the Company. Without limiting the generality of the foregoing,
the Compensation Committee when formed will have the following
duties:
|
(a)
|
to
review the compensation philosophy and remuneration policy for
executive officers of the Company and to recommend to the directors
of the Company changes to improve the Company’s ability to
recruit, retain and motivate executive officers;
|
|
|
|
|
(b)
|
to
review and recommend to the Board the retainer and fees, if any, to
be paid to directors of the Company;
|
|
|
|
|
(c)
|
to
review and approve corporate goals and objectives relevant to the
compensation of the CEO, evaluate the CEO’s performance in
light of those corporate goals and objectives, and determine (or
make recommendations to the directors of the Company with respect
to) the CEO’s compensation level based on such
evaluation;
|
|
|
|
|
(d)
|
to
recommend to the directors of the Company with respect to non-CEO
officer and director compensation including reviewing
management’s recommendations for proposed stock options and
other incentive-compensation plans and equity- based plans, if any,
for non-CEO officer and director compensation and make
recommendations in respect thereof to the directors of the
Company;
|
|
|
|
|
(e)
|
to
administer the stock option plan approved by the directors of the
Company in accordance with its terms including the recommendation
to the directors of the Company of the grant of stock options in
accordance with the terms thereof; and
|
|
|
|
|
(f)
|
to
determine and recommend for the approval of the directors of the
Company bonuses to be paid to executive officers and employees of
the Company and to establish targets or criteria for the payment of
such bonuses, if appropriate. Pursuant to the mandate and terms of
reference of the Compensation Committee, meetings of the
Compensation Committee are to take place at least once per year and
at such other times as the Chair of the Compensation Committee may
determine.
|
38
Summary Compensation Table
The
following table sets forth all annual and long-term compensation
for services in all capacities to the Company during the fiscal
periods indicated in respect of the Named Executive
Officers:
Compensation Discussion and Analysis
This section sets out the objectives of our company’s
executive compensation arrangements, our company’s executive
compensation philosophy and the application of this philosophy to
our company’s executive compensation arrangements. It also
provides an analysis of the compensation design, and the decisions
that the Board made in fiscal 2016 with respect to our Named
Executive Officers (as defined below). When determining the
compensation arrangements for the Named Executive Officers, our
Board of Directors acting as the Compensation Committee considers
the objectives of: (i) retaining an executive critical to our
success and the enhancement of shareholder value; (ii) providing
fair and competitive compensation; (iii) balancing the interests of
management and our shareholders; and (iv) rewarding performance,
both on an individual basis and with respect to the business in
general.
Benchmarking
Our Board of Directors established a Compensation Committee in
March 2018. Prior to that, our Board of Directors acted as the
Compensation Committee.
The Compensation Committee will consider a variety of factors when
designing and establishing, reviewing and making recommendations
for executive compensation arrangements for all our executive
officers. The Compensation Committee does not intend to position
executive pay to reflect a single percentile within the industry
for each executive. Rather, in determining the compensation level
for each executive, the Compensation Committee will look at factors
such as the relative complexity of the executive’s role
within the organization, the executive’s performance and
potential for future advancement and pay equity
considerations.
Elements of Compensation
The compensation paid to Named Executive Officers in any year
consists of two primary components:
|
(a)
|
base
salary; and
|
|
|
|
|
(b)
|
long-term
incentives in the form of stock options granted under our Stock
Option Plan (as defined below).
|
The key features of these two primary components of compensation
are discussed below:
Base salary recognizes the value of an individual to our company
based on his or her role, skill, performance, contributions,
leadership and potential. It is critical in attracting and
retaining executive talent in the markets in which we compete for
talent. Base salaries for the Named Executive Officers are intended
to be reviewed annually. Any change in base salary of a Named
Executive Officer is generally determined by an assessment of such
executive’s performance, a consideration of competitive
compensation levels in companies similar to our company (in
particular, companies in the EV industry) and a review of our
performance as a whole and the role such executive officer played
in such corporate performance.
We provide long-term incentives to Named Executive Officers in the
form of stock options as part of its overall executive compensation
strategy. Our Board of Directors acting as the Compensation
Committee believes that stock option grants serve our executive
compensation philosophy in several ways: firstly, it helps attract,
retain, and motivate talent; secondly, it aligns the interests of
the Named Executive Officers with those of the shareholders by
linking a specific portion of the officer’s total pay
opportunity to the share price; and finally, it provides long-term
accountability for Named Executive Officers.
Risks Associated with Compensation Policies and
Practices
The oversight and administration of our executive compensation
program requires the Board of Directors acting as the Compensation
Committee to consider risks associated with our compensation
policies and practices. Potential risks associated with
compensation policies and compensation awards are considered at
annual reviews and also throughout the year whenever it is deemed
necessary by the Board of Directors acting as the Compensation
Committee.
Our executive compensation policies and practices are intended to
align management incentives with the long-term interests of the
Corporation and its shareholders. In each case, the Corporation
seeks an appropriate balance of risk and reward. Practices that are
designed to avoid inappropriate or excessive risks include (i)
financial controls that provide limits and authorities in areas
such as capital and operating expenditures to mitigate risk taking
that could affect compensation, (ii) balancing base salary and
variable compensation elements and (iii) spreading compensation
across short and long-term programs.
39
Compensation Governance
The Compensation Committee intends to conduct a yearly review of
directors’ compensation having regard to various reports on
current trends in directors’ compensation and compensation
data for directors of reporting issuers of comparative our size.
Director compensation is currently limited to the grant of stock
options pursuant to the Stock Option Plan. It is anticipated that
the Chief Executive Officer will review the compensation of our
executive officers for the prior year and in comparison to industry
standards via information disclosed publicly and obtained through
copies of surveys. The Board expects that the Chief Executive
Officer will make recommendations on compensation to the
Compensation Committee. The Compensation Committee will review and
make suggestions with respect to compensation proposals, and then
makes a recommendation to the Board.
The Compensation Committee is currently comprised of Jerry Kroll,
Shaun Greffard and Robert Tarzwell, which is currently the entire
Board of Directors.
The Compensation Committee’s responsibility is to formulate
and make recommendations to our directors in respect of
compensation issues relating to our directors and executive
officers. Without limiting the generality of the foregoing, the
Compensation Committee has the following duties:
|
(a)
|
to
review the compensation philosophy and remuneration policy for our
executive officers and to recommend to our directors changes to
improve our ability to recruit, retain and motivate executive
officers;
|
|
(b)
|
to
review and recommend to the Board the retainer and fees, if any, to
be paid to our directors;
|
|
|
|
|
(c)
|
to
review and approve corporate goals and objectives relevant to the
compensation of the CEO, evaluate the CEO’s performance in
light of those corporate goals and objectives, and determine (or
make recommendations to our directors with respect to) the
CEO’s compensation level based on such
evaluation;
|
|
|
|
|
(d)
|
to
recommend to our directors with respect to non-CEO officer and
director compensation including reviewing management’s
recommendations for proposed stock options and other
incentive-compensation plans and equity-based plans, if any, for
non-CEO officer and director compensation and make recommendations
in respect thereof to our directors;
|
|
|
|
|
(e)
|
to
administer the stock option plan approved by our directors in
accordance with its terms including the recommendation to our
directors of the grant of stock options in accordance with the
terms thereof; and
|
|
|
|
|
(f)
|
to
determine and recommend for the approval of our directors bonuses
to be paid to our executive officers and employees and to establish
targets or criteria for the payment of such bonuses, if
appropriate. Pursuant to the mandate and terms of reference of the
Compensation Committee, meetings of the Compensation Committee are
to take place at least once per year and at such other times as the
Chair of the Compensation Committee may determine.
|
Summary Compensation Table
The following table sets forth all annual and long-term
compensation for services in all capacities to the Company during
the fiscal periods indicated in respect of the executive officers
set out below (the “Named Executive
Officers”):
Named Executive Officer and Principal Position
|
Year
|
|
Share- based awards ($)
|
Option-based awards ($)(1)
|
Annual Incentive Plan ($)
|
Long-term Incentive Plan ($)
|
Pension Value ($)
|
All Other Compensation ($)
|
|
Jerry
Kroll(2)
|
2017
|
60,000
|
Nil
|
358,045
|
Nil
|
Nil
|
Nil
|
Nil
|
418,694
|
President and
Chief Executive
Officer
|
2016
|
30,000
|
Nil
|
887,605
|
Nil
|
Nil
|
Nil
|
Nil
|
917,605
|
Kulwant
Sandher(3)
|
2017
|
65,000
|
Nil
|
86,394
|
Nil
|
Nil
|
Nil
|
Nil
|
190,777
|
Chief
Financial
|
2016
|
31,000
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
31,000
|
Officer and Secretary
|
|
|
|
|
|
|
|
|
|
Iain
Ball(4)
|
2017
|
60,000
|
Nil
|
37,235
|
Nil
|
Nil
|
Nil
|
Nil
|
97,883
|
Vice-President,
|
2016
|
52,500
|
Nil
|
87,958
|
Nil
|
Nil
|
Nil
|
Nil
|
140,458
|
Finance
|
|
|
|
|
|
|
|
|
|
Henry
Reisner(5)
|
2017
|
60,000
|
Nil
|
69,757
|
Nil
|
Nil
|
Nil
|
Nil
|
130,405
|
Chief
Operating
|
2016
|
53,000
|
Nil
|
168,494
|
Nil
|
Nil
|
Nil
|
Nil
|
221,494
|
Officer
|
|
|
|
|
|
|
|
|
|
Ed
Theobald(6)
|
2017
|
60,000
|
Nil
|
37,235
|
Nil
|
Nil
|
Nil
|
Nil
|
97,883
|
General Manager
|
2016
|
45,000
|
Nil
|
87,958
|
Nil
|
Nil
|
Nil
|
Nil
|
132,958
|
Mark
West(7)
|
2017
|
160,167
|
Nil
|
70,563
|
Nil
|
Nil
|
Nil
|
16,167
|
262,896
|
Vice-President,
|
2016
|
16,000
|
Nil
|
Nil |
Nil
|
Nil
|
Nil
|
Nil
|
16,000
|
Sales & Dealerships
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The
grant date fair values of the share option awards are determined
using a Black-Scholes option pricing model. For a discussion of the
assumptions made in the valuation, refer to Note 11 to our
financial statements for the fiscal year ended December 31,
2016.
|
|
(2)
|
Mr.
