The Lion Electric Company
Condensed Interim Consolidated Financial Statements
As at March 31, 2024 and for the three months ended March 31, 2024 and 2023
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Notes to Condensed Interim Consolidated Financial Statements | |
The Lion Electric Company
Condensed Interim Consolidated Statements of Financial Position
As at March 31, 2024 and December 31, 2023
(Unaudited, In US dollars)
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| Notes | | March 31, 2024 | | December 31, 2023 |
| | | $ | | $ |
ASSETS | | | | | |
Current | | | | | |
Cash | | | 4,800,260 | | 29,892,966 |
Accounts receivable | | | 82,471,935 | | 75,641,780 |
Inventories | | | 237,453,532 | | 249,606,756 |
Prepaid expenses and other current assets | | | 3,739,738 | | 1,553,276 |
Current assets | | | 328,465,465 | | 356,694,778 |
Non-current | | | | | |
Other non-current assets | | | 7,176,939 | | 6,994,815 |
Property, plant and equipment | | | 193,215,364 | | 198,536,683 |
Right-of-use assets | 4 | | 86,437,411 | | 89,663,139 |
Intangible assets | | | 177,662,811 | | 175,703,257 |
Contract asset | 9 | | 13,205,156 | | 13,528,646 |
Non-current assets | | | 477,697,681 | | 484,426,540 |
Total assets | | | 806,163,146 | | 841,121,318 |
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LIABILITIES | | | | | |
Current | | | | | |
Trade and other payables | | | 76,764,529 | | 92,424,961 |
Deferred revenue and other deferred liabilities | 6 | | 11,976,970 | | 18,267,139 |
Current portion of long-term debt and other debts | 7 | | 27,146,623 | | 27,056,476 |
Current portion of lease liabilities | 4 | | 7,977,519 | | 7,984,563 |
Current liabilities | | | 123,865,641 | | 145,733,139 |
Non-current | | | | | |
Long-term debt and other debts | 7 | | 230,728,249 | | 197,885,889 |
Lease liabilities | 4 | | 81,482,202 | | 83,972,023 |
Share warrant obligations | 9 | | 22,142,897 | | 29,582,203 |
Conversion options on convertible debt instruments | 8 | | 16,183,762 | | 25,034,073 |
Non-current liabilities | | | 350,537,110 | | 336,474,188 |
Total liabilities | | | 474,402,751 | | 482,207,327 |
SHAREHOLDERS’ EQUITY | | | | | |
Share capital | 14 | | 489,454,628 | | 489,362,920 |
Contributed surplus | | | 139,878,113 | | 139,569,185 |
Deficit | | | (277,443,337) | | | (255,746,097) | |
Cumulative translation adjustment | | | (20,129,009) | | | (14,272,017) | |
Total shareholders’ equity | | | 331,760,395 | | 358,913,991 | |
Total shareholders’ equity and liabilities | | | 806,163,146 | | 841,121,318 |
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The accompanying notes are an integral part of the condensed interim consolidated financial statements.
The Lion Electric Company
Condensed Interim Consolidated Statements of Loss and Comprehensive Loss
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars)
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| Notes | | Three months ended | |
| | | March 31, 2024 | | March 31, 2023 | | | |
| | | $ | | $ | | | |
Revenue | 16 | | 55,480,889 | | 54,703,405 | | | |
Cost of sales | | | 66,624,576 | | 56,960,693 | | | |
Gross loss | | | (11,143,687) | | (2,257,288) | | | |
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Administrative expenses | | | 11,117,333 | | 13,002,685 | | | |
Selling expenses | | | 3,760,994 | | 5,859,660 | | | |
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Operating loss | | | (26,022,014) | | | (21,119,633) | | | | |
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Finance costs | 12 | | 10,617,741 | | 1,420,354 | | | |
Foreign exchange loss (gain) | | | 2,552,764 | | (1,211,645) | | | |
Change in fair value of conversion options on convertible debt instruments | 8 | | (10,746,034) | | — | | | |
Change in fair value of share warrant obligations | 9 | | (6,749,245) | | (5,744,896) | | | |
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Net loss | | | (21,697,240) | | | (15,583,446) | | | | |
Other comprehensive loss | | | | | | | | |
Item that will be subsequently reclassified to net loss | | | | | | | | |
Foreign currency translation adjustment | | | (5,856,992) | | | 463,677 | | | | |
Comprehensive loss for the period | | | (27,554,232) | | | (15,119,769) | | | | |
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Loss per share | | | | | | | | |
Basic loss per share | 13 | | (0.10) | | | (0.07) | | | | |
Diluted loss per share | 13 | | (0.10) | | | (0.07) | | | | |
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The accompanying notes are an integral part of the condensed interim consolidated financial statements.
