Exhibit 99.1

 

Electrameccanica Vehicles Corp.

 

Interim Condensed Consolidated Financial Statements

 

September 30, 2018

 

Unaudited - Expressed in Canadian Dollars

 

   

 

 

Electrameccanica Vehicles Corp.

Interim Condensed Consolidated Statements of Financial Position

(Expressed in Canadian dollars)

 

   Note   

September 30, 2018

(Unaudited)

   December 31, 2017 
ASSETS               
Current assets               
Cash and cash equivalents  4    $12,138,179   $8,610,996 
Receivables  5     398,078    243,639 
Prepaid expenses        1,075,723    920,146 
Inventory        1,007,070    232,903 
         14,619,050    10,007,684 
Non-current assets               
Restricted cash        107,782    - 
Plant and equipment  6     5,107,321    1,393,683 
Goodwill and other intangible assets  7     1,233,560    1,260,014 
TOTAL ASSETS       $21,067,713   $12,661,381 
                
LIABILITIES               
Current liabilities               
Bank overdraft and demand loan  9    $-   $123,637 
Trade payables and accrued liabilities  8     1,200,322    1,123,790 
Customer deposits        408,912    447,071 
Shareholder loan  17     7,268    10,383 
Promissory note  7     -    1,500,000 
Deferred income tax        149,794    149,794 
         1,766,296    3,354,675 
                
Non-current liabilities               
Derivative liability1  10     2,477,233    3,655,690 
TOTAL LIABILITIES        4,243,529    7,010,365 
                
EQUITY               
Share capital  11     39,317,540    22,718,282 
Common share subscription        -    750,000 
Warrants & share-based payment reserve  12     6,752,955    3,518,286 
Deficit        (29,246,061)   (21,335,552)
Foreign Currency Translation Reserve        (250)   - 
TOTAL EQUITY        16,824,184    5,651,016 
TOTAL LIABILITIES AND EQUITY       $21,067,713   $12,661,381 

 

Commitments (Notes 6 and 9)

Subsequent events (Note 20)

 

On behalf of the Board of Directors.

 

__”Steven Sanders”__________ __”Luisa Ingargiola”_______
Director Director

 

 

1 Footnote: The warrant derivative liability is valued at fair value in accordance with International Financial Reporting Standards (“IFRS”). There are no circumstances in which the Company would be required to pay cash upon exercise or expiry of the warrants. See Note 10.

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements

 

  2

 

 

Electrameccanica Vehicles Corp.

Interim Condensed Consolidated Statements of Comprehensive Loss

(Unaudited - Expressed in Canadian dollars)

 

       3 months ended   9 months ended 
   Note  

September 30,

2018

  

September 30,

2017

  

September 30,

2018

  

Sept 30,

2017

 
                     
Revenue       $189,902   $-   $635,401   $- 
Cost of revenue        140,095    -    435,414    - 
Gross profit        49,807    -    199,987    - 
                          
Operating expenses                         
Depreciation and amortization   6    68,917    29,997    197,332   $85,201 
General and administrative expenses   13    1,686,525    589,707    3,595,998    1,517,662 
Research and development expenses   14    905,811    820,044    4,184,587    2,725,094 
Sales and marketing expenses   15    356,806    441,253    833,050    731,491 
Stock-based compensation expense   11    644,228    282,167    2,528,643    819,546 
Share-based payment expense        312,960    -    935,837    - 
         3,975,247    2,163,168    12,275,447    5,878,994 
                          
Loss before other items        (3,925,440)   (2,163,168)   (12,075,460)   (5,878,994)
                          
Other items                         
Accretion interest expense        -    145,985    -    186,764 
Finder’s fees re convertible loan        -    675,007    -    675,007 
Issue costs allocated to derivate liability        627,821         627,821      
Changes in fair value of warrant derivative   10    (1,919,072)   -    (4,945,126)   - 
Foreign exchange loss/(gain)        256,131    572    152,354    8,503 
                          
Net and comprehensive loss       $(2,890,320)  $(2,984,732)  $(7,910,509)  $(6,749,268)
                          
Loss per share – basic and fully diluted       $(0.11)  $(0.14)  $(0.31)  $(0.32)
                          
Weighted average number of shares outstanding – basic and fully diluted   11    26,687,607    21,778,239    25,287,764    21,366,955 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements

 

  3

 

 

Electrameccanica Vehicles Corp.

