anyone touching this Yorkville toxic dilution financing is absolutely crazy....
and George O'Leary is a front-man for Yorkville for decades - check him out folks...!
https://www.otcmarkets.com/otcapi/company/financial-report/418927/content
During the second half of 2022, however, attempts to raise additional financing through equity offerings failed due to deteriorating market conditions and
investor sentiment and other factors. On December 7, 2022, the Company issued convertible debentures to YA II PN, Ltd. (“Yorkville”) with an aggregate
nominal amount of kUSD 31,100 (kEUR 29,485). Given that this amount was insufficient to realize serial production and against the backdrop of otherwise
unfavorable market conditions, Sono Group announced a special community campaign on December 8, 2022 with the goal of raising approximately kEUR
105,000, principally by means of additional prepayments from customers and/or additional investor financing. The campaign was not successful and hence
no additional financing was raised. Consequently, on February 24, 2023, Management decided to terminate the Sion passenger car program and focus on
the development of Sono Group’s solar technology solutions, which requires significantly lower levels of investment than the development of the Sion
passenger car program. Sono Motors offered its reservation holders a repayment plan to reimburse reservation holders of Sono Motors for advance
payments in three installments (May 2023, June 2024 and January 2025).
On May 15, 2023, due to the fact that the first installment to repay advance payments to customers became due and Sono Group had not succeeded in
raising additional funds, the Company’s management ultimately concluded that Sono Motors was over-indebted and faced impending illiquidity (drohende
Zahlungsunfähigkeit) with Sono N.V., in turn, becoming over-indebted and also facing impending illiquidity. As a consequence, Management decided to
apply for the opening of the Self-Administration Proceedings with respect to Sono N.V. and Sono Motors with the goal of sustainably restructuring both
companies. Accordingly, on May 15, 2023, Sono N.V. applied to the insolvency court of the local court of Munich, Germany (the “Court”) to permit the
opening of a self-administration proceeding (Eigenverwaltung) pursuant to Section 270 (b) of the German Insolvency Code (Insolvenzordnung). On the
same day, Sono Motors applied to the same Court to permit the opening of a self-administration proceeding in the form of a protective shield proceeding
(Schutzschirmverfahren) pursuant Section 270 (d) of the German Insolvency Code. On May 17 and May 19, 2023, respectively, the Court admitted the
opening of Self-Administration Proceedings with respect to Sono N.V. and Sono Motors on a preliminary basis (the “Preliminary Self-Administration
Proceedings”). The Court also appointed preliminary custodians for each of Sono N.V. and Sono Motors in their respective Preliminary Self-Administration
Proceedings. On September 1, 2023, the Court opened the Self-Administration Proceedings with respect to Sono Motors (the “Subsidiary SelfAdministration Proceedings”).
Yorkville, as one of the largest creditors of Sono N.V., started negotiations in the course of the insolvency proceedings and committed to provide financing
to the Company (the “First Commitment”), subject to the Companies’ compliance with the terms of the investment-related agreements entered into by the
Company and Yorkville in connection therewith, including, among others, the restructuring agreement (as amended from time to time, the “Restructuring
Agreement”) and the funding commitment letter with respect to the First Commitment (as amended from time to time, the “Funding Commitment Letter”
and together with the Restructuring Agreement and the ancillary agreements entered into in connection therewith, (the “Yorkville Agreements”)). Pursuant
to the Yorkville Agreements, which became effective on November 20, 2023, Yorkville committed to provide limited financing to the Company, subject to
the satisfaction of certain conditions precedent and our compliance with certain covenants and other obligations set forth in the Yorkville Agreements. The
aim of the Yorkville Agreements and the transactions contemplated therein was the planned restructuring of Sono N.V. and Sono Motors, with the intention
of enabling the Company to withdraw its application for its Preliminary Self-Administration Proceedings and enabling the Subsidiary to exit the Subsidiary
Self-Administration Proceedings via a plan (the “Plan”) under the German Insolvency Code. The Plan was filed with the Court on December 7, 2023 for
approval by the Subsidiary’s creditors and subsequent confirmation by the Court. Approval by the creditors and confirmation by the Court was obtained in
the creditors meeting on December 21, 2023, and the Court confirmed on January 26, 2024 that the Plan became legally binding. On January 31, 2024,
Sono N.V. withdrew its application for its Preliminary Self-Administration Proceedings with the Court. The Subsidiary exited its Self-Administration
Proceedings on February 29, 2024.
