Exro (EXROF) 40FR12BInitial registration of securities (Canada)

Exro Technologies Inc. (“Exro” or the “Company”) is incorporated under the British Columbia Business Corporations Act. The Company’s shares are listed on the TSX Exchange (“TSX”) and trades under the Symbol EXRO. The Company’s head office is located at 12-21 Highfield Circle S.E., Calgary, Alberta, T2G 5N6. The Company is working towards commercializing its patented coil driver technology and propriety system architecture for power electronics, as well as the battery control system technology as stationary energy storage.

These condensed consolidated Interim financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34 “Interim Financial Reporting” as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Committee (“IFRIC”). They do not include all of the information required for full annual financial statements and should be read in conjunction with the Company's audited annual financial statements of Exro for the fiscal year ended December 31, 2020, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB. These condensed consolidated interim financial statements follow the same accounting policies and methods of application as the annual financial statements of Exro for the year ended December 31, 2020.

These condensed consolidated interim financial statements include the accounts of the Company and its wholly owned subsidiaries, DPM Technologies Inc. and Exro Technologies USA, Inc. All inter-company balances and transactions have been eliminated on consolidation.

These condensed consolidated interim financial statements have been prepared on a historical cost basis, except for certain financial instruments that have been measured at fair value.

The Company controls an investee if the Company has power over the investee; exposure, or rights, to variable returns from its involvement with the investee; and the ability to use its power over the investee to affect its returns. The Company re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Assets, liabilities, income, and expenses of a subsidiary acquired or disposed of during the year are included in loss and comprehensive loss from the date that the Company gains control until the date that the Company ceases to control the subsidiary.

These condensed consolidated Interim financial statements are presented in Canadian dollars, which is the Company’s functional and reporting currency.

These consolidated condensed interim financial statements have been prepared on the basis of accounting policies and methods of computation consistent with those applied in the Company’s audited annual financial statements for the fiscal year ended December 31, 2020, except as described below.

All financial instruments are recorded at fair value on initial recognition.

All financial assets are initially recorded at fair value plus directly attributable transaction costs. Non-equity instruments are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The subsequent measurement of such financial assets and liabilities are carried at fair value, with changes recognized in the Consolidated Statements of Comprehensive Loss.

Financial assets and liabilities classified as amortized cost are subsequently carried at amortized cost using the effective interest rate method. The effective interest method is a method of calculating the amortized cost of a financial instrument and of allocating interest over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial assets and liabilities, or, where appropriate, a shorter period. Gains and losses are recognized in the Consolidated Statements of Comprehensive Income when the assets are de-recognized or impaired.

Financial assets are assessed for impairment at each reporting date to determine whether there is any objective evidence that they are impaired, which would indicate one or more events have had a negative effect on the estimated future cash flows of the asset and will not be realized. For loans and receivables, the amount of impairment is the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted at the original effective interest rate. If there is impairment, the carrying amount of the financial asset is reduced by the impairment loss. The loss is recognized in the Consolidated Statements of Comprehensive Income.

Government assistance is recognized when there is reasonable assurance that the assistance will be received, and all related conditions are complied with. Government assistance received in respect of expenditures are credited to income, netted against the expense to which they relate. Government assistance in respect of long-term debts is credited to the carrying amount of the related liabilities and carried at amortized cost using the effective interest rate method.

Depreciation of assets under construction commences when the assets are ready and being utilized for their intended use. The assets’ residual values and useful lives are reviewed, and adjusted as appropriate, at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by adjusting the depreciation period or method, as appropriate, and are treated as changes in accounting estimates.

On February 9, 2021, the Company announced an extended strategic collaboration agreement with SEA Electric Holdings Pty Ltd. (“SEA Electric”). As part of the agreement, Exro invested US $5,000,000 in SEA Electric by subscribing for 124,380 Series A Preferred Shares at a price of US$40.1995 per share. The shares are convertible into common shares of SEA at the option of Exro and automatically convert to common shares under certain conditions, including SEA completing a going public transaction.

As at September 30, 2021 the fair value of the Company’s investment in SEA Electric was estimated to be $9,497,664 (US $7,462,800), based on the transaction price of common shares issued during the period. The resulting gain on investment of $3,058,977 (US $2,462,800) is included in the condensed consolidated statement of comprehensive loss.

The Company recognized a fair value gain of nil for the three months ended September 30, 2021 based on the market data available, including an assessment over the relevant industry indexes. No changes in the business or nature of the investment held in SEA occurred during the three-month period.

The Company’s right of use assets relates to lease of office space, a testing facility, and a manufacturing facility.

On March 16, 2021, the Company entered a ten-year lease commencing on August 1, 2021 for a 36,966 square foot manufacturing facility and office area in Calgary AB Canada. The lease agreement commenced on August 1, 2021 and provides an eight-month rent free period until March 31, 2022, plus an additional 12 month rent free period on 25% of the building from April 1, 2022 to March 31, 2023.