Interim Condensed Consolidated Statements of Changes in Equity

(Expressed in Canadian dollars)

 

       Share capital                             
   Note  

Number of

shares

   Amount  

Share

subscription

  

Share

issue costs

  

Warrant &

share-

based

payment

reserve

  

Equity

component

reserve

  

Foreign

currency

translation

reserve

   Deficit   Total 
                                         
Balance at December 31, 2016        20,891,794   $12,998,482   $101,500   $(1,614,486)  $2,351,144   $39,130   $-   $(9,969,180)  $3,906,590 
Shares issued for cash        982,485    2,497,415    (101,500)   (258,138)   -    -         -    2,137,777 
Share issued for finders fees        52,500    680,007    -    -    3,223    -         -    683,230 
Shares issued for convertible debt issue cost        650,017    1,469,604    -    -         (169,570)             1,300,034 
Shares and warrants issued for services        25,000    50,000    -    -    288,432    -              338,432 
Stock-based compensation        -    -    -    -    819,546    -         -    819,546 
Equity component of convertible loan        -    -    -    -    -    130,440              130,440 
Net and comprehensive loss for the period        -    -    -    -    -    -         (6,749,268)   (6,749,268)
Balance at September 30, 2017        22,601,796   $17,695,508   $-   $(1,872,624)  $3,462,345   $-   $-   $(16,718,448)  $2,566,781 
                                                   
Balance at December 31, 2017        23,794,106   $25,789,209   $750,000   $(3,070,927)  $3,518,286   $-   $-   $(21,335,552)  $5,651,016 
Shares issued for cash, net of warrant derivative liability   11    3,808,521    18,617,936    (750,000)   (3,009,862)   725,300    -    -    -    15,583,374 
Shares issued for services   11    175,000    935,837    -    -    -    -    -    -    935,837 
Shares issued on exercise of options   11    6,198    31,669    -    -    (19,274)   -    -    -    12,395 
Shares issued for finders fees   11    2,286    23,678    -    -    -    -    -    -    23,678 
Stock-based compensation   11    -    -    -    -    2,528,643    -    -    -    2,528,643 
Foreign currency translation Reserve        -    -    -    -    -    -    (250)   -    (250)
Net and comprehensive loss for the period        -    -    -    -    -    -         (7,910,509)   (7,910,509)
Balance at September 30, 2018        27,786,111   $45,398,329   $-   $(6,080,789)  $6,752,954   $-   $(250)  $(29,246,061)  $16,824,184 

 

During the year ended December 31, 2016, the Company completed a 1:5 forward share split and on May 15, 2018 the Company completed a reverse share split on a 2:1 basis, all references to number of shares have been retroactively adjusted. See Note 11 for further details.

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements

 

  4

 

 

Electrameccanica Vehicles Corp.

Interim Condensed Consolidated Statements of Cash Flows

(Unaudited - Expressed in Canadian dollars)

 

   3 months ended   9 months ended 
  

September 30,

2018

  

September 30,

2017

  

September 30,

2018

  

September 30,

2017

 
Operating activities                    
Loss for the period  $(2,890,320)  $(2,984,732)  $(7,910,509)  $(6,749,268)
Adjustments for:                    
Depreciation and amortization   68,917    29,997    197,332    85,201 
Stock-based compensation expense   644,228    282,167    2,528,643    819,546 
Share-based payment expense   312,960    338,432    935,837    338,432 
Interest accretion expense   -    145,985    -    186,764 
Finder’s fees on convertible loan   -    675,007    -    675,007 
Change in fair value of warrant derivative   (1,919,072)   -    (4,945,126)   - 
Changes in non-cash working capital items:                    
Receivables   229,370    40,353    (154,668)   127,567 
Prepaid expenses   (312,906)   (365,151)   (155,576)   (347,671)
Inventory   (732,551)   -    (774,166)   (3,475)
Trades payable and accrued liabilities   (365,858)   299,683    76,532    427,076 
Customer deposits   (1,862)   2,750    (38,159)   35,500 
Net cash flows used in operating activities   (4,967,094)   (1,535,509)   (10,239,860)   (4,405,321)
                     
Investing activities                    
Restricted cash   1,213    -    (107,782)   - 
Expenditures on plant and equipment   (1,030,641)   (834)   (3,884,516)   (138,344)
Purchase of Intermeccanica International Inc.   -    (100,000)   -    (200,000)
Expenditures on trademarks and patents   -    (28,552)   -    (63,805)
Net cash flows used in investing activities   (1,029,428)   (129,386)   (3,992,297)   (402,149)
                     
Financing activities                    
Repayment of bank loan   -    -    (123,637)   - 
Proceeds from convertible loans   -    2,209,295    -    2,209,295 
Repayment of shareholder loan   (1,038)   -    (3,115)   - 
Repayment of promissory note   -    -    (1,500,000)   - 
Proceeds on issuance of common shares and warrants – net of issue costs   13,900,448    1,330,936    19,386,116    2,146,000 
Net cash flows from financing activities   13,899,410    3,540,231    17,759,364    4,355,295 
                     
Increase (decrease) in cash and cash equivalents   7,902,888    1,875,336    3,527,207    (452,175)
Effect of exchange rates on cash holdings in foreign currencies   (24)   -    (24)   - 
Cash and cash equivalents, beginning   4,235,315    1,588,772    8,610,996    3,916,283 
Cash and cash equivalents, ending  $12,138,179   $3,464,108   $12,138,179   $3,464,108 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements

 

  5

 

 

Electrameccanica Vehicles Corp.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the nine months ended September 30, 2018

 

1.Nature and continuance of operations

 

Electrameccanica Vehicles Corp (the “Company”) was incorporated on February 16, 2015, under the laws of the province of British Columbia, Canada, and its principal activity is the development and manufacturing of electric vehicles. The Company acquired Intermeccanica International Inc. (“Intermeccanica”) on October 18, 2017, and its principal activity is the development and manufacturing of high end custom built vehicles. On January 22, 2018 the Company incorporated a wholly-owned subsidiary EMV Automotive USA Inc. in Nevada, USA.