The Lion Electric Company
Condensed Interim Consolidated Statements of Changes in Equity
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except for number of shares)
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| Notes | | Number of shares | | Share capital | | Contributed surplus | | Deficit | | Cumulative translation adjustment | | Total equity |
| | | | | $ | | $ | | $ | | $ | | $ |
Balance at January 1, 2024 | | | 226,184,932 | | 489,362,920 | | 139,569,185 | | (255,746,097) | | | (14,272,017) | | 358,913,991 | |
Share-based compensation | 10 | | — | | — | | 400,636 | | — | | — | | 400,636 |
Shares issued pursuant the settlement of restricted share units and deferred share units | 10 | | 32,609 | | 91,708 | | (91,708) | | | — | | — | | — |
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Net loss | | | — | | — | | — | | (21,697,240) | | | — | | (21,697,240) | |
Other comprehensive loss | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | — | | — | | — | | — | | (5,856,992) | | (5,856,992) | |
Balance at March 31, 2024 | | | 226,217,541 | | 489,454,628 | | 139,878,113 | | (277,443,337) | | | (20,129,009) | | 331,760,395 |
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Balance at January 1, 2023 | | | 218,079,962 | | 475,950,194 | | 134,365,664 | | (151,979,960) | | | (21,219,125) | | 437,116,773 |
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Share-based compensation | | | — | | — | | 1,413,843 | | — | | | — | | 1,413,843 |
Shares issued pursuant to exercise of stock options and warrants | | | — | | 33,149 | | | | — | | | — | | 33,149 |
Issuance of shares through "at-the-market" equity program | 14 | | 2,680,121 | | 4,955,648 | | — | | | — | | | — | | 4,955,648 |
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Issuance of shares through the December 2022 Offering | | | 2,952,755 | | 4,175,836 | | — | | — | | | — | | 4,175,836 |
Net loss | | | — | | — | | — | | (15,583,446) | | | — | | (15,583,446) |
Other comprehensive loss | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | — | | — | | — | | — | | | 463,677 | | 463,677 |
Balance at March 31, 2023 | | | 223,712,838 | | 485,114,827 | | 135,779,507 | | (167,563,406) | | | (20,755,448) | | 432,575,480 |
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The accompanying notes are an integral part of the condensed interim consolidated financial statements.