Kroll was appointed the President and Chief Executive Officer of
the Company on February 16, 2015, and served as the Secretary of
the Company from June 11, 2015 to August 8, 2016.
|
|
(3)
|
Mr.
Sandher was appointed Chief Financial Officer of the Company on
June 15, 2016. Mr. Sandher was appointed as Secretary of the
Company on August 8, 2016.
|
|
(4)
|
Mr.
Ball was appointed Chief Financial Officer of the Company on June
4, 2015 and subsequently was appointed Vice- President, Finance of
the Company on June 27, 2016.
|
|
(5)
|
Mr.
Reisner was appointed Chief Operating Officer of the Company on
February 16, 2015.
|
|
(6)
|
Mr.
Theobald was appointed General Manager of the Company on February
16, 2015.
|
|
(7)
|
Mr.
West was appointed Vice-President, Sales & Dealerships of the
Company on November 1, 2016.
|
40
Executive Compensation Agreements
Jerry Kroll
On July 1, 2016, our Board of Directors approved the entering into
of an executive services agreement with Jerry Kroll with a term
expiring on July 1, 2019 (the “Kroll
Agreement”).
The Kroll Agreement is subject to automatic renewal on a one-month
to one-month term renewal basis unless either we or Mr. Kroll
provides written notice not to renew the Kroll Agreement no later
than 30 days prior to the end of the then current or renewal
term.
Pursuant to the terms and provisions of the Kroll Agreement: (a)
Mr. Kroll is appointed as our President and Chief Executive Officer
and will undertake and perform the duties and responsibilities
normally and reasonably associated with such office; (b) we shall
pay to Mr. Kroll a monthly fee of $5,000; (c) grant to Mr. Kroll
45,000,000 stock options exercisable into 45,000,000 common
shares at an exercise price of $0.15
per share expiring on June 11, 2022 and 5,000,000 stock options
exercisable into 5,000,000 common shares at an exercise price of $0.40 per share
expiring on December 9, 2022 (such options have already been
granted prior to the Kroll Agreement); (d) provide Mr. Kroll with
employee benefits, including group health insurance, accidental
death and dismemberment insurance, travel accident insurance, group
life insurance, short-term disability insurance, long-term
disability insurance, drug coverage and dental coverage (the
“Group
Benefits”); and (e) four
weeks’ paid annual vacation per calendar
year.
We may terminate the employment of Mr. Kroll under the Kroll
Agreement without any notice or any payment in lieu of notice for
just cause. Mr. Kroll may terminate his employment under the Kroll
Agreement for any reason by providing not less than 90 calendar
days’ notice in writing to us, provided, however, that we may
waive or abridge any notice period specified in such notice in our
sole and absolute discretion.
The employment of Mr. Kroll will terminate upon the death of Mr.
Kroll. Upon the death or Mr. Kroll during the continuance of the
Kroll Agreement, we will provide Mr. Kroll’s estate and, if
applicable, Mr. Kroll’s immediate family members with the
following: (a) three month’s base salary, less any required
statutory deductions, if any; (b) that portion of any then declared
and/or earned or accrued bonus, prorated to the end of the
three-month period from the effective date of termination that our
chairman determines would likely have been paid to Mr. Kroll; (c)
any outstanding vacation pay as at the effective date of
termination; (d) any outstanding expenses owing to Mr. Kroll as at
the effective date of termination; and (e) subject to our then
Option Plan and the rules and policies of any regulatory authority
and stock exchange having jurisdiction over us, allow Mr.
Kroll’s estate to then exercise any unexercised and fully
vested portion of stock options on the effective date of
termination at any time during three months from the effective date
of termination.
If we elect to terminate the Kroll Agreement without just cause,
and provided that Mr. Kroll is in compliance with the relevant
terms and conditions of the Kroll Agreement, we shall be obligated
to provide a severance package to Mr. Kroll as follows: (a) a cash
payment equating to an aggregate of 12 months of the then monthly
fee, less any required statutory deductions, if any; (b) that
portion of any then declared and/or earned or accrued bonus,
prorated to the end of the three-month period from the effective
date of termination that our chairman determines would likely have
been paid to Mr. Kroll; (c) the present value, as determined by us,
acting reasonably, of each of the Group Benefits that would have
been enjoyed by Mr. Kroll during the next three months from the
effective date of termination; (d) any outstanding vacation pay as
at the effective date of termination; (e) any outstanding expenses
owing to Mr. Kroll as at the effective date of termination; (f)
maintain Mr. Kroll’s Group Benefits for a period of one year
from the effective date of termination; and (g) subject to our then
Option Plan and the rules and policies of any regulatory authority
and stock exchange having jurisdiction over us, allow Mr. Kroll to
then exercise any unexercised and fully vested portion of stock
options on the effective date of termination at any time during
three months from the effective date of termination.
Mr. Kroll may terminate his employment under the Kroll Agreement in
connection with any change in control of us by providing not less
than 90 calendar days’ notice in writing to us after the
change in control has been effected; provided, however, that we may
waive or abridge any notice period specified in such notice in our
sole and absolute discretion. If Mr. Kroll terminates his
employment under the Kroll Agreement as a consequence of a change
in control of us, we will: (a) pay the total of (i) 24
months’ base salary, less any required statutory deductions,
if any; (ii) that portion of any then declared and/or earned or
accrued bonus, prorated to the end of the six-month period from the
effective date of termination that our chairman determines would
likely have been paid to Mr. Kroll; (iii) the present value, as
determined by us, acting reasonably, of each of the Group Benefits
that would have been enjoyed by Mr. Kroll during the next six
months from the effective date of termination assuming Mr.
Kroll’s employment was not terminated and assuming the then
currently level of Group Benefits were continued for that six
months; (iv) any outstanding vacation pay as at the effective date
of termination; (v) any outstanding expenses owing to Mr. Kroll as
at the effective date of termination; (b) maintain Mr.
Kroll’s Group Benefits for a period of one year from the
effective date of termination; and (c) subject to our then Option
Plan and the rules and policies of any regulatory authority and
stock exchange having jurisdiction over us, allow Mr. Kroll to then
exercise any unexercised and fully vested portion of stock options
on the effective date of termination at any time during three
months from the effective date of termination.
41
Iain Ball
On July 1, 2016, our Board of Directors approved the entering into
of an executive services agreement with Iain Ball with a term
expiring on July 1, 2019 (the “Ball
Agreement”).
The Ball Agreement is subject to automatic renewal on a one-month
to one-month term renewal basis unless either we or Mr. Ball
provides written notice not to renew the Ball Agreement no later
than 30 days prior to the end of the then current or renewal
term.
Pursuant to the terms and provisions of the Ball Agreement: (a) Mr.
Ball is appointed as our Vice-President, Finance and will undertake
and perform the duties and responsibilities normally and reasonably
associated with such office; (b) we shall pay to Mr. Ball a monthly
fee of $5,000; (c) grant to Mr. Ball 500,000 stock options
exercisable into 500,000 common shares at an exercise price of $0.15 per share
expiring on August 13, 2022 and 750,000 stock options exercisable
into 750,000 common shares at
an exercise price of $0.40 per share expiring on December 9, 2022
(such options have already been granted prior to the Ball
Agreement); (d) provide Mr. Ball with Group Benefits,; and (e) four
weeks’ paid annual vacation per calendar
year.
We may terminate the employment of Mr. Ball under the Ball
Agreement without any notice or any payment in lieu of notice for
just cause. Mr. Ball may terminate his employment under the Ball
Agreement for any reason by providing not less than 90 calendar
days’ notice in writing to us, provided, however, that we may
waive or abridge any notice period specified in such notice in our
sole and absolute discretion.
The employment of Mr. Ball will terminate upon the death of Mr.
Ball. Upon the death or Mr. Ball during the continuance of the Ball
Agreement, we will provide Mr. Ball’s estate and, if
applicable, Mr. Balls’ immediate family members with the
following: (a) three month’s base salary, less any required
statutory deductions, if any; (b) that portion of any then declared
and/or earned or accrued bonus, prorated to the end of the
three-month period from the effective date of termination that our
President determines would likely have been paid to Mr. Ball; (c)
any outstanding vacation pay as at the effective date of
termination; (d) any outstanding expenses owing to Mr. Ball as at
the effective date of termination; and (e) subject to our then
Option Plan and the rules and policies of any regulatory authority
and stock exchange having jurisdiction over us, allow Mr.