 

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

 

These condensed consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. As at September 30, 2018, the Company’s principal activity, the development and manufacturing of electric vehicles, is in the development stage, and the Company’s continuation as a going concern is dependent upon the successful results from its electric vehicle development and manufacturing activities and its ability to attain profitable operations and generate funds there from and/or raise equity capital or borrowings sufficient to meet current and future obligations. It is anticipated that significant additional funding will be required. These factors indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. Management intends to finance its operations over the next twelve months through private placement and / or public offerings of equity capital. Should the Company be unable to continue as a going concern, the net realizable value of its assets may be materially less than the amounts on its statement of financial position.

 

2.Basis of preparation and significant accounting policies

 

The financial statements were authorized for issue on November 9, 2018 by the directors of the Company.

 

Statement of compliance with International Financial Reporting Standards

These interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). Therefore, these financial statements comply with International Accounting Standards (“IAS”) 34, Interim Financial Reporting.

 

These interim condensed consolidated financial statements were prepared using the same accounting policies and methods as those used in the Company’s consolidated financial statements for the year ended December 31, 2017, with the exception of new accounting policies that were adopted on January 1, 2018 as described in Note 2. These interim condensed consolidated financial statements have been prepared in compliance with IAS 34, Interim Financial Reporting. Accordingly, certain disclosures normally included in annual financial statements prepared in accordance with IFRS, as issued by the IASB, have been omitted or condensed. These interim condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2017.

 

Basis of preparation

The financial statements of the Company have been prepared on an accrual basis and are based on historical costs, modified where applicable. The Company’s functional and presentation currency is the Canadian dollar.

 

Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, EMV Automotive USA Inc., and Intermeccanica from the date of its acquisition on October 18, 2017 (Note 7). Inter-company balances and transactions, including unrealized income and expenses arising from inter-company transactions, are eliminated on consolidation.

 

Significant estimates and assumptions

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

 

  6

 

 

Electrameccanica Vehicles Corp.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the nine months ended September 30, 2018

 

Estimates and assumptions where there is significant risk of material adjustments to assets and liabilities in future accounting periods include the estimated recoverable amount of goodwill, intangible assets and other long-lived assets, the useful lives of plant and equipment, fair value measurements for financial instruments and share-based payments.

 

Significant judgments

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

 

-the assessment of the Company’s ability to continue as a going concern and whether there are events or conditions that may give rise to significant uncertainty;
-the classification of financial instruments; and
-the calculation of income taxes in interpreting tax rules and regulations.

 

Change in accounting policy - Financial Instruments

 

The Company adopted the requirements of IFRS 9 Financial Instruments (“IFRS 9”) as of January 1, 2018. IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 utilizes a revised model for recognition and measurement of financial instruments and a single, forward-looking “expected loss” impairment model. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward in IFRS 9, so the Company’s accounting policy with respect to financial liabilities is unchanged. As a result of the adoption of IFRS 9, management has changed its accounting policy for financial assets retrospectively, for assets that continued to be recognized at the date of initial application. The change did not impact the carrying value of any financial assets or financial liabilities on the transition date.

 

The following is the Company’s new accounting policy for financial instruments under IFRS 9:

 

The Company classifies its financial instruments in the following categories: at fair value through profit or loss (“FVTPL”), at fair value through other comprehensive income (loss) (“FVTOCI”) or at amortized cost. The Company determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by the Company’s business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or if the Company has opted to measure them at FVTPL.

 

The Company completed a detailed assessment of its financial assets and liabilities as at January 1, 2018. The following table shows the original classification under IAS 39 and the new classification under IFRS 9:

 

Financial assets/liabilities Original classification IAS 39 New classification IFRS 9
Bank loan Amortized cost Amortized cost
Cash and cash equivalents Amortized cost Amortized cost
Receivables Amortized cost Amortized cost
Trade payable and accrued liabilities Amortized cost Amortized cost
Shareholder loan Amortized cost Amortized cost
Derivative liability FVTPL FVTPL

 

There is no impact on amounts previously recognized on adoption of IFRS 9 on January 1, 2018. Prior periods financial statements have not been restated.

 

Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.