On July 6, 2021 the Company entered a 65-month lease, which commenced on October 15, 2021, for a 15,000 square foot multipurpose facility in Mesa, Arizona, United States, and will expand Company’s research, development, and testing capabilities. The lease agreement includes a five-month rent free period until February 28, 2022, upon which point the Company is obligated to pay basic rent of $14,354 per month, plus operating costs.

On April 30, 2020, The Company received the $40,000 Canada Emergency Business Account (“CEBA”) which is an interest-free loan to cover operating costs. Repaying the balance of the loan on or before December 31, 2022 will result in a loan forgiveness of $10,000. On issuance the Company recognized the loan at its estimated fair value of $24,425 with the difference of $15,575 recorded as other income

On April 23, 2021, The Company received an additional $20,000 CEBA. Repaying the amount balance of the loan on before January 1, 2023 will result in loan forgiveness of $10,000.

There are an unlimited number of common shares without par value authorized for issue.

There are an unlimited number preferred shares authorized for issue.

At September 30, 2021 the company had 120,624,274 common shares issued and outstanding (December 31, 2020 – 117,445,808)

During the nine months ended September 30, 2021, the Company issued:

The Company’s incentive stock option plan (the “Option Plan”) provides that the Board of Directors of the Company may from time to time, in its discretion, and in accordance with the TSX-V requirements, grant to directors, officers, employees and consultants to the Company, non-transferable options to purchase common shares. The Option Plan is a 20% fixed plan.

Under the Option Plan, the maximum number of common shares that may be optioned in favor of any single individual will not exceed 5% of the issued and outstanding common shares at the date of grant. The maximum number of common shares that may be optioned in favor of directors and senior officers under the Option Plan is 10% of the issued and outstanding common shares at the date of grant.

During the nine months ended September 30, 2021 and 2020, the Company recorded share-based payments of $8,734,415 and 1,355,637, respectively, of which $1,181,236 and nil were allocated to research and development expenses, and the remainder

included as share-based payments. The expense recognized during these periods is a result of the amortization of unvested options granted in the reported period as well as in prior periods. The fair values of share options granted were estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:

As at September 30, 2021, the weighted average remaining life for outstanding options was 3.5 years.

During the nine months ended September 30, 2021 and 2020, the Company recorded share issuance costs of $nil and $636,004 respectively related to nil and 828,463 warrants issued. In addition, the fair values of broker and compensation warrants granted during the nine months ended September 30, 2021 and 2020 are estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:

At September 30, 2021 and December 31, 2020, the carrying values of amounts receivable, accounts payable and accrued liabilities and due to related parties approximate their fair values due to the relatively short period to maturity of those financial instruments. The Company measures its cash and investments at fair value.

The Company uses a fair value hierarchy to reflect the significance of the inputs used in making the measurements. The three levels of the fair value hierarchy are as follows:

The fair value of cash has been determined using Level 1 inputs. The fair value of the investments in private companies moved from a level 3 instrument to a level 2 instrument based on the common share transactions of the underlying company with third parties during the current and prior periods.

The Company’s activities potentially expose it to a variety of financial risks, including credit risk, liquidity risk, and market risk.

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. As at September 30, 2021, the Company’s exposure to credit risk is the carrying value of cash. The Company reduces its credit risk by holding its cash and cash equivalents with major Canadian and US financial institutions.

Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments. To secure the additional capital necessary to pursue its plans, the Company intends to raise additional funds through equity or debt financing.

At September 30, 2021 the Company had cash of $28,112,764, amounts receivable of $159,632, and accounts payable and accrued liabilities of $3,543,548. All accounts payable and accrued liabilities are due within 90 days.

In addition to the above, the Company has entered into various agreements related to engineering, procurement, and construction of its manufacturing facility. These contracts can be cancelled by the Company upon notice, without penalty, subject to the costs incurred up to and in respect of the cancellation.

Market risk consists of currency risk, interest rate risk and other price risk. These are discussed further below.

Foreign exchange risk is the risk that the fair value of future cash flows will fluctuate due to changes in foreign exchange rates. The Company has financial assets and financial liabilities denoted in US dollars and is therefore exposed to exchange rate fluctuations. At September 30, 2021, the Company had the equivalent of CAD $23,806,068 in net financial assets denominated in US dollars, and CAD $201,758 in net financial liabilities denominated in Euros.

Interest rate risk consists of two components:

Current financial assets and financial liabilities are generally not exposed to interest rate risk because of their short-term nature and maturity.

Other price risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market prices, other than those arising from interest rate risk or currency risk. The Company has investments in Series A Preferred Shares of SEA Electric and is therefore exposed to other price risk.

The Company’s objectives when managing capital are to ensure its ability to continue as a going concern in order to pursue the acquisition and development technology. The Board of Directors does not establish quantitative return on capital criteria for management but rather relies on the expertise of the Company’s management to sustain future development of the business.

The Company is largely dependent upon external financings to fund activities. In order to carry out planned development and pay for administrative costs, the Company will spend its existing working capital and raise additional funds as needed. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.

There were no changes to the Company’s approach to capital management during the nine months ended September 30, 2021. The Company is not subject to externally imposed capital restrictions.

The following table summarizes the Company’s components of research and development expenses: