10-Q 1 solo-20230630x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: June 30, 2023

OR

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______ to _______.

Commission file number: 001-38612

ELECTRAMECCANICA VEHICLES CORP.

(Exact name of registrant as specified in its charter)

British Columbia, Canada

98-1485035

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification Number)

6060 Silver Drive

Third Floor

Burnaby, British Columbia, Canada, V5H 0H5

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (604) 428-7656

8057 North Fraser Way

Burnaby, British Columbia, Canada, V5J 5M8

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading Symbol (s)

Name of each exchange on which registered

Common Shares, without par value

Warrants, each to purchase one Common Share

SOLO

SOLOW

The Nasdaq Stock Market LLC

The Nasdaq Stock Market LLC

Indicate by check mark whether the 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 the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes No

The registrant had 119,287,917 common shares outstanding as of August 4, 2023.

TABLE OF CONTENTS

PART I

    

FINANCIAL INFORMATION

    

Page

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

5

Condensed Consolidated Statement of Operations and Comprehensive Loss (Unaudited)

5

Condensed Consolidated Balance Sheets (Unaudited)

6

Condensed Consolidated Statement of Cash Flows (Unaudited)

7

Condensed Consolidated Statements of Equity (Unaudited)

8

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

PART II

OTHER INFORMATION

26

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 4.

Mine Safety Disclosures

26

Item 6.

Exhibits

27

Signature

28

2

Forward-Looking Statements

This Quarterly Report of ElectraMeccanica Vehicles Corp. (“we,” “us,” “our,” “ElectraMeccanica” and the “Company”) contains statements that constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Any statements that are not statements of historical facts may be deemed to be forward-looking statements. These statements appear in several different places in this Quarterly Report and, in some cases, can be identified by words such as “anticipates”, “estimates”, “projects”, “expects”, “contemplates”, “intends”, “believes”, “plans”, “may”, “will” or their negatives or other comparable words, although not all forward-looking statements contain these identifying words. Forward-looking statements in this Quarterly Report may include, but are not limited to, statements and/or information related to: our financial performance and projections; our business prospects and opportunities; our business strategy and future operations, including those related to our utilization of our Mesa plant through contract assembly as a service, as well as our exploration of other strategic third-party opportunities and potential options for our business and the intended goals and benefits; the projection of timing and delivery of products in the future, including the E4 (as defined in this Quarterly Report); projected costs; expected production capacity; expectations regarding demand and acceptance of our products; estimated costs of machinery to equip a new production facility; trends in the market in which we operate; the plans and objectives of management; our liquidity and capital requirements, including cash flows and uses of cash; trends relating to our industry; plans relating to our recall of SOLO electric vehicles (“EVs”); and plans and intentions to regain compliance with the listing requirements of The Nasdaq Stock Market LLC (“Nasdaq”), including, among other things, through a reverse stock split.

We have based these forward-looking statements on our current expectations about future events on information that is available as of the date of this Quarterly Report, and any forward-looking statements made by us speak only as of the date on which they are made. While we believe these expectations are reasonable, such forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. Our actual future results may differ materially from those discussed or implied in our forward-looking statements for various reasons, including, our ability to change the direction of the Company; our ability to keep pace with new technology and changing market needs; our capital needs, and the competitive environment of our business. Additional Factors that could contribute to such differences include, but are not limited to:

general economic and business conditions, including changes in interest rates;
prices of other EVs, costs associated with manufacturing EVs and other economic conditions;
the effect of an outbreak of disease or similar public health threat, such as the COVID-19 pandemic, on the Company’s business (natural phenomena, including the current COVID-19 pandemic);
the impact of political unrest, natural disasters or other crises, terrorist acts, acts of war and/or military operations, and our ability to maintain or broaden our business relationships and develop new relationships with strategic alliances, suppliers, customers, distributors or otherwise;
the ability of our information technology systems or information security systems to operate effectively;
actions by government authorities, including changes in government regulation;
uncertainties associated with legal proceedings;
changes in the size of the EV market;
future decisions by management in response to changing conditions;
the Company’s ability to execute prospective business plans, including whether it can be successful in consummating any potential strategic third-party opportunities and potential options for its business and in realizing any of the intended benefits;
misjudgments in the course of preparing forward-looking statements;
the Company’s ability to raise sufficient funds to carry out its proposed business plans;

3

the Company’s ability to successfully execute a buy-back program for retailed SOLO vehicles subject to recall;
the Company’s plan to develop, manufacture, market and profitably sell a new four-wheeled SOLO alternative (the “Project E4” or “E4”);
the Company’s ability to successfully and profitably assemble contracted third-party native-EV designs using the Company’s Mesa, Arizona, facility;
developments in alternative technologies or improvements in the internal combustion engine;
inability to keep up with advances in EV and battery technology;
inability to design, develop, market and sell new EVs and services that address additional market opportunities to generate revenue and positive cash flows;
dependency on certain key personnel and any inability to retain and attract qualified personnel;
inexperience in mass-producing EVs;
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
the other risks and uncertainties detailed from time to time in our filings with the Security and Exchange Commission (“SEC”), including but not limited to those described under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on April 17, 2023 (the “2022 Form 10-K”).

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. These cautionary remarks expressly qualify, in their entirety, all forward-looking statements attributable to our Company or persons acting on our Company’s behalf. We do 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.

4

PART I

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ELECTRAMECCANICA VEHICLES CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

    

Three Months Ended June 30,

Six Months Ended June 30,

    

2023

    

2022

    

2023

    

2022

Revenue

$

104,002

$

1,546,715

$

608,429

$

2,585,358

Cost of revenue

 

1,305,998

 

3,430,603

 

1,713,648

 

6,372,739

Gross loss

 

(1,201,996)

 

(1,883,888)

 

(1,105,219)

 

(3,787,381)

Operating expenses

 

 

 

 

General and administrative expenses

 

8,122,861

 

9,057,196

 

17,001,832

 

17,790,774

Research and development expenses

 

3,651,072

 

5,614,265

 

6,234,775

 

10,285,365

Sales and marketing expenses

 

552,496

 

3,105,470

 

2,891,796

 

6,108,325

Total operating expenses

 

12,326,429

 

17,776,931

 

26,128,403

 

34,184,464

Operating loss

 

(13,528,425)

 

(19,660,819)

 

(27,233,622)

 

(37,971,845)

Other non-operating income (expense)

 

 

 

 

Interest income

 

1,358,179

 

241,421

 

2,797,017

 

327,666

Changes in fair value of derivative liabilities

 

 

68,473

 

 

190,898

Other income (expense), net

 

(1,469,007)

 

(28,761)

 

(1,493,417)

 

13,648

Gain on settlement of legal liabilities

858,366

858,366

Foreign exchange loss

 

(86,098)

 

(149,958)

 

(106,963)

 

(55,618)

Loss before taxes

 

(12,866,985)

 

(19,529,644)

 

(25,178,619)

 

(37,495,251)

Current income tax expense

 

1,000

 

847

 

1,000

 

847

Net loss

$

(12,867,985)

$

(19,530,491)

$

(25,179,619)

$

(37,496,098)

Other comprehensive income (loss)

 

 

 

 

Foreign currency translation adjustments

 

(28,301)

 

12,195

 

9,006

 

6,345

Comprehensive loss

$

(12,896,286)

$

(19,518,296)

$

(25,170,613)

$

(37,489,753)

Loss per share – basic and diluted

$

(0.10)

$

(0.16)

$

(0.21)

$

(0.32)

Weighted average number of shares outstanding – basic and diluted

 

119,287,917

 

118,612,731

 

119,287,917

 

118,532,693

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

5

ELECTRAMECCANICA VEHICLES CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

    

June 30, 2023

    

December 31, 2022

ASSETS

Current assets

Cash and cash equivalents

$

89,334,551

$

134,255,538

Receivables, net

 

409,069

 

273,958

Prepaid expenses and other current assets

 

4,683,725

 

11,390,850

Inventory, net

 

2,791,076

 

4,233,055

Total current assets

 

97,218,421

 

150,153,401

Restricted cash

 

1,717,897

 

515,449

Plant and equipment, net

 

14,609,023

 

16,452,477

Operating lease right-of-use assets

 

7,456,826

 

9,031,277

Other assets

 

4,267,924

 

5,093,825

Total assets

$

125,270,091

$

181,246,429

Current liabilities

 

 

  

Trade payables and accrued liabilities

$

3,997,728

$

19,346,470

Customer deposits

 

37,089

 

339,744

Current portion of lease liabilities

 

1,162,673

 

810,677

Contract termination liability

 

 

15,700,000

Total current liabilities

 

5,197,490

 

36,196,891

Share-based compensation liability

 

69,651

 

76,476

Lease liabilities

 

16,127,975

 

17,528,282

Deferred revenue

 

 

119,253

Total liabilities

 

21,395,116

 

53,920,902

Commitments and contingencies

 

  

 

  

Shareholders’ equity

 

  

 

  

Share capital - without par value, unlimited shares authorized; 119,287,917 shares issued and outstanding as of June 30, 2023 and December 31, 2022

 

397,284,531

 

395,564,470

Accumulated other comprehensive income

 

4,575,231

 

4,566,225

Accumulated deficit

 

(297,984,787)

 

(272,805,168)

Total shareholders’ equity

 

103,874,975

 

127,325,527

Total liabilities and shareholders’ equity

$

125,270,091

$

181,246,429

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

6

ELECTRAMECCANICA VEHICLES CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

    

Six Months Ended June 30,

    

2023

    

2022

Cash flows from operating activities

 

  

 

  

Net loss

$

(25,179,619)

$

(37,496,098)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

Depreciation and amortization

 

1,709,842

 

2,444,378

Stock-based compensation expense

 

1,729,378

 

2,760,612

Inventory provision

 

1,159,700

 

2,812,496

Loss on disposal of long-lived asset

1,561,153

Gain on settlement of legal liabilities

(858,366)

Change in fair value of derivative liabilities

 

 

(190,898)

Unrealized currency translation gain

 

36,981

 

Changes in operating assets and liabilities:

 

 

Receivables

 

44,888

 

169,940

Prepaid expenses and other assets

 

(360,147)

 

(6,291,841)

Inventory

 

(181,036)

 

(7,736,395)

Trade payables and accrued liabilities

 

(14,773,098)

 

(140,410)

Operating lease liabilities

 

412,726

 

311,993

Customer deposits

 

(302,875)

 

(129,873)

Contract termination liability

(8,000,000)

Net cash used in operating activities

 

(43,000,473)

 

(43,486,096)

Cash flows from investing activities

 

  

 

Expenditures on plant and equipment

 

(906,271)

 

(2,171,060)

Proceeds from disposal of plant and equipment

292,757

Net cash used in investing activities

 

(613,514)

 

(2,171,060)

Cash flows from financing activities

 

  

 

  

Payment for issuance of common shares for RSU settlement

 

 

(20,786)

Payment for DSU settlement

 

(16,143)

 

Proceeds from issuance of common shares for options exercised

 

 

344,066

Net cash provided by (used in) financing activities

 

(16,143)

 

323,280

Decrease in cash and cash equivalents and restricted cash

 

(43,630,130)

 

(45,333,876)

Effect of exchange rate changes on cash and cash equivalents and restricted cash

 

(88,409)

 

6,345

Cash and cash equivalents and restricted cash, beginning

 

134,770,987

 

222,219,684

Cash and cash equivalents and restricted cash, ending

$

91,052,448

$

176,892,153

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

7

ELECTRAMECCANICA VEHICLES CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

Accumulated

Other

Share capital

Comprehensive

Accumulated 

    

Number of shares

    

Amount

    

Income

    

Deficit

    

Total Equity

Balance at December 31, 2022

 

119,287,917

$

395,564,470

$

4,566,225

$

(272,805,168)

$

127,325,527

Stock-based compensation

 

 

876,965

 

 

 

876,965

Net loss

 

 

 

 

(12,311,634)

 

(12,311,634)

Foreign currency translation

 

 

 

37,307

 

 

37,307

Balance at March 31, 2023

119,287,917

$

396,441,435

$

4,603,532

$

(285,116,802)

$

115,928,165

Stock-based compensation

843,096

843,096

Net loss

(12,867,985)

(12,867,985)

Foreign currency translation

(28,301)

(28,301)

Balance at June 30, 2023

 

119,287,917

$

397,284,531

$

4,575,231

$

(297,984,787)

$

103,874,975

Accumulated

Other

Share capital

Comprehensive

Accumulated 

    

Number of shares

    

Amount

    

Income

    

Deficit

    

Total Equity

Balance at December 31, 2021

 

117,338,964

$

390,290,103

$

4,501,800

$

(149,106,655)

$

245,685,248

Shares issued pursuant to exercise of options

 

1,245,455

 

295,516

 

 

 

295,516

Shares issued pursuant to settlement of RSU

27,077

(20,786)

(20,786)

Stock-based compensation

1,109,266

1,109,266

Net loss

 

 

 

 

(17,965,607)

 

(17,965,607)

Foreign currency translation

 

 

 

(5,850)

 

 

(5,850)

Balance at March 31, 2022

118,611,496

$

391,674,099

$

4,495,950

$

(167,072,262)

$

229,097,787

Shares issued pursuant to exercise of options

113,636

48,550

48,550

Stock-based compensation

1,548,437

1,548,437

Net loss

(19,530,491)

(19,530,491)

Foreign currency translation

12,195

12,195

Balance at June 30, 2022

 

118,725,132

$

393,271,086

$

4,508,145

$

(186,602,753)

$

211,176,478

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

8

ELECTRAMECCANICA VEHICLES CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Nature and continuance of operations

ElectraMeccanica Vehicles Corp. 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 EVs.