The Lion Electric Company
Condensed Interim Consolidated Statements of Cash Flows
For the three months ended March 31, 2024 and 2023
(Unaudited, In US Dollars) | | | | | | | | | | | | | | | | | |
| | Three months ended | |
| Notes | March 31, 2024 | | March 31, 2023 | | | |
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OPERATING ACTIVITIES | | | | | | | |
Net loss | | (21,697,240) | | (15,583,446) | | | |
Non-cash items: | | | | | | | |
Depreciation and amortization | 15 | 8,087,314 | | 4,913,657 | | | |
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Share-based compensation | 10 | 400,636 | | 1,413,843 | | | |
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Accretion expense | 12 | 3,026,073 | | — | | | |
Interest paid in kind on convertible debt instruments | 12 | 2,472,927 | | — | | | |
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Change in fair value of share warrant obligations | 9 | (6,749,245) | | (5,744,896) | | | |
Change in fair value of conversion options on convertible debt instruments | 8 | (10,746,034) | | — | | | |
Unrealized foreign exchange loss | | 2,636,537 | | 616,474 | | | |
Net change in non-cash working capital items | 15 | | (21,130,974) | | (23,216,385) | | | |
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Cash flows used in operating activities | | (43,700,006) | | | (37,600,753) | | | | |
INVESTING ACTIVITIES | | | | | | | |
Acquisition of property, plant and equipment | | (3,823,945) | | (27,584,447) | | | |
Addition to intangible assets | | (11,114,307) | | (21,709,070) | | | |
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Net proceeds from Mirabel battery building sale-leaseback | 4 | | — | | 20,506,589 | | | |
Government assistance related to property, plant and equipment and intangible assets | | 3,128,796 | | — | | | |
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Cash flows used in investing activities | | (11,809,456) | | | (28,786,928) | | | | |
FINANCING ACTIVITIES | | | | | | | |
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Increase in long-term debt and other debts | | 36,794,550 | | 26,166,466 | | | |
Repayment of long-term debt and other debts | | (4,367,249) | | (22,489,772) | | | |
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Payment of lease liabilities | 4 | | (1,992,541) | | (1,361,347) | | | |
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Proceeds from issuance of shares through "at-the-market" equity program, net of issuance costs | 14 | — | | 4,625,234 | | | |
Proceeds from the issuance of warrants through the December 2022 Offering | 9 | — | | 2,907,226 | | | |
Proceeds from the issuance of units through the December 2022 Offering - Common Shares, net of issuance costs | 14 | — | | 4,175,836 | | | |
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Cash flows from financing activities | | 30,434,760 | | | 14,023,643 | | | | |
Effect of exchange rate changes on cash held in foreign currency | | (18,004) | | 69,535 | | | |
Net decrease in cash | | (25,092,706) | | (52,294,503) | | | |
Cash, beginning of period | | 29,892,966 | | | 88,266,985 | | | | |
Cash, end of period | | 4,800,260 | | 35,972,482 | | | |
Other information on cash flows related to operating activities: | | | | | | | |
Income taxes paid | | — | | — | | | |
Interest paid | | 4,439,209 | | 1,741,339 | | | |
Interest paid on obligations under lease liabilities | | 1,258,202 | | 998,903 | | | |
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
6
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
1 - REPORTING ENTITY AND NATURE OF OPERATIONS
The principal activities of The Lion Electric Company ("Lion" or the "Company") and its subsidiaries (together referred to as the "Group") include the design, development, manufacturing and distribution of purpose-built all-electric medium and heavy-duty urban vehicles including battery systems, chassis, bus bodies and truck cabins. The Group also distributes truck and bus parts and accessories.
The Company is incorporated under the Business Corporations Act (Quebec) and is the Group’s ultimate parent company. Its registered office and principal place of business is 921, chemin de la Riviere-du-Nord, Saint-Jerome, Quebec, Canada. These unaudited condensed interim consolidated financial statements ("consolidated financial statements") are as at March 31, 2024 and December 31, 2023 and for the three months ended March 31, 2024 and 2023 and include the accounts of the Company and its subsidiaries. The Company is a publicly listed entity, and its shares are traded on the Toronto Stock Exchange and New York Stock Exchange under the symbol LEV.
2 - BASIS OF PRESENTATION AND STATEMENT OF COMPLIANCE WITH IFRS
These consolidated 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 are expressed in United States ("US") dollars for reporting purposes. Certain information and footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by IASB, have been omitted or condensed and, therefore, these consolidated financial statements should be read in conjunction with the most recent annual consolidated financial statements for the year ended December 31, 2023. The results from operations for the interim period do not necessarily reflect the result expected for the full fiscal year. The Company’s sales have historically experienced substantial fluctuations from quarter to quarter, particularly considering that they have been mainly comprised of sales of school buses which are mainly driven by the school calendar. While the Company expects to continue to experience seasonal variations in its sales in the foreseeable future, management believes that the mix of product sales may vary considerably in the future, especially in connection with the Company’s execution of its growth strategy and as sales of trucks become more prevalent and new products are introduced. As a result, it is difficult to predict if any historical trends will be reproduced in the future.
These consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to present a fair statement of the results for these interim periods. These adjustments are of a normal recurring nature.
As at March 31, 2024, the Company had cash of $4,800,260 and accounts receivable and inventories net of trade and other payables of $243,160,938. In addition, as at March 31, 2024, the Company estimates that the total borrowing base under the Revolving Credit Agreement corresponds to approximately $146,000,000, of which $101,000,000 was drawn, which translated, after the application of the 12.5% minimum availability test related to a springing fixed charge coverage ratio, in a total remaining availability of approximately $26,000,000. Management of the Company believes that it has sufficient liquidity sources to meet its known obligations and liabilities coming over the next 12 months as they become due.
7
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
2 - BASIS OF PRESENTATION AND STATEMENT OF COMPLIANCE WITH IFRS
The Company’s primary sources of liquidity are currently its cash on hand, cash it generates from the sale of its products and services, its working capital and funds available under its existing credit facilities and other borrowings. In assessing whether the going concern assumption is appropriate, management applies significant judgment and considers all available information about the future. In order to fund its operations and to meet its obligations as they become due, the Company may need to raise additional funds, and while the Company has been successful in securing financing in the past, the availability of additional funds to the Company will depend on a variety of factors, some of which are outside of its control, including dynamics impacting the industries in which the Company operates and the fact that the Company has raised substantial amounts of capital in the past. Additional funds may not be available to the Company on commercially reasonable terms or at all when needed.
These consolidated financial statements have been approved for issue by the Board of Directors on May 7, 2024.
3 - SUMMARY OF ACCOUNTING POLICIES
3.1 Overall considerations
The Group applied the same accounting policies in the preparation of these condensed interim consolidated financial statements as those disclosed in Note 3 of its most recent annual consolidated financial statements for the year ended December 31, 2023, except for the accounting policy described below in Note 3.2 and Note 3.3
When preparing the financial statements, management undertakes a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities, income and expenses. The actual results may differ from the judgements, estimates and assumptions made by management, and will seldom equal the estimated results. The Group applied the same judgements, estimates and assumptions in the consolidated financial statements, including the key sources of estimation uncertainty, as those disclosed in Note 3 of its most recent annual consolidated financial statements for the year ended December 31, 2023.
3.2 Change in accounting estimates
Property, plant and equipment
Effective January 1, 2024, the Group revised the estimated useful lives of machinery and equipment based on a re-assessment of the expected use to the Group, recent experience of their economic lives, and technological advancement of the recently acquired machinery and equipment. These assets, which were previously depreciated on 7,000 units produced or straight-line over 5 years, are now depreciated on a straight-line basis over 10 years. For the three months ended March 31, 2024, the change in estimate made on a prospective basis did not result in a material reduction of depreciation.
8
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
3 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
3.3 Initial application of new accounting standards and interpretations in the reporting standards
Amendments to IAS 1, Presentation of Financial Statements
On January 23, 2020, the IASB issued narrow-scope amendments “Classification of Liability as Current or Non-Current” to IAS 1, Presentation of Financial Statements, to clarify its requirements for the presentation of liabilities in the statement of financial position. The amendments clarify that the classification of liabilities as current or non-current should be based on rights to defer that have substance and exist at the end of the reporting period. The adoption of the amendments as of January 1, 2024 did not have an impact on the Company’s condensed interim consolidated financial statements.
3.4 Standards, amendments and Interpretations to existing Standards that are not yet effective and have not been adopted early by the Group
At the date of authorization of these consolidated financial statements, several other new, but not yet effective, standards and amendments to existing standards, and interpretations have been published by the IASB. None of these standards or amendments to existing standards have been adopted early by the Company.
Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement. New standards, amendments and interpretations not adopted in the current year have not been disclosed as they are not expected to have a material impact on the Company’s consolidated financial statements.
4 - RIGHT-OF-USE ASSETS AND LEASE OBLIGATIONS
The Group has entered into leases agreements for the rental of premises, rolling stock and equipment. The leases have an initial term of 1 to 40 years and some have a renewal option after their initial term. The lease terms are negotiated individually and encompass a wide range of different terms and conditions.
Right-of-use assets
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| Premises | | Rolling stock | | Equipment | | Total |
| $ | | $ | | $ | | $ |
Balance at January 1, 2024 | 79,567,042 | | 1,610,149 | | 8,485,948 | | 89,663,139 |
Additions | — | | 293,436 | | — | | 293,436 |
Modifications | — | | | (855) | | | (4,105) | | | (4,960) | |
Depreciation expense | (1,973,780) | | | (157,626) | | | (538,616) | | | (2,670,022) | |
Foreign currency translation adjustment | (822,277) | | | (21,905) | | | — | | | (844,182) | |
Balance at March 31, 2024 | 76,770,985 | | 1,723,199 | | 7,943,227 | | 86,437,411 |
9
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
4 - RIGHT-OF-USE ASSETS AND LEASE OBLIGATIONS (CONTINUED)
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| Premises | | Rolling stock | | Equipment | | Total |
| $ | | $ | | $ | | $ |
Balance at January 1, 2023 | 59,375,131 | | 1,133,223 | | — | | 60,508,354 |
Additions | 29,560,843 | | 956,364 | | 9,363,281 | | 39,880,488 |
Modifications | (2,401,574) | | | (31,868) | | | 5,353 | | | (2,428,089) | |
Depreciation expense | (7,766,903) | | | (468,994) | | | (882,686) | | | (9,118,583) | |
Foreign currency translation adjustment | 799,545 | | 21,424 | | — | | 820,969 |
Balance at December 31, 2023 | 79,567,042 | | 1,610,149 | | 8,485,948 | | 89,663,139 |
On February 2, 2023, the Group completed a sale-leaseback transaction with BTB Real Estate Investment Trust for its battery manufacturing building located in Mirabel, Quebec for a total sale price of $20,909,566 (C$28,000,000), and net proceeds of $20,506,589 after the deduction of selling and legal fees of $484,994. The sale of the building resulted in a difference between the carrying value and net proceeds of $3,306,755 which was recognized as an increase to the right-of-use asset related to the lease agreement entered into with BTB Real Estate Investment Trust for the Mirabel battery manufacturing building concurrent with the sale, which has an initial 20-year term and subsequent renewal options.
Depreciation was recognized as follows :
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| | Three months ended |
| | March 31, 2024 | | March 31, 2023 |
| | $ | | $ |
Administrative expenses | | 144,670 | | 119,498 |
Selling expenses | | 326,779 | | 496,049 |
Cost of sales | | 2,039,274 | | | 936,287 |
Capitalized to property, plant and equipment | | 159,299 | | 381,772 |
| | 2,670,022 | | 1,933,606 |
10
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
4 - RIGHT-OF-USE ASSETS AND LEASE OBLIGATIONS (CONTINUED)
Lease liabilities
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| $ |
Balance at January 1, 2024 | 91,956,586 |
Additions | 293,436 |
Lease payments | (1,992,541) | |
Modifications | (4,960) | |
Foreign currency translation adjustment | (792,800) | |
Balance at March 31, 2024 | 89,459,721 |
Current portion | 7,977,519 |
Non-current portion | 81,482,202 |
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Balance at January 1, 2023 | 63,520,215 |
Additions | 36,573,733 |
Lease payments | (6,512,231) | |
Modifications | (2,456,531) | |
Foreign currency translation adjustment | 831,400 |
Balance at December 31, 2023 | 91,956,586 |
Current portion | 7,984,563 |
Non-current portion | 83,972,023 |
5 - FINANCIAL ASSETS AND LIABILITIES
5.1 Categories of financial assets and financial liabilities
The classification of financial instruments is summarized as follows: | | | | | | | | | | | | | | | | | |
| Classifications | | March 31, 2024 | | December 31, 2023 |
| | | $ | | $ |
FINANCIAL ASSETS | | | | | |
Cash | Amortized cost | | 4,800,260 | | 29,892,966 | |
Trade receivables | Amortized cost | | 51,829,506 | | 40,621,997 | |
Incentives and other government assistance receivable | Amortized cost | | 25,811,366 | | 26,625,156 | |
FINANCIAL LIABILITIES | | | | | |
Trade and other payables | Amortized cost | | 54,974,850 | | 71,856,894 |
Long-term debt and other debts | Amortized cost | | 257,874,872 | | 224,942,365 |
Conversion options on convertible debt instruments | FVTPL | | 16,183,762 | | 25,034,073 |
Share warrant obligations | FVTPL | | 22,142,897 | | 29,582,203 |
11
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
5 - FINANCIAL ASSETS AND LIABILITIES (CONTINUED)
5.2 Fair value of financial instruments
Current financial instruments that are not measured at fair value on the consolidated statements of financial position are represented by cash, trade receivables, incentives and other government assistance receivable, and trade and other payables (financial liabilities). Their carrying values are considered to be a reasonable approximation of their fair value because of their short-term maturity and / or the contractual terms of these instruments.
As of March 31, 2024 and December 31, 2023, the fair values of long-term debt and other debts based on discounted cash flows were not materially different from their carrying values because there were no material changes in the assumptions used for fair value determination at inception, with the exception of the loan from Strategic Innovation Fund of the Government of Canada (Note 7.3) and from Investissement Quebec (Note 7.2).
The combined carrying value of Strategic Innovation Fund of the Government of Canada and Investissement Quebec loans amounted to $38,715,253 (December 31, 2023: $38,697,354) while their combined fair value amounted to $27,041,734 (December 31, 2023: $27,744,314).
As of March 31, 2024 and December 31, 2023, the fair values of the warrants issued to a customer, the private Business Combination warrants, the warrants issued as part of 2023 Debenture Financing (as defined in Note 7.7) and the conversion options on convertible debt instruments were determined using the Black-Scholes or the binomial option pricing model and the fair value of the public Business Combination warrants and December 2022 warrants (see Note 9) was determined using their market value.
As at March 31, 2024, the impact of a 5.0% increase in the value of the Company’s share price would have an impact of increasing the fair values of the private share warrants, the warrants issued to a customer and the warrants issued as part of 2023 Debenture Financing (as defined in Note 7.7) with a corresponding increase in consolidated net loss of $1,223,521 (March 31, 2023: increase in consolidated net loss by $290,084) and a 5.0% decrease in the value would have an impact of decreasing the consolidated net loss by $1,192,304 (March 31, 2023: decrease in consolidated net loss by $272,203).
As at March 31, 2024, the impact of a 5.0% increase or decrease in the value of the Company’s share price would have an impact of $400,274 on the fair value of the public warrants, with a corresponding impact on the consolidated net loss (March 31, 2023: $863,576).
As at March 31, 2024, the impact of a 5.0% increase in the value of the Company’s share price would have an impact of increasing the fair value of the conversion options on convertible debt instruments with a corresponding increase in consolidated net loss of $1,397,533 (March 31, 2023: not applicable) and a 5.0% decrease in the value would have an impact of decreasing the consolidated net loss by $1,362,412 (March 31, 2023: not applicable).
12
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
5 - FINANCIAL ASSETS AND LIABILITIES (CONTINUED)
5.3 Fair Value Hierarchy
Fair value measurements are categorized in accordance with the following levels:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or
liability; and
Level 3: Inputs are unobservable inputs for the asset or liability.
The Group’s financial instruments are categorized as follows on the fair value hierarchy:
| | | | | |
| Fair Value Hierarchy |
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE | |
Share warrant obligations- public | Level 1 |
Share warrant obligations- private | Level 2 |
Share warrant obligations- warrants issued to a customer | Level 3 |
Share warrant obligations- July 2023 warrants | Level 2 |
Conversion options on convertible debt instruments | Level 3 |
FINANCIAL INSTRUMENTS MEASURED AT AMORTIZED COST | |
Long-term debt and other debts | Level 2 |
See Note 9 for share warrants obligation, Note 8 for the conversion options on convertible debt instrument and Note 7 for long-term debt and other debts for additional information related to the inputs used in the fair value calculation and the reconciliation between opening and closing balances.
6 - DEFERRED REVENUE AND OTHER DEFERRED LIABILITIES
Deferred revenue and other deferred liabilities consist of the following:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| $ | | $ |
Deferred revenue related to the U.S. Environmental Protection Agency ("EPA") Clean School Bus Program (Note 6.1) | 11,241,959 | | 16,293,067 |
Deferred liabilities related to the non-repayable financial contribution under Project Innovation Program for the Development of a Mobilizing Project (Note 6.2) | — | | 1,622,433 |
Other deferred liabilities | 735,011 | | 351,639 |
Deferred revenue and other deferred liabilities | 11,976,970 | | 18,267,139 |
13
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
6 - DEFERRED REVENUE AND OTHER DEFERRED LIABILITIES (CONTINUED)
6.1 U.S. Environmental Protection Agency (EPA) Clean School Bus Program (the "EPA Program")
In May 2022, the EPA announced the availability of $500 million under the first round of funding of the EPA Program, which amount was subsequently increased to $945 million. On April 25, 2023, the EPA announced an additional $400 million through the 2023 grant round under the EPA Program, and on September 28, 2023 the EPA announced an additional $500 million through the 2023 rebate round under the EPA Program. Lion all-electric school buses are eligible under the EPA Program.
Under the first funding round of the EPA Program in which Lion participated directly and indirectly through school districts, once the EPA has reviewed the payment request and confirmed that all required information was included, the EPA issued a rebate payment to the selectee such that payments made under the EPA Program were generally made before delivery of the applicable school bus.
6.2 Non-repayable financial contribution under Project Innovation Program for the Development of a Mobilizing Project
On March 20, 2023, the Company entered into a non-repayable financial contribution agreement under the Project Innovation Program for the Development of a Mobilizing Project. The agreement provides for financing of up to C$26,991,772 until December 31, 2026. On April 21, 2023, the Company received an advance of government assistance of $7,013,566 (C$9,446,572) from Investissement Quebec relating to future vehicle development project costs, of which the full amount has been incurred and recorded as a reduction of intangible assets.
14
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
7- LONG-TERM DEBT AND OTHER DEBTS
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| $ | | $ |
Credit Agreement with Banking Syndicate, secured, maturing August 11, 2025 (Note 7.1) | 101,000,000 | | | 70,000,000 | |
Investissement Quebec secured loan related to Battery Manufacturing Plant and Innovation Center (Note 7.2) | 23,806,128 | | | 23,573,074 | |
Strategic Innovation Fund of the Government of Canada unsecured loan related to Battery Manufacturing Plant and Innovation Center (Note 7.3) | 14,909,125 | | | 15,124,280 | |
Loans on research and development tax credits and subsidies receivable (Note 7.4) | 22,140,221 | | | 22,682,595 | |
Secured loans for the acquisition of rolling stock, maturing between December 2023 and August 2024 (Note 7.5) | 6,402 | | | 10,361 | |
Credit facility for the supplier payment program (Note 7.6) | 5,000,000 | | 4,363,520 |
Non-Convertible Debentures issued as part of 2023 Debenture Financing (Note 7.7, Note 7.7.1) | 44,760,361 | | | 44,532,212 | |
Convertible Debentures issued as part of 2023 Debenture Financing (Note 7.7, Note 7.7.2) | 46,252,635 | | | 44,656,323 | |
| 257,874,872 | | | 224,942,365 | |
Current portion of long-term debt and other debts | 27,146,623 | | | 27,056,476 | |
Long-term portion of long-term debt and other debts | 230,728,249 | | | 197,885,889 | |
7.1 Credit Agreement with Banking Syndicate
On August 11, 2021, Lion entered into a new credit agreement with a syndicate of lenders represented by National Bank of Canada, as administrative agent and collateral agent, and including Bank of Montreal and Federation des Caisses Desjardins du Quebec (the “Revolving Credit Agreement”). The Revolving Credit Agreement was amended on January 25, 2022 to increase the maximum principal amount that may become available from time to time under the revolving credit facility, subject to the borrowing base and compliance with the covenants contained under the Revolving Credit Agreement from $100,000,000 to $200,000,000. The Revolving Credit Agreement was further amended on July 19, 2023 ("the July 2023 Amendment") to permit the incurrence of the 2023 Debenture Financing (as defined in Note 7.7), extend the maturity of the Revolving Credit Agreement by one year to August 11, 2025, and provide for an availability block and the establishment of an interest reserve account. The credit facility under the Revolving Credit Agreement is available for use to finance working capital and for other general corporate purposes, and available to be drawn subject to a borrowing base comprised of eligible accounts (including insured or investment grade accounts) and eligible inventory, in each case, subject to customary eligibility and exclusionary criteria, advance rates and reserves.