On April 30, 2024, Yorkville committed additional financing to the Company (the “Second Commitment” and together with the First Commitment, the
“Yorkville Investment”) by way of an amendment to the Funding Commitment Letter. The Company expects the Yorkville Investment to position the
Group to obtain sufficient funding for their restructured business operations through June 30, 2025 (the “Funding Period”), based on a mutually agreed
business plan focused on the planned development of Sono Group’s business operations related to the Solar Bus Kit and similar retrofit solar products. The
funding of the first tranche of the Yorkville Investment occurred on February 6, 2024 for mEUR 4.0 (or USD 4,317,600) (the “First Tranche”). The second
funding of mEUR 3.0 occurred in September, 2024 (the “Second Tranche”). The third and the fourth tranches of mEUR 1.0 each are expected to be made
in January 2025 and in April 2025, respectively.
Under the terms of the Yorkville Agreements, the tranches of the Yorkville Investment are funded by way of new interest-bearing convertible debentures.
The new convertible debenture issued to Yorkville on February 5, 2024 in connection with the funding of the First Tranche will mature on July 1, 2025, and
each subsequent new convertible debenture will mature on the earlier of (i) July 1, 2025 or (ii) 12 months from the issuance date of such new debenture.
Under the terms of the continuation agreement between the Company and the Subsidiary and the back-to-back letter of comfort from the Company to the
Subsidiary, each entered into in connection with the Yorkville Investment, funds are paid by the Company to the Subsidiary by way of intercompany loans.
In the event of a shortfall during the Funding Period, Yorkville will provide additional funds to the Company, provided that agreements are reached in good
faith on an adjusted budget for the Funding Period.
Yorkville’s obligation to provide funding pursuant to the terms of the Funding Commitment letter is subject to the absence of certain termination events or
events of default. If such an event occurs, Yorkville would have the right, at its sole discretion, to cancel any funding commitments still available, meaning
that the Company would no longer be able to draw down on unused portions of the commitment amount, and to exercise all of its rights under any of the
new convertible debentures as if an event of default had occurred. For details regarding termination events / events of default, refer to the Company’s
Annual Report on Form 20-F for the year ended December 31, 2023, as filed with the SEC on June 21, 2024.
Based on the above-outlined plans, the Company’s going concern status is subject to various risks and uncertainties, as more fully described in “Item 3.
Key Information—D. Risk Factors” in the Company’s Annual Report on Form 20-F for the year ended December 31, 2023. Some of the principal risks
associated with the Company’s going concern status include, but are not limited to, the following:
? Sono Group’s ability to comply on an ongoing basis with the terms of the Yorkville Agreements and thereby gain access to the unfunded portion
of the Yorkville Investment;
? Sono Group’s ability to meet the assumptions underlying the mutually-agreed business plan with Yorkville (focusing on the development of the
Solar Bus Kit business and similar retrofit solar products) so that the committed financing by Yorkville is sufficient to allow the Company to
continue as a going concern through June 30, 2025, including, without limitation, Sono Group’s ability to enter into additional customer contracts
to start generating additional revenues, Sono Group’s ability to reach commercial production with its offerings beyond the Solar Bus Kit; Sono
Group’s ability to keep to cost assumptions and margins expected to be realized, Sono Group’s ability to retain essential employees, Sono Group’s
ability to maintain relationships with suppliers and enter into planned relationships with new suppliers, Sono Group’s ability to find additional
independent distributors for its Solar Bus Kit and similar retrofit solar products as planned;
? Sono Group’s ability to obtain additional financing from third parties in order to fund the business from July 2025 onwards and to be able to repay
any remaining amounts owed in connection with the funding provided by Yorkville when due (both for the convertible debentures liability of Sono
N.V. and the intercompany loan to be paid back by Sono Motors);
? Sono Group’s ability to attract additional and retain existing key employees and hire additional qualified technical and engineering personnel to
develop the planned business; and
? the risk that defined termination conditions or events of default will occur, which can cause Yorkville, at its sole discretion, to cancel any
additional funding commitments still available which can lead, in absence of alternative funding possibilities, to insolvency and liquidation of the
Company
Because of the risks and uncertainties, there is no certainty as to Sono Group’s ability to continue as a going concern. Sono Group will need to raise
additional funds through public or private debt or equity financing or other means to fund the Group’s business beyond June 2025, should the Yorkville
Investment continue to be concluded and implemented as planned. Sono Group’s access to required additional financing is limited, and for the foreseeable
future will likely continue to be limited, if it is available at all, as of July 1, 2025 and beyond. Even though the Company and the Subsidiary have
successfully emerged from their respective Self-Administration Proceedings, they might be adversely affected by the possible reluctance of prospective
lenders or investors and other counterparties to do business with a company that has recently emerged from such proceedings. Therefore, adequate funds
may not be available when needed or may not be available on favorable terms and thus the Company and Group might not be able to continue as a going
concern.
Based on the above, over the twelve-month period following the issuance date of the consolidated financial statements, there is a risk that Sono Group
deviates from the mutually-agreed business plan which could lead to Yorkville not providing the agreed financing or additional funding being required if
funding requirements are greater than projected. Alternative funding would then need to be found through private debt or equity financing or other means.
Consequently, there is substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
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