The head office and principal address of the Company are located at 6060 Silver Drive, Third Floor, Burnaby, British Columbia, Canada, V5H 0H5.

These unaudited condensed consolidated financial statements have been prepared on the assumption that the Company will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations.  The Company’s continuation is dependent upon, among other things, the successful results from its EV contract assembly activities and its ability to design, develop and launch a new 4-wheel electric passenger vehicle, “Project E4” or “E4”, and generate profitable operations therefrom.

Beginning in August 2020, the Company has designed, assembled, and sold a unique, three-wheeled, single-seat commuter electric vehicle, the SOLO. On February 17, 2023, the Company announced a voluntary recall of the SOLO due to an unidentified technical issue that resulted in loss of propulsion while driving in certain vehicles at certain times. On April 14, 2023, the Company decided to offer to repurchase all 429 previously retailed SOLO vehicles to ensure the safety of our customers.

In December 2022, the Company decided to assemble other companies’ EVs to further leverage the resources and capabilities of its recently commissioned and state-of-the-art 235,000 square foot facility located in Mesa, Arizona. The Company continues to explore utilization of its Mesa EV plant through contract assembly as a service. The Company has been in preliminary discussions with multiple prospective EV companies that have expressed interest in potentially using the Company’s facility and skilled workforce as an extension of their own manufacturing and engineering facilities to serve incremental consumer and business demand.

The Company continues to explore a 2-seat, 4-wheel, EV product (E4). The Company has completed initial exterior and interior designs. The Company also recently conducted market research to ascertain consumer reaction to exterior and interior design renderings, battery range, charging speed, marketing and branding requirements among other specifications. Development of E4 is at a preliminary stage and there can be no assurance that the Company will commence commercialization or have sufficient capital to reach commercial launch.

The Company is exploring or may explore other strategic third-party opportunities and potential options for its business, which may include, but are not limited to, mergers or acquisitions of other assets or entities, collaborations, including partnerships and joint ventures, divestitures, and other potential transactions that may complement, expand, enhance, or realign the Company’s existing know-how, technology, development efforts, and/or market presence. There are no assurances that the Company will be successful in effecting any such transactions or realizing any of the intended benefits.

Management intends to finance its operations over the next 12 months principally using existing cash on hand and may supplement by additional funding through private placements and/or public offerings of equity capital or debt, provided that such funding can be obtained on terms that are commercially competitive and on terms acceptable to the Company.

2.Basis of presentation and summary of significant accounting policies

Basis of presentation and consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of ElectraMeccanica Vehicles Corp. and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual audited financial statements. All inter-company balances and transactions have been eliminated.

9

The unaudited condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 should be read in conjunction with the consolidated financial statements and accompanying notes included in the 2022 Form 10-K. The unaudited condensed consolidated balance sheet as of December 31, 2022, was derived from audited consolidated financial statements included in the 2022 Form 10-K but does not include all disclosures required by U.S. GAAP for complete financial statements. The unaudited condensed consolidated financial statements include all adjustments, which consist of normal recurring adjustments and transactions or events discretely impacting the interim periods, considered necessary by management to fairly state the Company’s results of operations, financial position, and cash flows. The operating results for the quarter ended June 30, 2022 reflect the retrospective adoption of U.S. GAAP which was reflected in the 2022 Form 10-K. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. The Company’s significant accounting policies are described in Note 2 to the consolidated financial statements included in the 2022 Form 10-K. All financial information in this Quarterly Report is presented in U.S. dollars, unless otherwise indicated.

Use of estimates

The preparation of interim unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these unaudited condensed consolidated financial statements include, but are not limited to, estimating the write down of inventory to net realizable value, estimating the recall provision, and estimating the contingent liabilities for contract termination. Management estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from the Company’s estimates.