Ball’s estate to then exercise any unexercised and fully
vested portion of stock options on the effective date of
termination at any time during three months from the effective date
of termination.
If we elect to terminate the Ball Agreement without just cause, and
provided that Mr. Ball is in compliance with the relevant terms and
conditions of the Ball Agreement, we shall be obligated to provide
a severance package to Mr. Ball as follows: (a) a cash payment
equating to an aggregate of six month’s base salary, less any
required statutory deductions, if any; (b) that portion of any then
declared and/or earned or accrued bonus, prorated to the end of the
three-month period from the effective date of termination that our
President determines would likely have been paid to Mr. Ball; (c)
the present value, as determined by us, acting reasonably, of each
of the Group Benefits that would have been enjoyed by Mr. Ball
during the next three months from the effective date of
termination; (d) any outstanding vacation pay as at the effective
date of termination; (e) any outstanding expenses owing to Mr. Ball
as at the effective date of termination; (f) maintain Mr.
Ball’s Group Benefits for a period of six months from the
effective date of termination; and (g) subject to our then Option
Plan and the rules and policies of any regulatory authority and
stock exchange having jurisdiction over us, allow Mr. Ball to then
exercise any unexercised and fully vested portion of stock options
on the effective date of termination at any time during three
months from the effective date of termination.
Mr. Ball may terminate his employment under the Ball Agreement in
connection with any change in control of us by providing not less
than 90 calendar days’ notice in writing to us after the
change in control has been effected; provided, however, that we may
waive or abridge any notice period specified in such notice in our
sole and absolute discretion. If Mr. Ball terminates his employment
under the Ball Agreement as a consequence of a change in control of
us, we will: (a) pay the total of (i) 12 months’ base salary,
less any required statutory deductions, if any; (ii) that portion
of any then declared and/or earned or accrued bonus, prorated to
the end of the six-month period from the effective date of
termination that our President determines would likely have been
paid to Mr. Ball; (iii) the present value, as determined by us,
acting reasonably, of each of the Group Benefits that would have
been enjoyed by Mr. Ball during the next six months from the
effective date of termination assuming Mr. Ball’s employment
was not terminated and assuming the then currently level of Group
Benefits were continued for that six months; (iv) any outstanding
vacation pay as at the effective date of termination; (v) any
outstanding expenses owing to Mr. Ball as at the effective date of
termination; (b) maintain Mr. Ball’s Group Benefits for a
period of six months from the effective date of termination; and
(c) subject to our then Option Plan and the rules and policies of
any regulatory authority and stock exchange having jurisdiction
over us, allow Mr. Ball to then exercise any unexercised and fully
vested portion of stock options on the effective date of
termination at any time during three months from the effective date
of termination.
42
Ed Theobald
On July 1, 2016, our Board of Directors approved the entering into
of an executive services agreement with Edward Theobald with a term
expiring on July 1, 2019 (the “Theobald
Agreement”).
The Theobald Agreement is subject to automatic renewal on a
one-month to one-month term renewal basis unless either we or Mr.
Theobald provides written notice not to renew the Theobald
Agreement no later than 30 days prior to the end of the then
current or renewal term.
Pursuant to the terms and provisions of the Theobald Agreement: (a)
Mr. Theobald is appointed as our General Manager and will undertake
and perform the duties and responsibilities normally and reasonably
associated with such office; (b) we shall pay to Mr. Theobald a
monthly fee of $5,000; (c) grant to Mr. Theobald 500,000 stock
options exercisable into 500,000 common shares at an exercise price of $0.15 per share
expiring on August 13, 2022 and 750,000 stock options exercisable
into 750,000 common shares at
an exercise price of $0.40 per share expiring on December 9, 2022
(such options have already been granted prior to the Theobald
Agreement); (d) provide Mr. Theobald with Group Benefits; and (e)
four weeks’ paid annual vacation per calendar
year.
We may terminate the employment of Mr. Theobald under the Theobald
Agreement without any notice or any payment in lieu of notice for
just cause. Mr. Theobald may terminate his employment under the
Theobald Agreement for any reason by providing not less than 90
calendar days’ notice in writing to us, provided, however,
that we may waive or abridge any notice period specified in such
notice in our sole and absolute discretion.
The employment of Mr. Theobald will terminate upon the death of Mr.
Theobald. Upon the death or Mr. Theobald during the continuance of
the Theobald Agreement, we will provide Mr. Theobald’s estate
and, if applicable, Mr. Theobalds’ immediate family members
with the following: (a) three month’s base salary, less any
required statutory deductions, if any; (b) that portion of any then
declared and/or earned or accrued bonus, prorated to the end of the
three-month period from the effective date of termination that our
President determines would likely have been paid to Mr. Theobald;
(c) any outstanding vacation pay as at the effective date of
termination; (d) any outstanding expenses owing to Mr. Theobald as
at the effective date of termination; and (e) subject to our then
Option Plan and the rules and policies of any regulatory authority
and stock exchange having jurisdiction over us, allow Mr.
Theobald’s estate to then exercise any unexercised and fully
vested portion of stock options on the effective date of
termination at any time during three months from the effective date
of termination.
If we elect to terminate the Theobald Agreement without just cause,
and provided that Mr. Theobald is in compliance with the relevant
terms and conditions of the Theobald Agreement, we shall be
obligated to provide a severance package to Mr. Theobald as
follows: (a) a cash payment equating to an aggregate of six
month’s base salary, less any required statutory deductions,
if any; (b) that portion of any then declared and/or earned or
accrued bonus, prorated to the end of the three-month period from
the effective date of termination that our President determines
would likely have been paid to Mr. Theobald; (c) the present value,
as determined by us, acting reasonably, of each of the Group
Benefits that would have been enjoyed by Mr. Theobald during the
next three months from the effective date of termination; (d) any
outstanding vacation pay as at the effective date of termination;
(e) any outstanding expenses owing to Mr. Theobald as at the
effective date of termination; (f) maintain Mr. Theobald’s
Group Benefits for a period of six months from the effective date
of termination; and (g) subject to our then Option Plan and the
rules and policies of any regulatory authority and stock exchange
having jurisdiction over us, allow Mr. Theobald to then exercise
any unexercised and fully vested portion of stock options on the
effective date of termination at any time during three months from
the effective date of termination.
Mr. Theobald may terminate his employment under the Theobald
Agreement in connection with any change in control of us by
providing not less than 90 calendar days’ notice in writing
to us after the change in control has been effected; provided,
however, that we may waive or abridge any notice period specified
in such notice in our sole and absolute discretion. If Mr. Theobald
terminates his employment under the Theobald Agreement as a
consequence of a change in control of us, we will: (a) pay the
total of (i) 12 months’ base salary, less any required
statutory deductions, if any; (ii) that portion of any then
declared and/or earned or accrued bonus, prorated to the end of the
six-month period from the effective date of termination that our
President determines would likely have been paid to Mr. Theobald;
(iii) the present value, as determined by us, acting reasonably, of
each of the Group Benefits that would have been enjoyed by Mr.
Theobald during the next six months from the effective date of
termination assuming Mr. Theobald’s employment was not
terminated and assuming the then currently level of Group Benefits
were continued for that six months; (iv) any outstanding vacation
pay as at the effective date of termination; (v) any outstanding
expenses owing to Mr. Theobald as at the effective date of
termination; (b) maintain Mr. Theobald’s Group Benefits for a
period of six months from the effective date of termination; and
(c) subject to our then Option Plan and the rules and policies of
any regulatory authority and stock exchange having jurisdiction
over us, allow Mr. Theobald to then exercise any unexercised and
fully vested portion of stock options on the effective date of
termination at any time during three months from the effective date
of termination.
43
Kulwant Sandher
On July 1, 2016, our Board of Directors approved the entering into
of an executive services agreement with Hurricane Corporate
Services Ltd. (“Hurricane Corp.”), Mr. Sandher’s
services corporation, with a term expiring on July 1, 2019
(the “Sandher
Agreement”).
The Sandher Agreement is subject to automatic renewal on a
one-month to one-month term renewal basis unless either we or
Hurricane Corp. provides written notice not to renew the Sandher
Agreement no later than 30 days prior to the end of the then
current or renewal term.
Pursuant to the terms and provisions of the Sandher Agreement: (a)
through Hurricane Corp, Mr. Sandher is appointed as our Chief
Financial Officer and will undertake and perform the duties and
responsibilities normally and reasonably associated with such
office; (b) we shall pay to Hurricane Corp. a monthly fee of
$5,000; (c) grant to Hurricane Corp. and/or Mr. Sandher as soon as
reasonably practicable after the effective date of the Sandher
Agreement stock options to purchase a certain number of
common shares on terms reasonably
consistent with our other recent executive officers; (d) provide
Hurricane Corp. and/or Mr. Sandher with Group Benefits; and (e)
four weeks’ paid annual vacation per calendar
year.
We may terminate the engagement of Hurricane Corp. under the
Sandher Agreement without any notice or any payment in lieu of
notice for just cause. Hurricane Corp. may terminate its engagement
under the Sandher Agreement for any reason by providing not less
than 90 calendar days’ notice in writing to us, provided,
however, that we may waive or abridge any notice period specified
in such notice in our sole and absolute discretion.
The engagement of Hurricane Corp. will terminate upon the death of
Mr. Sandher. Upon the death or Mr. Sandher during the continuance
of the Sandher Agreement, we will provide Mr. Sandher’s
estate and, if applicable, Mr. Sandher’s immediate family
members with the following: (a) three month’s base salary,
less any required statutory deductions, if any; (b) that portion of
any then declared and/or earned or accrued bonus, prorated to the
end of the three-month period from the effective date of
termination that our President determines would likely have been
paid to Hurricane Corp.; (c) any outstanding vacation pay as at the
effective date of termination; (d) any outstanding expenses owing
to Hurricane Corp. as at the effective date of termination; and (e)
subject to our then Option Plan and the rules and policies of any
regulatory authority and stock exchange having jurisdiction over
us, allow Mr. Sandher’s estate to then exercise any
unexercised and fully vested portion of stock options on the
effective date of termination at any time during three months from
the effective date of termination.
If we elect to terminate the Sandher Agreement without just cause,
and provided that Hurricane Corp. is in compliance with the
relevant terms and conditions of the Sandher Agreement, we shall be
obligated to provide Hurricane Corp. with the following: (a) a cash
payment equating to an aggregate of six month’s base salary,
less any required statutory deductions, if any; (b) that portion of
any then declared and/or earned or accrued bonus, prorated to the
end of the three-month period from the effective date of
termination that our President determines would likely have been
paid to Hurricane Corp.; (c) the present value, as determined by
us, acting reasonably, of each of the Group Benefits that would
have been enjoyed by Hurricane Corp. and/or Mr. Sandher during the
next three months from the effective date of termination; (d) any
outstanding vacation pay as at the effective date of termination;
(e) any outstanding expenses owing to Hurricane Corp. as at the
effective date of termination; (f) maintain Hurricane Corp.’s
and/or Mr. Sandher’s Group Benefits for a period of six
months from the effective date of termination; and (g) subject to
our then Option Plan and the rules and policies of any regulatory
authority and stock exchange having jurisdiction over us, allow the
Executive and Mr. Sandher to then exercise any unexercised and
fully vested portion of stock options on the effective date of
termination at any time during three months from the effective date
of termination.
Hurricane Corp. may terminate its engagement under the Sandher
Agreement in connection with any change in control of us by
providing not less than 90 calendar days’ notice in writing
to us after the change in control has been effected; provided,
however, that we may waive or abridge any notice period specified
in such notice in our sole and absolute discretion. If Hurricane
Corp. terminates its engagement under the Sandher Agreement as a
consequence of a change in control of us, we will: (a) pay the
total of (i) 12 months’ base salary, less any required
statutory deductions, if any; (ii) that portion of any then
declared and/or earned or accrued bonus, prorated to the end of the
six-month period from the effective date of termination that our
President determines would likely have been paid to Hurricane
Corp.; (iii) the present value, as determined by us, acting
reasonably, of each of the Group Benefits that would have been
enjoyed by Hurricane Corp. and/or Mr. Sandher during the next six
months from the effective date of termination assuming Hurricane
Corp.’s engagement was not terminated and assuming the then
currently level of Group Benefits were continued for that six
months; (iv) any outstanding vacation pay as at the effective date
of termination; (v) any outstanding expenses owing to Hurricane
Corp. as at the effective date of termination; (b) maintain
Hurricane Corp.’s and/or Mr. Sandher’s Group Benefits
for a period of six months from the effective date of termination;
and (c) subject to our then Option Plan and the rules and policies
of any regulatory authority and stock exchange having jurisdiction
over us, allow Hurricane Corp. and Mr. Sandher to then exercise any
unexercised and fully vested portion of stock options on the
effective date of termination at any time during three months from
the effective date of termination.
44
Henry Reisner
On July 1, 2016, our Board of Directors approved the entering into
of an executive services agreement with Henry Reisner with a term
expiring on July 1, 2019 (the “Reisner
Agreement”).
The Reisner Agreement is subject to automatic renewal on a
one-month to one-month term renewal basis unless either we or Mr.
Reisner provides written notice not to renew the Reisner Agreement
no later than 30 days prior to the end of the then current or
renewal term.
Pursuant to the terms and provisions of the Reisner Agreement: (a)
Mr. Reisner is appointed as our Vice-President, Finance and will
undertake and perform the duties and responsibilities normally and
reasonably associated with such office; (b) we shall pay to Mr.
Reisner a monthly fee of $5,000; (c) grant to Mr. Reisner 1,250,000
stock options exercisable into 1,250,000 common shares at an exercise price of $0.15 per share
expiring on August 13, 2022 and 1,250,000 stock options exercisable
into 1,250,000 common shares at
an exercise price of $0.40 per share expiring on December 9, 2022
(such options have already been granted prior to the Reisner
Agreement); (d) provide Mr. Reisner with Group Benefits; and (e)
four weeks’ paid annual vacation per calendar
year.
We may terminate the employment of Mr. Reisner under the Reisner
Agreement without any notice or any payment in lieu of notice for
just cause. Mr. Reisner may terminate his employment under the
Reisner Agreement for any reason by providing not less than 90
calendar days’ notice in writing to us, provided, however,
that we may waive or abridge any notice period specified in such
notice in our sole and absolute discretion.
The employment of Mr. Reisner will terminate upon the death of Mr.
Reisner. Upon the death or Mr. Reisner during the continuance of
the Reisner Agreement, we will provide Mr. Reisner’s estate
and, if applicable, Mr. Reisner’s immediate family members
with the following: (a) three month’s base salary, less any
required statutory deductions, if any; (b) that portion of any then
declared and/or earned or accrued bonus, prorated to the end of the
three-month period from the effective date of termination that our
President determines would likely have been paid to Mr. Reisner;
(c) any outstanding vacation pay as at the effective date of
termination; (d) any outstanding expenses owing to Mr. Reisner as
at the effective date of termination; and (e) subject to our then
Option Plan and the rules and policies of any regulatory authority
and stock exchange having jurisdiction over us, allow Mr.
Reisner’s estate to then exercise any unexercised and fully
vested portion of stock options on the effective date of
termination at any time during three months from the effective date
of termination.
If we elect to terminate the Reisner Agreement without just cause,
and provided that Mr. Reisner is in compliance with the relevant
terms and conditions of the Reisner Agreement, we shall be
obligated to provide a severance package to Mr. Reisner as follows:
(a) a cash payment equating to an aggregate of six month’s
base salary, less any required statutory deductions, if any; (b)
that portion of any then declared and/or earned or accrued bonus,
prorated to the end of the three-month period from the effective
date of termination that our President determines would likely have
been paid to Mr. Reisner; (c) the present value, as determined by
us, acting reasonably, of each of the Group Benefits that would
have been enjoyed by Mr. Reisner during the next three months from
the effective date of termination; (d) any outstanding vacation pay
as at the effective date of termination; (e) any outstanding
expenses owing to Mr. Reisner as at the effective date of
termination; (f) maintain Mr. Reisner’s Group Benefits for a
period of six months from the effective date of termination; and
(g) subject to our then Option Plan and the rules and policies of
any regulatory authority and stock exchange having jurisdiction
over us, allow Mr. Reisner to then exercise any unexercised and
fully vested portion of stock options on the effective date of
termination at any time during three months from the effective date
of termination.
Mr. Reisner may terminate his employment under the Reisner
Agreement in connection with any change in control of us by
providing not less than 90 calendar days’ notice in writing
to us after the change in control has been effected; provided,
however, that we may waive or abridge any notice period specified
in such notice in our sole and absolute discretion. If Mr. Reisner
terminates his employment under the Reisner Agreement as a
consequence of a change in control of us, we will: (a) pay the
total of (i) 12 months’ base salary, less any required
statutory deductions, if any; (ii) that portion of any then
declared and/or earned or accrued bonus, prorated to the end of the
six-month period from the effective date of termination that our
President determines would likely have been paid to Mr. Reisner;
(iii) the present value, as determined by us, acting reasonably, of
each of the Group Benefits that would have been enjoyed by Mr.
Reisner during the next six months from the effective date of
termination assuming Mr. Reisner’s employment was not
terminated and assuming the then currently level of Group Benefits
were continued for that six months; (iv) any outstanding vacation
pay as at the effective date of termination; (v) any outstanding
expenses owing to Mr. Reisner as at the effective date of
termination; (b) maintain Mr. Reisner’s Group Benefits for a
period of six months from the effective date of termination; and
(c) subject to our then Option Plan and the rules and policies of
any regulatory authority and stock exchange having jurisdiction
over us, allow Mr. Reisner to then exercise any unexercised and
fully vested portion of stock options on the effective date of
termination at any time during three months from the effective date
of termination.
45
Mark West
On November 1, 2016, our Board of Directors approved the entering
into of an executive services agreement with Mark West with a term
expiring on November 1, 2019 (the “West
Agreement”).
The West Agreement is subject to automatic renewal on a one-month
to one-month term renewal basis unless either we or Mr. West
provides written notice not to renew the West Agreement no later
than 30 days prior to the end of the then current or renewal
term.
Pursuant to the terms and provisions of the West Agreement: (a) Mr.
West is appointed as our Vice-President, Sales & Dealerships
and will undertake and perform the duties and responsibilities
normally and reasonably associated with such office; (b) we shall
pay to Mr. West an initial monthly fee of $4,000 for the month of
November 2016, and thereafter a monthly fee of $12,000; (c) pay Mr.
West a commission of $10,000 for each and every dealership which is
officially opened, which was directly sourced and completed by Mr.
West and which is established under an authorization to sell and
distribute our goods and services in a particular area; (c) grant
to Mr. West as soon as reasonably practicable after the effective
date of the West Agreement stock options to purchase a certain
number of common shares on terms reasonably consistent with our
other recent executive officers; (d) provide Mr. West with
individual benefits of up to $10,000 per annum as a car allowance
and up to $5,000 per annum as an education allowance (the
“Individual
Benefits”); (e) provide
Mr. West with Group Benefits; and (f) four weeks’ paid annual
vacation per calendar year.
We may terminate the employment of Mr. West under the West
Agreement without any notice or any payment in lieu of notice for
just cause. Mr. West may terminate his employment under the West
Agreement for any reason by providing not less than 90 calendar
days’ notice in writing to us, provided, however, that we may
waive or abridge any notice period specified in such notice in our
sole and absolute discretion.
The employment of Mr. West will terminate upon the death of Mr.
West. Upon the death or Mr. West during the continuance of the West
Agreement, we will provide Mr. West’s estate and, if
applicable, Mr. West’s immediate family members with the
following: (a) three month’s base salary, less any required
statutory deductions, if any; (b) any outstanding commissions, less
any required statutory deductions, if any; (c) that portion of any
then declared and/or earned or accrued bonus, prorated to the end
of the three-month period from the effective date of termination
that our President determines would likely have been paid to Mr.
West; (d) any outstanding vacation pay as at the effective date of
termination; (e) any outstanding expenses owing to Mr. West as at
the effective date of termination; and (f) subject to our then
Option Plan and the rules and policies of any regulatory authority
and stock exchange having jurisdiction over us, allow Mr.
West’s estate to then exercise any unexercised and fully
vested portion of stock options on the effective date of
termination at any time during three months from the effective date
of termination.
If we elect to terminate the West Agreement without just cause, and
provided that Mr. West is in compliance with the relevant terms and
conditions of the West Agreement, we shall be obligated to provide
a severance package to Mr. West as follows: (a) if the effective
date of termination occurs within the first year of the West
Agreement, a cash payment equating to an aggregate of nine
month’s base salary, less any required statutory deductions,
if any; (b) if the effective date of termination occurs after the
first year but before November 1, 2019, a cash payment equating to
an aggregate of twelve month’s base salary, less any required
statutory deductions, if any; (c) if the effective date of
termination occurs after November 1, 2019 and during any renewal
period during the continuance of the West Agreement, a cash payment
equating to the greater of (i) twelve month’s base salary,
less any required statutory deductions, if any, and (ii) $100,000;
(d) any outstanding commissions, less any required statutory
deductions, if any; (e) that portion of any then declared and/or
earned or accrued bonus, prorated to the end of the three-month
period from the effective date of termination that our President
determines would likely have been paid to Mr. West; (f) the present
value, as determined by us, acting reasonably, of each of the
Individual Benefits that would have been enjoyed by Mr. West during
the next six months from the effective date of termination; (g) the
present value, as determined by us, acting reasonably, of each of
the Group Benefits that would have been enjoyed by Mr. West during
the next six months from the effective date of termination; (h) any
outstanding vacation pay as at the effective date of termination;
(i) any outstanding expenses owing to Mr. West as at the effective
date of termination; (j) maintain Mr. West’s Individual
Benefits for a period of six months from the effective date of
termination; (k) maintain Mr. West’s Group Benefits for a
period of six months from the effective date of termination; and
(l) subject to our then Option Plan and the rules and policies of
any regulatory authority and stock exchange having jurisdiction
over us, allow Mr. West to then exercise any unexercised and fully
vested portion of stock options on the effective date of
termination at any time during three months from the effective date
of termination.
Mr. West may terminate his employment under the West Agreement in
connection with any change in control of us by providing not less
than 90 calendar days’ notice in writing to us after the
change in control has been effected; provided, however, that we may
waive or abridge any notice period specified in such notice in our
sole and absolute discretion. If Mr. West terminates his employment
under the West Agreement as a consequence of a change in control of
us, we will: (a) pay the total of (i) 12 months’ base salary,
less any required statutory deductions, if any; (ii) any
outstanding commissions, less any required statutory deductions, if
any; (iii) that portion of any then declared and/or earned or
accrued bonus, prorated to the end of the six-month period from the
effective date of termination that our President determines would
likely have been paid to Mr. West; (iv) the present value, as
determined by us, acting reasonably, of each of the Individual
Benefits that would have been enjoyed by Mr. West during the next
six months from the effective date of termination assuming Mr.
West’s employment was not terminated and assuming the then
currently level of Individual Benefits were continued for that six
months; (v) the present value, as determined by us, acting
reasonably, of each of the Group Benefits that would have been
enjoyed by Mr. West during the next six months from the effective
date of termination assuming Mr. West’s employment was not
terminated and assuming the then currently level of Group Benefits
were continued for that six months; (vi) any outstanding vacation
pay as at the effective date of termination; (vii) any outstanding
expenses owing to Mr. West as at the effective date of termination;
(b) maintain Mr. West’s Individual Benefits for a period of
six months from the effective date of termination; (c) maintain Mr.
West’s Group Benefits for a period of six months from the
effective date of termination; and (d) subject to our then Option
Plan and the rules and policies of any regulatory authority and
stock exchange having jurisdiction over us, allow Mr. West to then
exercise any unexercised and fully vested portion of stock options
on the effective date of termination at any time during three
months from the effective date of termination.
46
Stock Option Plans and Stock Options
The
following table sets forth, as at December 31, 2017, the equity
compensation plans pursuant to which equity securities of the
Company may be issued:
Plan
Category
|
Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights (a)
|
Weighted-average exercise price of outstanding options, warrants and rights
($) (b)
|
Number of securities remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a)) (c)
|
Equity compensation
plans approved by securityholders
|
-
|
-
|
-
|
Equity compensation
plans not approved by securityholders
|
57,197,500
|
$0.20
|
2,802,500
|
Total
|
57,197,500
|
$0.20
|
2,802,500
|
2015 Stock Option Plan
On June
11, 2015, our Board of Directors adopted the 2015 Stock Option Plan
(the “Stock Option Plan”) under which an aggregate of
60,000,000 shares may be issued, subject to adjustment as described
in the Stock Option Plan. As at
December 31, 2017, there were 57,197,500 outstanding options under
the Stock Option Plan leaving an additional 2,802,500 options to
acquire common shares that may
be granted under the Stock Option Plan.
The
purpose of the Stock Option Plan is to retain the services of
valued key employees, directors and consultants of the Company and
such other persons as the plan administrator, which is currently
the Board of Directors, shall select in accordance with the
eligibility requirements of the Stock Option Plan, and to encourage
such persons to acquire a greater proprietary interest in the
Company, thereby strengthening their incentive to achieve the
objectives of the shareholders of the Company, and to serve as an
aid and inducement in the hiring of new employees and to provide an
equity incentive to consultants and other persons selected by the
plan administrator. The Stock Option Plan shall be administered
initially by the Board of Directors of the Company, except that the
Board may, in its discretion, establish a committee composed of two
(2) or more members of the Board to administer the Stock Option
Plan, which committee may be an executive, compensation or other
committee, including a separate committee especially created for
this purpose.
Unless
accelerated in accordance with the Stock Option Plan, unvested
options shall terminate immediately upon the optionee resigning
from or the Company terminating the optionee’s employment or
contractual relationship with the Company or any related company
for any reason whatsoever, including death or disability. Options
that have vested shall terminate, to the extent not previously
exercised, upon the occurrence of the first of the following
events: (i) the expiration of the option as designated by the plan
administrator; (ii) the date of an optionee’s termination of
employment or contractual relationship with the Company or any
related company for cause (as determined in the sole discretion of
the plan administrator); (iii) the expiration of three (3) months
from the date of an optionee’s termination of employment or
contractual relationship with the Company or any related company
for any reason whatsoever other than cause, death or disability; or
(iv) the expiration of three (3) months from termination of an
optionee’s employment or contractual relationship by reason
of death or disability. Upon the death of an optionee, any vested
options held by the optionee shall be exercisable only by the
person or persons to whom such optionee’s rights under such
option shall pass by the optionee’s will or by the laws of
descent and distribution of the optionee’s domicile at the
time of death and only until such options terminate as provided
above. For purposes of the Stock Option Plan, unless otherwise
defined in the stock option agreement between the Company and the
optionee, “disability” shall mean medically
determinable physical or mental impairment which has lasted or can
be expected to last for a continuous period of not less than six
(6) months or that can be expected to result in death. The plan
administrator shall determine whether an optionee has incurred a
disability on the basis of medical evidence acceptable to the plan
administrator. Upon making a determination of disability, the plan
administrator shall, for purposes of the Stock Option Plan,
determine the date of an optionee’s termination of employment
or contractual relationship.
The
foregoing summary of the Stock Option Plan is not complete and is
qualified in its entirety by reference to the Stock Option Plan,
which is filed as Exhibit 99.1 to our registration statement on
Form F-1 under the U.S. Securities Act, as filed with the SEC on
October 11, 2016 and is incorporated by reference
herein.
47
Incentive Plan Awards
|
Option–based Awards
|
Named Executive Officer
or Director
|
Number of securities underlying
unexercised options (#)
|
Option exercise
price (US$)
|
Option expiration
date
|
Jerry
Kroll President, Chief
Executive Officer and a director
|
45,000,000
5,000,000
10,000
|
$0.15
$0.40
$1.00
|
June
11, 2022
Dec. 9,
2022
Feb.
17, 2024
|
Kulwant
Sandher Chief Financial
Officer and Secretary
|
250,000
|
$1.00
|
Feb.
17, 2024
|
Iain
Ball Vice-President,
Finance
|
500,000
750,000
10,000
|
$0.15
$0.40
$1.00
|
Aug.
13, 2022
Dec. 9,
2022
Feb.
17, 2024
|
Henry
Reisner Chief Operating
Officer
|
1,250,000
1,250,000
10,000
|
$0.15
$0.40
$1.00
|
Aug.
13, 2022
Dec. 9,
2022
Feb.
17, 2024
|
Ed
Theobald General
Manager
|
500,000
750,000
10,000
|
$0.15
$0.40
1.00
|
Aug.
13, 2022
Dec. 9,
2022
Feb.
17, 2024
|
Mark
West Vice-President, Sales
& Dealerships
|
225,000
|
$1.00
|
Feb.
17, 2024
|
Shaun
Greffard
Director
|
50,000
25,000
250,000
|
$0.15
$0.40
$1.00
|
Aug.
13, 2022
Dec. 9,
2022
Feb.
17, 2024
|
Robert
Tarzwell
Director
|
25,000
5,000
|
$0.15
$1.00
|
Aug.
13, 2022
Feb.
17, 2024
|
Incentive Plan Awards
The
following table provides information concerning the incentive award
plans of the Company with respect to each Named Executive Officer
during the fiscal year ended December 31, 2017. The only incentive
award plan of the Company during such fiscal year was the Stock
Option Plan:
Named
Executive Officer
and
Director
|
Option-based Awards
– Value Vested During the
Year ($)(1)
|
Non-Equity Incentive
Plan Compensation
– Value Vested During the Year ($)
|
Jerry
Kroll President and Chief
Executive Officer
|
$80,139,063
|
Nil
|
Kulwant
Sandher Chief Financial
Officer and Secretary
|
$523,699
|
Nil
|
Iain
Ball Vice-President,
Finance
|
$1,964,414
|
Nil
|
Henry
Reisner Chief Operating
Officer
|
$3,944,453
|
Nil
|
Ed
Theobald General
Manager
|
$1,964,414
|
Nil
|
Mark
West Vice-President, Sales
& Dealerships
|
$366,589
|
Nil
|
Shaun
Greffard,
Director
|
$40,226
|
Nil
|
Robert
Tarzwell,
Director
|
$119,115
|
Nil
|
(1)
|
The
amount represents the aggregate dollar value that would have been
realized if the options had been exercised on the vesting date,
based on the difference between US$5.25, the last closing price of
our shares on the OTCQB for the year ended December 31, 2017, and
the exercise price of the options, multiplied by the number of
options that have vested
|
|
|
48
Director Compensation for Fiscal 2017
Prior to March 2018, including for our fiscal year ended December
31, 2017, our Board of Directors acted as a compensation committee.
The Board as a whole made the final determination in respect of
compensation matters. Remuneration was assessed and determined by
taking into account such factors as our size and the level of
compensation earned by directors and officers of companies of
comparable size and industry.
The only arrangements we have, standard or otherwise, pursuant to
which directors were compensated by us for their services in their
capacity as directors, or for committee participation, involvement
in special assignments or for services as consultants or experts
for the financial year ended December 31, 2017, was through the
issuance of stock options. The number of options to be granted from
time to time is determined by the Board in its
discretion.
During the fiscal year ended December 31, 2017, there were three
directors, Jerry Kroll, Shaun Greffard and Robert Tarzwell. Mr.
Kroll’s compensation information is reported in the Summary
Compensation Table for Named Executive Officers above.
We reimburse out-of-pocket costs that are incurred by the
directors. Neither we nor any of our subsidiaries has entered into
a service contract with any director providing for benefits upon
termination of such office.
In March 2018, our Board of Directors appointed a Compensation
Committee to assess the appropriate level of remuneration for our
directors and officers.
Pension Benefits
We do
not have any defined benefit pension plans or any other plans
providing for retirement payments or benefits.
Termination of Employment and Change of Control
Benefits
Details
with respect to termination of employment and change of control
benefits for our directors and executive officers is reported above
under the section titled “Executive Compensation
Agreements.”
C. Board
Practices
Board of Directors
Our Notice of Articles and Articles are attached as exhibits to the
registration statement of which this prospectus forms a part. The
Articles of the Company provide that the number of directors is set
at:
|
(a)
|
subject
to paragraphs (b) and (c), the number of directors that is equal to
the number of our first directors;
|
|
|
|
|
(b)
|
if we
are a public company, the greater of three and the number most
recently elected by ordinary resolution (whether or not previous
notice of the resolution was given); and
|
|
(c)
|
if we
are not a public company, the number most recently elected by
ordinary resolution (whether or not previous notice of the
resolution was given).
|
Our Board of Directors (the “Board”) currently consists
of six directors. Our directors are elected annually at each annual
meeting of our company’s shareholders. The Board assesses
potential Board candidates to fill perceived needs on the Board for
required skills, expertise, independence and other
factors.
Our Board of Directors is responsible for appointing our
company’s officers.
Board Committees
Our Board of Directors currently has six committees, the Audit
Committee, the Nominating Committee, the Corporate Governance and
Human Resources Committee, the Compensation Committee, the
Enterprise Risk Oversight Committee and the Social Media
Committee.
49
Audit Committee
Our Audit Committee consists of Luisa Ingagiola, Steven Sanders,
Robert Trazwell and Shaun Greffard and is chaired by Luisa
Ingagiola. Each member of the Audit Committee satisfies the
“independence” requirements of Rule 5605(a)(2) of the
Listing Rules of the NASDAQ Stock Market and meet the independence
standards under Rule 10A-3 under the Exchange Act. Our audit
committee will consist solely of independent directors that satisfy
the Nasdaq and SEC requirements within one year of the completion
of this offering. Our Audit Committee Financial Expert is Robert
Tarzwell who qualifies as an “audit committee financial
expert” within the meaning of the SEC rules and possesses
financial sophistication within the meaning of the Listing Rules of
the NASDAQ Stock Market. The audit committee will oversee our
accounting and financial reporting processes and the audits of the
financial statements of our company. The audit committee will be
responsible for, among other things:
|
●
|
selecting
our independent registered public accounting firm
and pre-approving all auditing
and non-auditing services permitted to be performed by
our independent registered public accounting firm;
|
|
●
|
reviewing
with our independent registered public accounting firm any audit
problems or difficulties and management’s response and
approving all proposed related party transactions, as defined in
Item 404 of Regulation S-K;
|
|
●
|
discussing
the annual audited financial statements with management and our
independent registered public accounting firm;
|
|
●
|
annually
reviewing and reassessing the adequacy of our audit committee
charter;
|
|
●
|
meeting
separately and periodically with the management and our internal
auditor and our independent registered public accounting
firm;
|
|
●
|
reporting
regularly to the full board of directors;
|
|
●
|
reviewing
the adequacy and effectiveness of our accounting and internal
control policies and procedures and any steps taken to monitor and
control major financial risk exposure; and
|
|
●
|
such
other matters that are specifically delegated to our audit
committee by our board of directors from time to time.
|
Nominating Committee
Our Nominating Committee consists of Steven Sanders and Robert
Trazwell and is chaired by Jerry Kroll. The nominating committee is
responsible for overseeing the selection of persons to be nominated
to serve on our board of directors. The nominating committee
considers persons identified by its members, management,
shareholders, investment bankers and others.
Corporate Governance and Human Resources Committee
Our Corporate Governance and Human Resources Committee consists of
Steven Sanders, Luisa Ingagiola, Robert Trazwell and Shaun Greffard
and is chaired by Steven Sanders. The Corporate Governance and
Human Resources Committee shall be responsible for developing our
approach to the Board and corporate governance issues; helping to
maintain an effective working relationship between the Board and
management; exercising, within the limits imposed by the by-laws of
the Company, by applicable laws, and by the Board, the powers of
the Board for the management and direction of the affairs of the
Company during the intervals between meetings of the Board;
reviewing and making recommendations to the Board for the
appointment of senior executives of the Company and for considering
their terms of employment; reviewing succession planning, matters
of compensation; recommending awards under the Company’s long
term and short term incentive plans; assuming the role of
administrator, whether by delegation or by statute, for the
corporate-sponsored registered pension plans and the Supplementary
Executive Retirement Plan of the Company and its wholly-owned
subsidiaries and any future, additional or replacement plans
relating to the plans; and monitoring the investment performance of
the trust funds for the plans and compliance with applicable
legislation and investment policies.