 

  7

 

 

Electrameccanica Vehicles Corp.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the nine months ended September 30, 2018

 

Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the consolidated statements of comprehensive loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in the consolidated statements of comprehensive loss in the period in which they arise.

 

The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost. At each reporting date, the Company measures the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the financial asset has not increased significantly since initial recognition, the Company measures the loss allowance for the financial asset at an amount equal to the twelve month expected credit losses. The Company shall recognize in the consolidated statements of comprehensive loss, as an impairment gain or loss, the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized.

 

The Company derecognizes financial assets only when the contractual rights to cash flows from the financial assets expire, or when it transfers the financial assets and substantially all of the associated risks and rewards of ownership to another entity. Gains and losses on derecognition are generally recognized in the consolidated statements of comprehensive loss.

 

Changes in Accounting Policies – Revenue from contracts with customers

 

The Company adopted all of the requirements of IFRS 15 Revenue from Contracts with Customers (“IFRS 15”) as of January 1, 2018. IFRS 15 utilizes a methodical framework for entities to follow in order to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The change did not impact the cumulated revenue recognized or the related assets and liabilities on the transition date.

 

The following is the Company’s new accounting policy for revenue from contracts with customers under IFRS 15:

 

Revenue is recognized to the extent that the amount of revenue can be measured reliably and collection is probable.

 

Part sales:

Sales of parts are recognized when the Company has transferred control to the customer which generally occurs upon shipment.

 

Services, repairs and support services:

Services, repairs and support services are recognized in the accounting period when the services are rendered.

 

Sales of vehicles:

The Company manufactures and sells custom built vehicles typically on fixed fee arrangements with its customers. Revenue is recognized in the accounting period in which the services are rendered, by reference to the stage of completion. The stage of completion is determined as a percentage based on the amount of costs incurred compared to the estimated cost of completion. Revenue recognized in excess of amounts billed is recorded as accounts receivable. Amounts received in excess of work performed is recorded as deferred revenue.

 

Cash and cash equivalents

Cash and cash equivalents include cash and short-term investments with original maturities of less than 90 days and are presented at cost, which approximates market value.

 

Inventory

Inventory consists of parts held for resale or for use in fixed fee contracts and is valued at the lower of cost and net realizable value. Cost is determined on the first-in, first-out basis.

 

Trademarks and patents

The Company expenses legal fees and filing costs associated with the development of its trademarks and patents.

 

  8

 

 

Electrameccanica Vehicles Corp.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the nine months ended September 30, 2018

 

Plant and equipment

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

 

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

 

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

 

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

 

Class of plant and equipment  Amortization rate 
Office furniture and equipment   20%
Shop equipment   20%
Computer equipment   33%
Computer software   50%
Vehicles   33%
Leasehold improvement   over term of lease 
Production tooling and molds   per unit produced 

 

Share-based payments

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

 

Loss per share

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

 

Research and development costs

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

 

Impairment of assets

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

 

  9

 

 

Electrameccanica Vehicles Corp.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the nine months ended September 30, 2018

 

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

 

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

 

Goodwill and other intangible assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment, or more frequently if indicators of impairment exist.

 

Income taxes

Current income tax:

Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries where the Company operates and generates taxable income. Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

 

Deferred income tax:

Deferred income tax is recognized, using the asset and liability method, on temporary differences at the reporting date arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

 

3.Accounting standards issued but not yet effective

 

New standard IFRS 16 “Leases”

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

 

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

 

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

 

  10

 

 

Electrameccanica Vehicles Corp.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the nine months ended September 30, 2018

 

4.Cash and cash equivalents

 

For the purposes of the cash flow statement, cash and cash equivalents comprise the following balances with original maturity of less than 90 days:

 

  

September 30,

2018

  

December 31,

2017

 
Cash  $2,946,911   $6,715,996 
Cash equivalents   9,191,268    1,895,000 
   $12,138,719   $8,610,996 

 

5.Receivables

 

  

September 30,

2018

  

December 31,

2017

 
Trade receivable  $184,563   $154,698 
GST receivable   200,303    84,566 
Employee advance   12,840    - 
GIC interest receivable   372    4,375 
   $398,078   $243,639 

 

6.Plant and equipment

 

   Furniture
and
equipment
  

Computer

hardware

and

software

   Vehicles   Leasehold
Improvements
   Production
tooling and
molds
deposit
  

 

Total

 
                         
Cost:                              
At December 31, 2016  $44,209   $18,897   $173,213   $12,146   $-   $248,465 
Additions   246,634    54,757    216,837    89,055    914,060    1,521,343 
December 31, 2017   290,843    73,654    390,050    101,201    914,060    1,769,808 
Additions   75,958    51,259    (2,001)   123,412    3,635,888    3,884,516 
September 30, 2018   366,801    124,913    388,049    224,613    4,549,948    5,654,324 
                               