Segment reporting

The Company continually monitors and reviews its segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact its reportable operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating performance. The chief operating decision maker (“CODM”) is the Company’s Chief Executive Officer. Up until the fourth quarter of 2022, the Company managed, reported and evaluated its business in the following two reportable operating segments: (i) Electric Vehicles and (ii) Custom Built Vehicles. During the fourth quarter of 2022, the CODM changed how she makes operating decisions, assesses the performance of the business and allocates resources in a manner that caused the Company’s operating segments to change as a result of the Company having stopped receiving orders for custom built vehicles. In consideration of Financial Accounting Standards Board’s Accounting Standards Codification 280, Segment Reporting, the CODM determined that the Company is not organized around specific products and services, geographic regions or regulatory environments. Accordingly, beginning with the fourth quarter of 2022, the Company realigned its reporting structure, resulting in a single reportable segment, Electric Vehicles, in the United States.

3.Cash and cash equivalents and restricted cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Company’s condensed consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows.

    

June 30, 2023

    

December 31,2022

Cash and cash equivalents

$

89,334,551

$

134,255,538

Restricted cash

 

1,717,897

 

515,449

Total cash, cash equivalents and restricted cash

$

91,052,448

$

134,770,987

The Company’s restricted cash as of June 30, 2023 and December 31, 2022, consists of certificates of deposits related to the Company’s corporate credit card program and a bank issued letter of credit.

10

4.Prepaid expenses and other current assets

    

June 30, 2023

    

December 31,2022

SOLO vehicle deposit (at supplier)

$

$

7,133,451

Battery cell deposit

 

 

300,000

Prepaid insurance

 

907,189

 

1,095,152

Prepaid rent and security deposit

 

402,354

 

495,112

Cloud computing assets

 

1,372,617

 

1,234,039

Other prepaid expenses

 

2,001,565

 

1,133,096

Total prepaid expenses and other current assets

$

4,683,725

$

11,390,850

The Company’s prepaid expenses and other current assets as of June 30, 2023 decreased compared with December 31, 2022 as a result of the settlement agreement with Chongqing Zongshen Automobile Industry Co., Ltd. (“Zongshen”), as further described in Note 10, which was partially offset by an increase in third party transaction prepaid expenses.

5.Inventory, net

The Company’s inventory consisted of the following:

    

June 30, 2023

    

December 31, 2022

Parts and batteries

$

1,542,565

$

1,242,055

Vehicles

 

2,408,211

 

18,022,771

Inventory provision

 

(1,159,700)

 

(15,031,771)

Total inventory, net

$

2,791,076

$

4,233,055

For both the three and six months ended June 30, 2023, $1,159,700 was recognized as inventory write-downs (June 30, 2022 – $1,361,160 and $2,812,496 for the three and six months respectively). These charges are reflected in cost of revenue.

6.Plant and equipment, net

    

June 30, 2023

    

December 31, 2022

Furniture and equipment

$

3,238,768

$

2,117,901

Computer hardware and software

 

1,244,052

 

1,381,786

Vehicles

 

687,490

 

1,046,817

Leasehold improvements

 

11,419,614

 

12,862,333

Production tooling and molds

 

575,295

 

1,956,743

Total plant and equipment

 

17,165,219

 

19,365,580

Less: accumulated depreciation

 

(2,556,196)

 

(2,913,103)

Total plant and equipment, net

$

14,609,023

$

16,452,477

During the three and six months ended June 30, 2023, depreciation expense of $439,616 and $1,022,519, respectively, was included in general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss (June 30, 2022 – $1,102,683 and $2,138,966 for the three and six months, respectively).

During the three and six months ended June 30, 2023, $nil and $1,498,130 of production tooling was transferred to equipment upon completion of the asset ($nil for both the three and six months ended June 30, 2022).

11

During the three months ended June 30, 2023, the Company terminated the lease for its Burnaby, BC, Canada headquarters, and concurrently disposed of plant and equipment with the following net book values on the date of disposal: furniture and equipment of $153,482, leasehold improvements of $978,230, computer hardware of $42,599, and vehicles of $1,871. The loss on this disposal was $1,063,425, net of cash proceeds received of $112,757, and was recorded in other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.

During the six months ended June 30, 2023, the Company disposed of manufacturing equipment located in Mesa with a net book value of $337,126 on the date of disposal. The loss on this disposal was $157,126, net of cash proceeds receivable of $180,000, and was recorded in other income (expense), net in the condensed consolidated statement of operations and comprehensive loss.

7.Other assets

    

June 30, 2023

    

December 31, 2022

Security deposit

$

1,161,000

$

1,161,000

Cloud computing assets

 

3,094,968

 

3,920,869

Intangible assets

11,956

11,956

Total other assets

$

4,267,924

$

5,093,825

During the three and six months ended June 30, 2023, amortization of $343,661 and $687,322, respectively, was recorded for capitalized cloud computing assets within general and administrative expenses in the condensed consolidated statement of operations and comprehensive loss (June 30, 2022 – $169,378 and $303,449 for the three and six months, respectively).

8.Trade payables and accrued liabilities

    

June 30, 2023

    

December 31, 2022

Trade payables

$

948,202

$

3,795,992

Recall provision

 

1,860,548

 

8,915,044

Accrued liabilities

 

1,188,978

 

6,635,434

Total trade payables and accrued liabilities

$

3,997,728

$

19,346,470

On February 17, 2023, the Company announced a voluntary recall of the SOLO. On April 14, 2023, the Company issued a stop-drive and stop-sell notice and has notified customers of a vehicle buy-back program for all 429 SOLO vehicles sold since the release in 2021. The basis of the recall was a result of vehicle potentially experiencing a loss of propulsion while driving.  As of December 31, 2022, a recall provision of $8,915,044 was recorded as an estimate of the cost to buy-back all retailed vehicles, which was included in trade payables and accrued liabilities within the Company’s condensed consolidated balance sheets. During the six months ended June 30, 2023, the Company made payments for 361 vehicles returned by customers, which reduced the recall provision balance to $1,860,548 as of June 30, 2023.

9.Leases

The Company has operating leases for its offices and manufacturing warehouse facilities. These leases span a period of five to eleven years.

12

The components of lease expense, included within general and administrative expenses and sales and marketing expenses in the condensed consolidated statements of operations and comprehensive loss, are as follows:

    

Three months ended

    

Three months ended

Six months ended

    

Six months ended

    

June 30, 2023

    

June 30, 2022

    

June 30, 2023

    

June 30, 2022

Operating lease expense

 

  

 

  

  

 

  

Operating lease expense

$

457,248

$

549,451

$

1,399,379

$

826,329

Short-term lease expense

 

175,689

 

382,387

 

323,565

 

771,307

$

632,937

$

931,838

$

1,722,944

$

1,597,636

    

June 30, 2023

    

December 31, 2022

 

Weighted average remaining operating lease term (in years)

 

9.14

 

9.41

Weighted average operating lease discount rate

 

10.46

%  

10.28

%

As of June 30, 2023, the maturities of the Company’s operating lease liabilities (excluding short-term leases) are as follows:

    

June 30, 2023

2023 (remaining six months)

$

1,476,829

2024

 

2,860,671

2025

 

2,789,540

2026

 

2,847,403

2027

 

2,598,847

Thereafter

 

15,230,661

Total minimum lease payments

 

27,803,951

Less: interest

 

10,513,303

Present value of lease obligations

 

17,290,648

Less: Current portion

 

1,162,673

Long-term portion of lease obligations

$

16,127,975

During the three months ended June 30, 2023, the Company terminated the lease of its previous Burnaby, BC, Canada headquarters, and derecognized the right-of-use assets of $828,193 and lease liability of $936,029. The gain on this disposal was $107,836 and is recorded within other income (expense), net in the condensed consolidated statement of operations and comprehensive loss.

10.Contract termination liability

On September 29, 2017, the Company entered into a manufacturing agreement with Zongshen, which was amended on June 23, 2021 (as amended, the “Manufacturing Agreement”).  Pursuant to the Manufacturing Agreement, Zongshen agreed to manufacture the Company’s SOLO vehicles, and the Company agreed to certain target purchase volumes for the period from June 1, 2021, to November 30, 2023.

On December 20, 2022, the Company gave notice to Zongshen to immediately cease all production of SOLO vehicles due to the economic hardship and issues noted with the vehicles. As a result, Zongshen claimed $22.8 million in relation to the termination of the Manufacturing Agreement.  As of December 31, 2022, the Company estimated a $15.7 million termination provision, representing the Company’s best assessment of the settlement amount, which is presented as a contract termination liability within the Company’s condensed consolidated balance sheets.

On May 8, 2023, the Company entered into a settlement deed (the “Settlement Agreement”) with Zongshen, effective as of May 4, 2023. The Settlement Agreement resolves all outstanding claims relating to the Manufacturing Agreement and the related cancellation notice and defective notice provided by the Company to Zongshen.

As of June 30, 2023, in fulfillment of all obligations under the Settlement Agreement and in settlement of the existing contract termination liability of $15.7 million, the Company paid  $8.0 million in cash to Zongshen, de-recognized existing prepaid deposits of $7,167,340 and accounts payable to Zongshen of $281,462, and recognized 129 SOLO vehicle inventories received from Zongshen valued at $44,244, resulting in a gain on settlement of contract termination liability of $858,366.

13

11.Share capital and other components of equity

Share capital

The Company is authorized to issue an unlimited number of common shares without par value.

The Company is authorized to issue an unlimited number of preferred shares without par value.

As of both June 30, 2023 and December 31, 2022, the Company had 119,287,917 issued and outstanding common shares and nil preferred shares.

Share options exercised

During the six months ended June 30, 2023, the Company issued no common shares for options exercised by option holders. During the six months ended June 30, 2022, the Company issued 1,359,091 shares for proceeds of $344,066.

RSUs exercised

During the six months ended June 30, 2023, no restricted share units (“RSUs) vested. During the six months ended June 30, 2022, the Company issued 27,077 common shares in connection with the vesting of RSUs and decreased share capital by $20,786.

Warrants

On exercise, each warrant allows the holder to purchase one common share of the Company, including on a cashless basis, based on the formula as set forth in the applicable warrant agreement.

Warrants of the Company classified as equity are composed of the following as at June 30, 2023:

    

Number of warrants 

    

Number of warrants

    

    

Date of issuance

outstanding

 exercisable

Exercise price

Expiry date

October 31, 2017

125,000

125,000

$

15.00

October 31, 2024

August 8, 2018

4,513,253

4,513,253

$

4.27

August 8, 2023

November 9, 2018

 

7,440

 

7,440

$

3.20

November 9, 2023

November 9, 2018

 

749,788

 

749,788

$

2.56

May 9, 2024

 

5,395,481

 

5,395,481

12.Stock-based compensation

Under the Company’s share-based payment arrangements, total stock-based compensation of $854,499 and $1,729,378 was recognized in the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2023, respectively (June 30, 2022 – $1,554,064 and $2,760,612 for the three and six months, respectively).

Three months ended

Three months ended

Six months ended

Six months ended

Share-based compensation expense recorded in

    

June 30, 2023

    

June 30, 2022

    

June 30, 2023

    

June 30, 2022

General and administrative expenses

$

814,409

$

1,161,241

$

1,586,349

$

2,235,041

Research and development expenses

 

6,559

 

297,752

 

70,834

 

459,150

Sales and marketing expenses

 

33,531

 

95,071

 

72,195

 

66,421

$

854,499

$

1,554,064

$

1,729,378

$

2,760,612

14

Stock options

The Company adopted its 2020 Stock Incentive Plan (the “Stock Incentive Plan”) on July 9, 2020, which provides that the Board of Directors of the Company may from time to time, in its discretion, grant to directors, officers, employees and consultants of the Company certain stock-based compensation awards including 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 stock options may be exercisable for a period of up to 10 years from the date of grant. Stock options may be exercised no later than 90 days following cessation of the optionee’s position with the Company unless any exercise extension has been approved in advance by the administrator of the Stock Incentive Plan.

Stock options granted may vest based on the terms and conditions set out in the applicable stock option agreement. On exercise, each stock option allows the holder to purchase one common share of the Company, including on a cashless basis, based on the formula as set forth in the applicable stock option agreement.

During the six months ended June 30, 2023 and 2022, the Company issued 1,266,454 and 2,408,849 options, respectively.

Details of stock options outstanding at June 30, 2023 were as follows:

    

Weighted average

    

Number of options 

    

Number of options 

Exercise price

contractual life

outstanding

exercisable

$2.00 CAD

0.93

65,000

65,000

$0.535

6.73

500,000

$0.57

6.86

101,298

46,757

$0.59

6.96

400,000

$0.99

6.56

198,614

76,688

$1.08

 

6.31

 

129,274

 

91,140

$1.11

 

6.44

 

3,750,000

 

$1.50

 

6.09

 

666,793

 

403,952

$1.91

 

2.55

 

2,955,000

 

2,848,058

$1.94

 

5.81

 

90,242

 

54,425

$2.13

 

5.60

 

47,099

 

30,283

$2.45

 

3.10

 

1,250,000

 

1,250,000

$2.53

 

3.11

 

50,000

 

50,000

$2.62

 

0.23

 

700,000

 

700,000

$3.01

 

1.44

 

750,000

 

750,000

$3.40

 

1.87

 

1,035,000

 

1,035,000

$3.41

 

4.06

 

520,000

 

509,155

$3.55

 

5.05

 

5,000

 

3,240

$3.56

 

5.37

 

108,109

 

73,021

$3.77

 

1.44

 

50,000

 

50,000

$4.15

 

1.44

 

750,000

 

750,000

$5.00

 

0.42

 

193,629

 

193,629

$7.75

 

4.64

 

30,000

 

25,000

$9.60

 

1.52

 

50,000

 

50,000

 

14,395,058

 

9,055,348

The fair value of options granted has been estimated using the Black-Scholes option pricing model and based on the weighted average of certain assumptions. See Note 6 in the consolidated financial statements and accompanying notes included in the 2022 Form 10-K for additional information regarding such assumptions.

During the three and six months ended June 30, 2023, the Company recognized stock-based compensation expense of $627,499 and $1,289,151, respectively, relating to stock options granted (June 30, 2022 – $1,299,059 and $2,204,581 for the three and six months, respectively).

15

DSUs

Deferred Stock Units (“DSUs”) are stock-based awards that may be granted by the Company to certain eligible participants pursuant to the Stock Incentive Plan. The Company allows the holders of the DSUs to settle the DSUs in cash (subject to the approval of the Plan Administrator (as defined in the Stock Incentive Plan)) or common shares. During the three months ended June 30, 2023 and 2022, the Company issued nil and 42,879 DSUs, respectively.

The number and weighted average share prices of DSUs was as follows at June 30, 2023 and December 31, 2022:

June 30, 2023

December 31, 2022

Number of

Weighted average

Number of

Weighted average

DSUs

 share price

 DSUs

 share price

DSUs outstanding

    

111,231

    

$

3.16

    

127,460

    

$

3.02

DSUs exercisable

 

111,231

$

3.16

 

127,460

$

3.02

The fair value of the DSUs liabilities was estimated using the stock price as of June 30, 2023 and December 31, 2022.

During the three and six months ended June 30, 2023, the Company recognized stock-based compensation expense of nil and $11,403, respectively. relating to DSUs granted (June 30, 2022 - $5,628 and $102,908 for the three and six months, respectively).

RSUs

RSUs are stock-based awards that may be granted by the Company to certain eligible participants pursuant to the Stock Incentive Plan. RSUs are accounted for as equity-settled share-based payment transactions as the obligations under an RSU will be settled through the issuance of common shares.

Details of RSUs outstanding at June 30, 2023 and December 31, 2022 were as follows:

    

June 30, 2023

    

December 31, 2022

Number of

Weighted average

Number of

    

RSUs

    

share price

    

RSUs

    

Deemed value

RSUs outstanding

 

1,875,000

$

1.02

 

1,875,000

$

1.02

RSUs exercisable

 

$

 

$

During the three and six months ended June 30, 2023, the Company recognized stock-based compensation expense of $215,597 and $428,824 relating to RSUs granted (June 30, 2022 - $249,378 and $453,123 for the three and six months, respectively).

13.Revenue

Three months ended

Three months ended

    

Six months ended

Six months ended

    

June 30, 2023

    

June 30, 2022

June 30, 2023

    

June 30, 2022

Revenue

$

104,002

$

1,546,715

$

608,429

$

2,585,358

The Company generates revenue primarily through the sale of EVs as well as parts sales, services, repairs, and support services. The Company recognizes revenue related to the vehicle when the customer obtains control of the vehicle which occurs at a point in time either upon completion of delivery to the agreed upon delivery location or upon pick up of the vehicle by the customer.

14.Interest income

Three months ended

Three months ended

Six months ended

Six months ended

    

June 30, 2023

    

June 30, 2022

    

June 30, 2023

    

June 30, 2022

Interest Income

$

1,358,179

$

241,421

$

2,797,017

$

327,666

Interest income relates to interest earned on cash deposited in the Company’s bank accounts.

16

15.Income taxes

As of June 30, 2023 and December 31, 2022, the Company’s deferred tax liability was zero. Cumulative deferred tax assets are fully reserved as there is not sufficient evidence to conclude it is more likely than not the deferred tax assets are realizable. No current liability for federal state income taxes has been included in these unaudited condensed consolidated financial statements due to the loss for the periods.

16.Basic and Diluted loss per share

The calculation of basic and diluted loss per share for the three and six months ended June 30, 2023 was based on the net loss attributable to common shareholders of $12,867,985 and $25,179,619, respectively (June 30, 2022 – $19,530,491 and $37,496,098 for the three and six months, respectively), with the weighted average number of common shares outstanding of 119,287,917 for both the three and six months ended June 30, 2023 (June 30, 2022 – 118,612,731 and 118,532,693 for the three and six months, respectively). For the three and six months ended June 30, 2023, diluted loss per share did not include the effect of 14,395,058 stock options, 5,601,074 warrants,