Our Corporate Governance and Human Resources Committee shall also
review any “red flags” or issues that may arise out of
the Compensation Committee compensation and award recommendations
and report them to the Board of Directors. The Compensation
Committee and Governance Committee, at times, may be collaborative
but will not coordinate as the process is intended to be a
“checks and balance” approach. It is being set up as an
internal control mechanism that would safeguard against fraud and
errors due to omission
50
Compensation Committee
Our Compensation Committee consists of Luisa Ingagiola, Steven
Sanders and Robert Trazwell and is chaired by Luisa Ingagiola. Each
of the Compensation Committee members satisfies the
“independence” requirements of Rule 5605(a)(2) of
the Listing Rules of the NASDAQ Stock Market. Our compensation
committee will assist the board in reviewing and approving the
compensation structure, including all forms of compensation,
relating to our directors and executive officers. No officer may be
present at any committee meeting during which such officer’s
compensation is deliberated upon. The compensation committee will
be responsible for, among other things:
|
●
|
reviewing
and approving to the board with respect to the total compensation
package for our most senior executive officers;
|
|
●
|
approving
and overseeing the total compensation package for our executives
other than the most senior executive officers;
|
|
●
|
reviewing
and recommending to the board with respect to the compensation of
our directors;
|
|
●
|
reviewing
periodically and approving any long-term incentive compensation or
equity plans;
|
|
●
|
selecting
compensation consultants, legal counsel or other advisors after
taking into consideration all factors relevant to that
person’s independence from management; and
|
|
●
|
programs
or similar arrangements, annual bonuses, employee pension and
welfare benefit plans.
|
Enterprise Risk Oversight Committee
Our Enterprise Risk Oversight Committee consists of Steven Sanders,
Luisa Ingagiola, Robert Trazwell and Shaun Greffard and is chaired
by Steven Sanders. The Enterprise Risk Oversight Committee shall
oversee the effectiveness of risk management policies, procedures
and practices implemented by management of the Corporation with
respect to strategic, operational, environmental, health and
safety, human resources, legal and compliance and other risks faced
by the Corporation. The committee shall:
●
review
executive management’s assessment of the company’s
material risk exposures and the company’s actions to
identify, monitor and mitigate such exposures,
●
review
executive management’s implementation of systems and controls
designed to promote compliance with applicable legal and regulatory
requirements and
●
report
to the Board on an annual basis with respect to the
committee’s review of the company’s material risks and
measures in place to mitigate them, and at least annually in
respect of the committee’s other activities.
Social Media Committee
Our
Social Media Committee consists of Jerry Kroll, Robert Trazwell,
Shaun Greffard and Henry Reisner and is chaired by Jerry Kroll. The
Social Media Committee shall oversee the social media strategy
initiatives for the Company pursuant to Regulation FD. The Social
Media Committee shall:
●
provide compliant
Regulation FD strategic leadership for social media through the
alignment of social media strategies and activities with enterprise
strategic objectives and processes;
●
establish and
maintain corporate policies with respect to use of social media for
both process-driven social engagements, as well as for use of
social media by employees for participating in social conversations
(e.g. blogging and Tweeting by subject matter
experts);
●
prioritize social
media initiatives and deliver final approvals and recommendations
on proceeding with proposed social media projects, including
process, technology, and organizational project;
●
ensure open
communication between the social media department and the other
functional units of the Company so as to promote collaborative
strategies, planning, and implementation.
51
D. Employees
As of April 11, 2018, we
employed a total of 44 full-time and no part-time people at our principal executive
offices in Vancouver, British Columbia. None of our employees are
covered by a collective bargaining agreement.
The breakdown of employees by main category of activity is as
follows:
Activity
|
|
Engineering/R&D
|
29
|
Sales &
Marketing
|
4
|
General &
Administration
|
5
|
Executives
|
6
|
E. Share
Ownership
Shares
The
shareholdings of our officers and directors are set out in Item 7
below.
Options
The
stock options, exercisable into common shares of the Company, held
by our officers and directors are set out in Item 6 B
above.
Warrants
Warrants,
exercisable into common shares of the Company, held by our officers
and directors are set forth below as of April 11,
2018.
Name
|
Position
|
Allotment date
|
Expiration date
|
|
|
Jerry
Kroll
|
President, CEO and
Director
|
Jun. 15,
2015 Jan. 26, 2016
|
Jun. 15,
2020 Jan. 26, 2021
|
$0.40$1.00
|
50,000125,000
|
Iain
Ball
|
Vice-President,
Finance
|
Aug 19,
2015
|
Aug. 19,
2020
|
$1.00
|
62,500
|
Robert
Tarzwell
|
Director
|
Jun. 26,
2015
|
Jun. 26,
2020
|
$0.40
|
375,000(1)
|
Mark
West
|
Vice-President,
Sales & Dealerships
|
Dec. 1,
2015
|
Dec. 1,
2020
|
$1.00
|
15,500
|
Notes:
|
(1)
|
Mr.
Tarzwell hold 187,500 warrants directly and 187,500 warrants
registered to Robert Tarzwell M.D. Inc.
|
52
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS
A. Major
Shareholders
Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth certain information regarding the
beneficial ownership of our common share as of April 11,
2018 by (a) each stockholder who is
known to us to own beneficially 5% or more of our outstanding
common share; (b) all directors; (c) our executive officers, and
(d) all executive officers and directors as a group. Except as
otherwise indicated, all persons listed below have (i) sole voting
power and investment power with respect to their common
shares, except to the extent that
authority is shared by spouses under applicable law, and (ii)
record and beneficial ownership with respect to their common
shares.
Name
|
Common
Shares of the Company Beneficially Owned (1)
|
Percentage
of Common Shares Beneficially Owned (2)
|
Directors and Executive Officers:
|
|
|
Jerry
Kroll Vancouver, President,
CEO and a director
|
50,058,324(3)
|
61.0%
|
|
|
|
Iain
Ball Vancouver, Vice-President, Finance
|
843,749(4)
|
1.7%
|
|
|
|
Henry
Reisner, COO
|
7,508,331(5)
|
14.8%
|
|
|
|
Kulwant
Sandher, CFO
|
|
Nil
|
|
|
|
Ed
Theobald Vancouver, General Manager
|
1,218,749(6)
|
2.4%
|
|
|
|
Shaun
Greffard Surrey, Director
|
44,789(7)
|
*
|
|
|
|
Robert
Tarzwell, Director
|
765,623(8)
|
1.5%
|
|
|
|
Mark West,
Vice-President, Sales &
Dealerships
|
101,313(9)
|
*
|
|
|
|
Directors
and Executive Officers as a Group (Eight Persons)
|
60,540,878(10)
|
70.8%
|
|
|
|
Other 5% or more Shareholders:
|
|
|
Megan
Martin
|
5,400,000(11)
|
10.0%
|
|
|
|
Yuan Sheng
Zhang
|
5,400,000(12)
|
10.0%
|
|
|
|
Shang Wen
Yang
|
4,000,000(13)
|
7.8%
|
|
|
|
Unison
International Holdings Ltd.
|
6,400,000(14)
|
12.0%
|
|
|
|
Zongshen (Canada)
Environtech Ltd.
|
5,600,000(15)
|
10.8%
|
*
|
Less
than 1%.
|
(1)
|
Under
Rule 13d–3, a beneficial owner of a security includes any
person who, directly or indirectly, through any contract,
arrangement, understanding, relationship, or otherwise has or
shares: (i) voting power, which includes the power to vote, or to
direct the voting of shares; and (ii) investment power, which
includes the power to dispose or direct the disposition of shares.
Certain shares may be deemed to be beneficially owned by more than
one person (if, for example, persons share the power to vote or the
power to dispose of the shares). In addition, shares are deemed to
be beneficially owned by a person if the person has the right to
acquire the shares (for example, upon exercise of an option) within
60 days of the date as of which the information is provided. In
computing the percentage ownership of any person, the amount of
shares outstanding is deemed to include the amount of shares
beneficially owned by such person (and only such person) by reason
of these acquisition rights. As a result, the percentage of
outstanding shares of any person as shown in this table does not
necessarily reflect the person’s actual ownership or voting
power with respect to the number of common shares actually
outstanding on April 11, 2018.
|
(2)
|
The
percentage is calculated based on 49,119,449 common shares that were
outstanding as of April 11, 2018.
|
(3)
|
This
figure consists of (i) 7,175,000 common shares registered directly to Jerry Kroll,
(ii) 10,000,000 common shares
registered to Ascend Sportmanagement Inc., which Mr. Kroll has
discretionary voting and investment authority over securities held
by Ascend Sportmanagement Inc., (iii) 175,000 common shares issuable upon exercise of warrants
registered directly to Mr. Kroll, (iv) 30,625,000 stock options to
purchase 30,625,000 shares of our common share which have vested,
and (v) 2,083,332 stock options to purchase 2,083,332 shares of our
common share which will vest within 60 days of April 11,
2018.
|
(4)
|
This
figure consists of (i) 62,500 common shares registered directly to Iain Ball,
(ii) 62,500 common shares
issuable upon exercise of warrants registered directly to Mr. Ball,
(iii) 666,667 stock options to purchase 666,667 shares of our
common share which have vested, and (iv) 52,082 stock options to
purchase 52,082 shares of our common share which will vest within
60 days of April 11, 2018.
|
(5)
|
This
figure consists of (i) 4,750,000 common shares registered directly to Henry
Reisner, (ii) 1,050,000 common shares held of record by Mr.
Reisner’s wife, (iii) 250,000 common shares held of record by Mr.
Reisner’s daughter, (iv) 1,354,167 stock options to purchase
1,354,167 shares of our common share which have vested, and (v)
104,164 stock options to purchase 104,164 shares of our common
share which will vest within 60 days of April 11,
2018.
|
(6)
|
This
figure consists of (i) 500,000 common shares registered directly to Ed Theobald,
(ii) 666,667 stock options to purchase 666,667 shares of our common
share which have vested, and (iii) 52,082 stock options to purchase
52,082 shares of our common share which will vest within 60 days of
April 11, 2018.
|
(7)
|
This
figure consists of (i) 41,667 stock options to purchase 41,667
shares of our common share which have vested, and (ii) 3,122 stock
options to purchase 3,122 shares of our common share which will
vest within 60 days of April 11, 2018.
|
(8)
|
This
figure consists of (i) 187,500 common shares registered directly to Robert
Tarzwell, (ii) 187,500 common shares held of record by Robert Tarzwell
M.D. Inc., which Mr. Tarzwell has discretionary voting and
investment authority over such securities, (iii) 187,500 common
shares issuable upon exercise
of warrants registered directly to Mr. Tarzwell, (iv) 187,500
common shares issuable upon
exercise of warrants held of record by Robert Tarzwell M.D. Inc.,
(v) 14,583 stock options to purchase 14,583 shares of our common
share which have vested, and (vi) 1,040 stock options to purchase
1,040 shares of our common share which will vest within 60 days of
January ,25 2018.
|
(9)
|
This
figure consists of (i) 15,500 common shares registered directly to Mark West,
(ii) 15,500 common shares
issuable upon exercise of warrants registered directly to Mr. West,
(iii) 60,938 stock options to purchase 60.938 shares of our common
share which have vested, and (iv) 9,375 stock options to purchase
9,375 common shares which will vest within 60 days of April 11,
2018.
|
(10)
|
This
figure consists of (i) 24,178,000 common shares and (ii) 36,362,878 of common shares
underlying warrants and stock options which have vested or will
vest within 60 days of April 11, 2018.
|
(11)
|
This
figure consists of (i) 1,250,000 common shares registered directly to Megan Martin,
(ii) 1,250,000 common shares
held of record by Ms. Martin’s husband, Yuan Sheng Zhang,
(iii) 200,000 common shares
held of record by Ms. Martin’s son, Bo Hong Zhang, (iv)
1,250,000 common shares
issuable upon exercise of warrants registered directly to Ms.
Martin, (v) 1,250,000 common shares issuable upon exercise of warrants
held of record by Ms. Martin’s husband, and (vi) 200,000
common shares issuable upon
exercise of warrants held of record by Ms. Martin’s
son.
|
(12)
|
This
figure consists of (i) 1,250,000 common shares registered directly to Yuan Sheng
Zhang, (ii) 1,250,000 common shares held of record by Mr. Zhang’s
wife, Megan Martin, (iii) 200,000 common shares held of record by Mr. Zhang’s
son, Bo Hong Zhang, (iv) 1,250,000 common shares issuable upon exercise of warrants
registered directly to Mr. Zhang, (v) 1,250,000 common shares issuable upon exercise of warrants
held of record by Mr. Zhang’s wife, and (vi) 200,000 common
shares issuable upon exercise
of warrants held of record by Mr. Zhang’s son.
|
(13)
|
This
figure consists of (i) 2,000,000 common shares registered directly to Shang Wen
Yang and (ii) 2,000,000 common shares issuable upon exercise of warrants
registered directly to Cheng Qun Sang.
|
(14)
|
This
figure consists of (i) 2,400,000 common shares registered to Unison International
Holdings Ltd. and (ii) 4,000,000 common shares issuable upon exercise of warrants
registered to Unison International Holdings Ltd. Mr. Ping Hui Lu is
the President of Unison International Holdings Ltd. and has
discretionary voting and investment authority over securities held
by Unison International Holdings Ltd.
|
(15)
|
This
figure consists of (i) 2,800,000 common shares registered to Zongshen (Canada)
Environtech Ltd. and (ii) 2,800,000 common shares issuable upon exercise of warrants
registered to Zongshen (Canada) Environtech Ltd. Mr. Daxue Zhang is
the sole director of Zongshen (Canada) Environtech Ltd. and has
discretionary voting and investment authority over securities held
by Zongshen (Canada) Environtech Ltd.
|
The information as to shares beneficially owned, not being within
our knowledge, has been furnished by the officers and
directors.
As at April 6, 2018, there were 98 holders of record of our
common shares. Approximately nine
registered holders have mailing addresses in the United States and
together hold approximately 944,000 common shares, which constitutes approximately 2% of our
issued and outstanding common shares as of April 6, 2018.
53
Transfer Agent
Our
shares of common stock are recorded in registered form on the books
of our transfer agent, Computershare Investor Services Inc.,
located at 3rd Floor, 510
Burrard Street, Vancouver, British Columbia, Canada, V6C
3B9.
B. Related Party
Transactions
Jerry Kroll
On
October 16, 2017, Jerry Kroll, our President and CEO, entered into
a Share Pledge Agreement with Zongshen to guarantee our payment for
the cost of the prototype tooling and molds estimated to be $1.8
million through the pledge of 800,000 common shares of the Company
at a deemed price of USD $2.00. We have agreed to reimburse Mr.
Kroll on a one-for-one basis for any pledged shares realized by
Zongshen at a deemed issue price of $2.00 per common
share.
From February 16, 2015 to November 13, 2015, Mr. Kroll provided us
with a loans in the aggregate amount of $185,000. These loans were
unsecured, non-interest bearing, and due on demand. No formal
written agreements regarding these loans were signed, however, they
are documented in our accounting records. On January 20, 2016, we
repaid $135,000 of these loans and $50,000 was repaid through the
issuance of 125,000 post-subdivision units at a price of $0.40 per
unit.
On February 16, 2015, Mr. Kroll acquired 7,000,000 common shares
and Ascend Sportmanagement Inc., a corporation under the control
and direction of Mr. Kroll, acquired 10,000,000 common shares at a
price of $0.0002 per common share pursuant to a private placement.
In addition, on June 15, 2015, Mr. Kroll acquired 50,000 units at a
price of $0.20 per unit pursuant to a private placement. Each unit
consisted of one common share and one common share purchase
warrant. Each warrant is exercisable for one additional common
share at a price of $0.40 per common share until June 15, 2020.
Furthermore, on January 22, 2016, Mr. Kroll acquired 125,000 units
at a price of $0.40 per unit pursuant to a private placement. Each
unit consisted of one common share and one common share purchase
warrant. Each warrant is exercisable for one additional common
share at a price of $1.00 per common share until January 22,
2021.
On June 11, 2015 we granted 45,000,000 stock options to Mr. Kroll
having an exercise price of $0.15 per common share until June 11,
2022. In addition, on December 9, 2015 we granted 5,000,000 stock
options to Mr. Kroll having an exercise price of $0.40 per common
share until December 9, 2022. Furthermore, on February 17, 2017 we
granted 10,000 stock options to Mr. Kroll having an exercise price
of $1.00 per common share until February 17, 2024.
Henry Reisner
On
October 18, 2017, we entered into a Share Purchase Agreement (the
“SPA”) to acquire Intermeccanica with Henry Reisner,
our Chief Operating Officer, and two members of his family, which
replaced a prior Joint Operating Agreement. Under the SPA, we
agreed to purchase all the shares of Intermeccanica for $2,500,000,
$300,000 of which had been previously paid under the Joint
Operating Agreement. At closing, we paid the sellers $700,000 and
issued a Note for the balance of $1,500,000. On January 28, 2018,
we paid off all of the principal and interest due on the Note for
$1,520,548.
On February 16, 2015, Mr. Henry Reisner acquired 4,750,000 common
shares at a price of $0.0002 per common share pursuant to a private
placement. Mr. Reisner’s wife and daughter acquired 1,050,000
common share s and 250,000 common shares, respectively, at a price
of $0.0002 per common share pursuant to a private
placement.
On July 15, 2015, as amended on September 19, 2016, we entered into
a Joint Operating Agreement with Intermeccanica and Henry Reisner
which is comprised of three underlying agreements. The Joint
Operating Agreement was terminated upon the entry into the
SPA.
On August 13, 2015, we granted 1,250,000 stock options to Mr.
Reisner having an exercise price of $0.15 per common share until
August 13, 2022. In addition, on December 9, 2015, we granted
1,250,000 stock options to Mr. Reisner having an exercise price of
$0.40 per common share until December 9, 2022. Furthermore, on
February 17, 2017, we granted 10,000 stock options to Mr. Reisner
having an exercise price of $1.00 per common share until February
17, 2024.
54
Iain Ball
On August 13, 2015, we granted 500,000 stock option to Iain Ball
having an exercise price of $0.15 per common share until August 13,
2022. In addition on December 9, 2015, we granted 750,000 stock
options to Mr. Ball having an exercise price of $0.40 per common
share until December 9, 2022. Furthermore, on February 17, 2017 we
granted 10,000 stock options to Mr. Ball having an exercise price
of $1.00 per common share until February 17, 2024.
On August 19, 2015, Mr. Iain Ball acquired 62,500 units at a price
of $0.40 per unit. Each unit consisted of one common share and one
common share purchase warrant. Each warrant is exercisable for one
additional common share at a price of $1.00 per common share until
August 19, 2020.
Kulwant Sandher
On February 17, 2017, we granted 250,000 stock options to Mr.
Sandher having an exercise price of $1.00 per common share until
February 17, 2024.
Ed Theobald
On February 16, 2015, Mr. Ed Theobald acquired 500,000 common
shares at a price of $0.0002 per common share pursuant to a private
placement.