Depreciation:                              
At December 31, 2016   7,112    2,514    11,666    1,904    -    23,196 
Charge for the year   181,495    24,633    74,098    72,703    -    352,929 
At December 31, 2017   188,607    27,147    85,764    74,607    -    376,125 
Charge for the period   29,126    27,812    97,115    17,825    -    170,878 
At September 30, 2018   216,733    54,959    182,879    92,432    -    547,003 
                               
Net book value:                              
At December 31, 2017  $102,237   $46,507   $304,286   $26,594   $914,060   $1,393,683 
At September 30, 2018  $150,068   $69,954   $205,170   $132,181   $4,549,948   $5,107,321 

 

On September 29, 2017, the Company entered into a manufacturing agreement with Chongqing Zongshen Automobile Co., Ltd. (“Zongshen”). Under the agreement the Company agrees to reimburse Zongshen for the cost of prototype tooling and molds estimated to be CNY ¥9.5 million (CAD $1.8 million), which was payable on or before March 18, 2018, subject to a 10% holdback, and mass production tooling and molds estimated to be CNY ¥39.3 million (CAD $7.8 million), which shall be payable 50% when Zongshen commences manufacturing the tooling and molds, 40% when Zongshen completes manufacturing the tooling and molds, and 10% upon delivery to the Company of the first production vehicle. At September 30, 2018 the Company had paid 90% of prototype tooling and molds and 36% of the mass production tooling and molds. Depreciation on the production tooling and molds is charged on a per unit produced basis and during the period no units had been produced using the production tooling and molds.

 

  11

 

 

Electrameccanica Vehicles Corp.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the nine months ended September 30, 2018

 

Under the agreement, the Company agreed that the minimum purchase commitments for units of the Solo vehicle are to be as follows: in calendar 2018, 5,000; in 2019, 20,000; and in 2020, 50,000, and which shall be payable following issue of Company’s purchase orders as follows: 30% after Zongshen schedules production, and 70% after accepted vehicle delivery.

 

On October 16, 2017, the CEO of the Company (as “Pledgor”) entered into a Share Pledge Agreement (“Share Pledge”) to guarantee the payment by the Company for the cost of the prototype tooling and molds estimated to be CNY ¥9.5 million (CAD $1.8 million) to Zongshen through the pledge of 400,000 common shares of the Company. The Company approved its obligations under the Share Pledge and has agreed to reimburse the Pledgor on a one for one basis for any pledged shares realized by Zongshen.

 

7.Goodwill and other intangible assets

 

Goodwill and other intangible assets recognized was primarily attributed to expected synergies arising from the acquisition of Intermeccanica International Inc. and the expertise and reputation of the assembled management and workforce. Goodwill is not expected to be deductible for income tax purposes. During the nine month period ended September 30, 2018 the Company recorded amortization of $26,454 relating to the acquired intangible assets. No further impairment was identified at September 30, 2018.

 

Total goodwill and other intangible assets consist of:

 

  

September 30,

2018

  

December 31,

2017

 
Domain name  $2,170   $2,170 
Identifiable intangibles on acquisition of Intermeccanica   531,546    558,000 
Goodwill and other intangibles on acquisition of Intermeccanica   699,844    699,844 
   $1,233,560   $1,260,014 

 

8.Trade payables and accrued liabilities

 

  

September 30,

2018

  

December 31,

2017

 
Trade payables  $682,533   $457,520 
Wages payables   86,603    62,110 
Due to related parties (Note 17)   131,171    16,814 
Accrued liabilities   300,015    587,346 
   $1,200,322   $1,123,790 

 

9.Commitments

 

On February 2, 2018, the joint business line of credit with Bank of Montreal (BMO), which was held by Intermeccanica, its President and his wife, was paid in full. The line of credit was secured by a general security agreement, a specific charge over a vehicle, and a charge over the personal home of the President and his wife.

 

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

 

As at September 30, 2018, future payments required under non-cancellable operating leases contracted for but not capitalized in the financial statements are as follows:

 

  

September 30,

2018

  

December 31,

2017

 
Payable not later than one year  $736,104   $310,034 
Payable later than one year and not later than five years   1,186,872    507,036 
Payable later than five years   -    - 
   $1,922,976   $817,070 

 

  12

 

 

Electrameccanica Vehicles Corp.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the nine months ended September 30, 2018

 

10.Derivative liability

 

The exercise price of certain warrants is denominated in US dollars; however, the functional currency of the Company is the Canadian dollar. Consequently, the value of the proceeds on exercise is not fixed and will vary based on foreign exchange rate movements. Such warrants when issued other than as compensation for goods and services are therefore a derivative and are required to be recognized as a derivative liability 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 statements of comprehensive loss. Upon exercise, the holders will pay the Company the respective exercise price for each warrant exercised in exchange for one common share of the Company and the fair value at the date of exercise and the associated non-cash liability will be reclassified to share capital. The non-cash liability associated with any warrants that expire unexercised will be recorded as a gain in the consolidated statements of comprehensive loss. There are no circumstances in which the Company would be required to pay any cash upon exercise or expiry of the warrants.

 

During the nine month period ended September 30, 2018 the Company issued 200,000 non-transferrable warrants exercisable at USD $16.80, which expire on January 22, 2021 and issued 4,706,000 transferable warrants exercisable at USD $4.25, which expire on August 8, 2023. The issue costs allocated to the derivative liability and recorded as expense in the consolidated statements of comprehensive loss was $627,821.

 

A reconciliation of the changes in fair values of the derivative liability is below:

 

  

September 30

2018

 
Balance, beginning of period  $3,655,690 
Warrants issued   3,766,669 
Changes in fair value of derivative liabilities   (4,945,126)
Balance, end of period  $2,477,233 

 

The fair value of the transferrable warrants was calculated using the warrant price of USD $0.50 at issuance and USD $0.38 at September 30, 2018 as quoted on the NASDAQ.

 

The fair value of the non-transferrable warrants issued during the nine months ended September 30, 2018 was calculated using a Black-Scholes Option Pricing Model. The weighted average assumptions used in the Black-Scholes Option Pricing Model are:

 

   At issue  

September 30,

2018

 
Fair value of related non-transferrable warrants outstanding  $676,967   $143,171 
Risk-free interest rate   1.96%   2.29%
Expected term (in years)   3    2.38 
Expected share price volatility   60%   60%

 

11.Share capital

 

Authorized share capital

Unlimited number of common shares without par value.

 

On May 15, 2018, the Company completed a share consolidation of two pre-split common shares for one post-split common share. Previously, on June 22, 2016, the Company completed a share split of one pre-split common share for five post-split shares. All information related to common shares, options, warrants and per share amounts presented in these financial statements and accompanying notes have been retroactively adjusted to reflect the revised number of common shares resulting from the share split and subsequent share consolidation.

 

Issued share capital

At September 30, 2018 the Company had 27,786,111 issued and outstanding common shares (December 31, 2017 – 23,794,106).

 

  13

 

 

Electrameccanica Vehicles Corp.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the nine months ended September 30, 2018

 

During the nine month period ended September 30, 2018, the Company issued a total of 3,808,521 common shares and 5,411,900 transferrable warrants for gross proceeds of $18,617,936 and 175,000 common shares for services with a fair value of $935,837. Share issue costs related to these issuances was $3,009,862 and includes 2,286 common shares issued for finder’s fees with a fair value of $23,678 and 807,594 warrants issued with a fair value of $725,299. Upon the exercise of stock options the Company issued 6,198 common shares and $19,274 was allocated to share capital from the warrant & share-based payment reserve.

 

Basic and fully diluted loss per share

 

The calculation of basic and fully diluted loss per share for the nine month period ended September 30, 2018 was based on the loss attributable to common shareholders of $7,910,509 and the weighted average number of common shares outstanding of 25,287,764. Fully diluted loss per share did not include the effect of stock options and warrants as the effect would be anti-dilutive.

 

Stock options

 

The Company has adopted an incentive stock option plan, which provides that the Board of Directors of the Company may from time to time, in its discretion, grant to directors, officers, employees and technical consultants to the Company, non-transferable stock options to purchase common shares, provided that the number of common shares reserved for issuance will not exceed 30,000,000. Such options will be exercisable for a period of up to 7 years from the date of grant. Options may be exercised no later than 90 days following cessation of the optionee’s position with the Company.

 

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

 

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

 

The changes in options during the nine month period ended September 30, 2018 are as follows:

 

   September 30, 2018 
   Number of options   Weighted average exercise price 
Options outstanding, beginning   28,598,750   $0.40 
Options granted   777,500    11.81 
Options exercised   (6,198)   2.00 
Options expired and forfeited   (26,302)   5.77 
Options cancelled   (25,000,000)   0.37 
Options outstanding, ending   4,343,750   $2.62 

 

Details of options outstanding as at September 30, 2018 are as follows:

 

Exercise price  

Weighted average

contractual life

 

Number of options

outstanding

  

Number of
options

Exercisable

 
$0.30   3.70 years   2,045,455    1,704,546 
$0.30   3.87 years   308,522    244,247 
$0.80   4.19 years   677,273    479,735 
$0.80   4.44 years   12,500    8,073 
$2.00   4.73 years   12,500    7,813 
$2.00   5.39 years   470,000    216,615 
$2.00   5.86 years   50,000    - 
USD $9.60   6.27 years   342,500    93,750 
USD $9.00   6.55 years   150,000    75,000 
USD $9.16   6.86 years   275,000    - 
     4.50 years   4,343,750    2,829,779 

 

The weighted average grant date fair value of options granted during the nine month period ended September 30, 2018 was $3.24. The fair value was calculated using the Black-Scholes option pricing model using the following weighted average assumptions:

 

  14

 

 

Electrameccanica Vehicles Corp.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the nine months ended September 30, 2018

 

   Period ended September 30, 2018 
Expected life of options   5 years 
Annualized volatility   60%
Risk-free interest rate   2.21%
Dividend rate   0%

 

During the nine month period ended September 30, 2018, the Company recognized stock-based compensation expense of $2,528,643 (September 30, 2017 - $819,546).

 

Warrants

 

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

 

The changes in warrants during the nine month period ended September 30, 2018 are as follows:

 

   September 30, 2018 
   Number of warrants   Weighted average exercise price 
Warrants outstanding, beginning   11,826,858   $4.70 
Non-transferrable warrants issued   932,692    13.67 
Transferable warrants issued   5,411,900    5.50 
Warrants outstanding, ending   18,171,450   $5.44 

 

At September 30, 2018, all warrants outstanding, except for placement agents’ warrants, were exercisable. Details of warrants outstanding as at September 30, 2018 are as follows:

 

Exercise price 

Weighted average

contractual life

  

Number of warrants

outstanding

 
Non-Transferable Warrants          
$0.80 CAD - $16.00 CAD   3.01 years    11,457,559 
$2.00 USD - $24.00 USD   2.55 years    1,301,991 
Transferable Warrants          
$4.25 USD   4.86 years    5,411,900 

 

12.Warrant & share-based payment reserve

 

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

 

13.General and administrative expenses

 

   3 months ended   9 months ended 
  

September 30,

2018

  

September 30,

2017

  

September 30,

2018

  

September 30,

2017

 
Rent  $110,779   $65,698   $283,820   $186,392 
Office expenses   113,602    29,637    340,776    90,335 
Legal and professional   490,622    269,295    999,785    622,700 
Consulting fees   362,585    67,149    736,680    254,056 
Investor relations   254,248    76,004    416,631    116,581 
Salaries   354,689    81,924    818,306    247,598 
   $1,686,525   $589,707   $3,595,998   $1,517,662 

 

  15

 

 

Electrameccanica Vehicles Corp.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the nine months ended September 30, 2018

 

14.Research and development expenses

 

   3 months ended   9 months ended 
  

September 30,

2018

  

September 30,

2017

  

September 30,

2018

  

September 30,

2017

 
Labour  $873,905   $455,171   $2,401,339   $1,359,508 
Materials   757,505    476,253    2,517,477    1,670,500 
Government grants   (725,599)   (111,380)   (734,229)   (304,914)
   $905,811   $820,044   $4,184,587   $2,725,094 

 

15.Sales and marketing expenses

 

   3 months ended   9 months ended 
  

September 30,

2018

  

September 30,

2017

  

September 30,

2018

  

September 30,

2017

 
Consulting  $84,489   $311,355   $204,004   $363,073 
Marketing   142,372    54,735    356,226    136,662 
Salaries   129,945    75,163    272,820    231,756 
   $356,806   $441,253   $833,050   $731,491 

 

16.Segmented information

 

The Company operates in two reportable business segments in Canada.

 

The two reportable business segments offer different products, require different production processes, and are based on how the financial information is produced internally for the purposes of making operating decisions. The following summary describes the operations of each of the Company’s reportable business segments:

 

·Electric Vehicles – development and manufacture of electric vehicles for mass markets, and
·Custom build vehicles – development and manufacture of high end custom built vehicles.

 

Sales between segments are accounted for at prices that approximate fair value. No business segments have been aggregated to form the above reportable business segments.

 

   3 months ended September 30, 2018   3 months ended September 30, 2017 
   Electric Vehicles  

Custom Built

Vehicles

   Electric Vehicles  

Custom Built

Vehicles

 
Revenue  $-   $189,902   $-   $- 
Gross profit   -    49,807    -    - 
Operating expenses   3,863,883    111,364    2,163,168    - 
Other items   (1,038,235)   3,115    821,564    - 
Net and comprehensive loss   2,825,648    64,672    2,984,732    - 

 

   9 months ended September 30, 2018   9 months ended September 30, 2017 
   Electric Vehicles  

Custom Built

Vehicles

   Electric Vehicles  

Custom Built

Vehicles

 
Revenue  $-   $635,401   $-   $- 
Gross profit   -    199,987    -    - 
Operating expenses   11,992,137    283,310    5,878,994    - 
Other items   (4,183,985)   19,034    870,274    - 
Net and comprehensive loss   7,808,152    102,357    6,749,268    - 

 

  16

 

 

Electrameccanica Vehicles Corp.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the nine months ended September 30, 2018

 

   September 30, 2018   December 31, 2017 
   Electric Vehicles  

Custom Built

Vehicles

   Electric Vehicles  

Custom Built

Vehicles

 
                 
Inventory  $765,138   $241,932   $-   $232,903 
Plant and equipment   5,082,622    24,699    1,370,350    23,333 

 

17.Related party transactions

 

Related party balances

The following amounts are due to related parties

 

  

September 30,

2018

  

December 31,

2017

 
Shareholder loan  $7,268   $10,383 
Due to related parties (Note 8)   131,171    16,814 
   $138,439   $27,197 

 

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

 

Directors & key management personnel compensation

 

   3 months ended   9 months ended 
  

September 30,

2018

  

September 30,

2017

  

September 30,

2018

  

September 30,

2017

 
                 
                 
Directors fees  $52,178   $-   $97,779   $- 
Consulting fees   90,166    45,000    222,166    135,000 
Salary   139,440    66,000    284,000    168,000 
Deferred salary for CEO   -    -    -    30,000 
Stock-based compensation   367,611    171,218    1,322,406    598,110 
   $649,395   $282,218   $1,926,351   $931,110 

 

18.Financial instruments and financial risk management

 

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

 

Credit risk

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

 

Liquidity risk

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

 

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

 

  17

 

 

Electrameccanica Vehicles Corp.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the nine months ended September 30, 2018

 

The following is an analysis of the contractual maturities of the Company’s non-derivative financial liabilities as at September 30, 2018:

 

At September 30, 2018  Within one year  

Between one

and five years

  

More than

five years

 
Trade payables and accrued liabilities  $1,200,322   $-   $- 
Customer deposits   408,912    -    - 
Shareholder loan   7,268    -    - 
   $1,616,502   $-   $- 

 

At December 31, 2017  Within one year  

Between one

and five years

  

More than

five years

 
Bank loan  $123,637   $-   $- 
Trade payables and accrued liabilities   1,123,790    -    - 
Customer deposits   447,071    -    - 
Shareholder loan   10,383    -    - 
Promissory note   1,500,000    -    - 
   $3,204,881   $-   $- 

 

Foreign exchange risk

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

 

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

 

  

September 30,

2018

  

December 31,

2017

 
Cash and cash equivalents  $10,860,599   $5,596,635 
Trade receivables   48,288    - 
Trade payables   (599,630)   (138,794)
   $10,309,257   $5,457,841 

 

Based on the above net exposures, as at September 30, 2018, a 10% change in the US dollars to Canadian dollar exchange rate would impact the Company’s net loss by $1,030,926 (December 31, 2017 - $545,784).

 

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on its cash equivalents as these instruments have original maturities of twelve months or less and are therefore exposed to interest rate fluctuations on renewal. A 1% change in market interest rates would have an impact on the Company’s net loss of $2,040 for the nine month period ended September 30, 2018 (December 31, 2017 - $18,950).

 

Classification of financial instruments

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

 

  

September 30,

2018

  

December 31,

2017

 
At amortized cost:          
Cash and cash equivalents  $12,138,179   $8,610,996 
Receivables   398,079    243,639 
   $12,536,257   $8,854,635 

 

  18

 

 

Electrameccanica Vehicles Corp.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited - Expressed in Canadian dollars)

For the nine months ended September 30, 2018

 

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

 

  

September 30,

2018

  

December 31,

2017

 
At amortized cost:          
Bank loan  $-   $123,637 
Trade payable and accrued liabilities including amounts due to related parties   1,200,322    1,123,790 
Customer deposits   408,912    447,071 
Shareholder loan   7,268    10,383 
Promissory note   -    1,500,000 
FVTPL:          
Warrant derivative liability   2,477,233    3,655,686 
   $4,093,735   $6,860,567 

 

Fair value

 

The fair value of the Company’s financial assets and liabilities approximates the carrying amount.

 

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

 

·Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
·Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
·Level 3 – Inputs that are not based on observable market data.

 

Financial liabilities measured at fair value at September 30, 2018 consisted of the derivative liability, which is measured using level 3 inputs with respect to the non-transferrable warrants and using level 1 inputs with respect to the transferable warrants.

 

The fair value of the derivative liability was calculated using the Black-Scholes Option Pricing Model for the non-transferrable warrants using volatility of a comparable company as an estimate of volatility and the market quoted price for the transferrable warrants.

 

19.Capital management

 

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

 

20.Subsequent events

 

On October 18, 2018, the Company filed an F-3 Registration Statement under the Securities Act of 1933, which became effective on October 31, 2018.

 

Subsequent to the period, the Company issued 230,700 common shares on the exercise of warrants, providing gross proceeds of US$980,475.

 

On November 9, 2018, the Company sold 4,250,000 common shares at a price of USD $2.00 per common share in a registered direct offering for gross proceeds of USD $8.5 million, and net proceeds of approximately USD $7.6 million. In a concurrent private placement to the same investors, the Company sold warrants to purchase 4,250,000 common shares with an exercise price of USD $2.56 per share. The warrants are exercisable six months after issuance and have a term of five years from the initial exercise date. In connection with these transactions, the Company agreed to issue the placement agents warrants to purchase 212,500 common shares at USD $3.20 per share. These warrants are exercisable six months after issuance and have a term of five years from issuance.

 

  19