15
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
7- LONG-TERM DEBT AND OTHER DEBTS (CONTINUED)
7.1 Credit Agreement with Banking Syndicate (continued)
The credit facility under the Revolving Credit Agreement currently bears interest at a floating rate by reference to the Canadian prime rate or pursuant to banker’s acceptance based on the Canadian Dollar Offered Rate ("CDOR") rate, if in Canadian dollars, or the US base rate or Term Secured Overnight Financing Rate ("SOFR"), if in US dollars, as applicable, plus the relevant applicable margin.
As at March 31, 2024, the weighted average all-in interest rate was 7.59%, including stamping fees and spread, divided as follows:
| | | | | | | | |
| Repricing date | Interest Rate |
| | |
| | |
SOFR loans in the amount of US$70,000,000 | April 2024 | 6.94%- 7.19%, including spread of 1.50%- 1.75% |
US base loans in the amount of US$31,000,000 | April 2024 | 9.25%- 9.50%, including spread of 0.25%- 0.50% |
As at December 31, 2023, the weighted average all-in interest rate was 6.96%, including stamping fees and spread, divided as follows:
| | | | | | | | |
| Repricing date | Interest Rate |
| | |
Loans in the amount of US$70,000,000 | January 2024 | 6.94% - 6.98%, including spread of 1.50% |
The Revolving Credit Agreement matures on August 11, 2025. The obligations under the Revolving Credit Agreement are secured by a first priority security interest, hypothec and lien on substantially all of Lion’s and certain of its subsidiaries’ movable property and assets (subject to certain exceptions and limitations). The Revolving Credit Agreement includes certain customary affirmative covenants, restrictions and negative covenants on Lion’s and its subsidiaries’ activities, subject to certain exceptions, baskets and thresholds. The Revolving Credit Agreement also provides for customary events of default, in each case, subject to customary grace periods, baskets and materiality thresholds. Finally, the Revolving Credit Agreement also requires Lion to maintain certain financial ratios and namely, an all times tangible net worth test and a springing fixed charge coverage ratio based on a minimum availability test which may, from time to time, impact the maximum amount available under the revolving credit facility. Further, in accordance with the July 2023 Amendment, the amount available under the revolving credit facility provided under the Revolving Credit Agreement is subject to an availability block of C$10,000,000 which, upon availability dropping below 30% and so long as no default then exist or would result therefrom, may become available and be drawn to fund an interest reserve account to be made subject to the control of the administrative agent and collateral agent under the Revolving Credit Agreement. Such interest reserve account amounts can be used to pay interest under the Non-Convertible Debentures if no default or event of default shall have occurred and be continuing or shall result therefrom.
16
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
7- LONG-TERM DEBT AND OTHER DEBTS (CONTINUED)
7.2 Investissement Quebec secured loan related to Battery Manufacturing Plant and Innovation Center
On July 1, 2021, the Company entered into an interest-bearing secured loan agreement with Investissement Quebec (the “IQ Loan”) relating to the construction of the battery manufacturing plant (the "Battery Plant") and innovation center (the "Innovation Center" and collectively with the Battery Plant, the "Lion Campus"). The IQ Loan provides for financing of up to C$50,000,000. On July 19, 2023, in connection with the 2023 Debenture Financing (as defined in Note 7.7), the IQ Loan was amended (the "IQ Loan 2023 Amendment") to allow holders of the Non-Convertible Debentures to benefit from a second-priority hypothec on substantially all movable/personal property of the Company, subject to certain exceptions in regards to excluded assets, and a first-rank hypothec on each of the immovable/real rights related to the Company’s Innovation Center facility located in Mirabel, Quebec and Battery Plant equipment financed by Investissement Quebec.
As part of the IQ Loan 2023 Amendment, the potential forgiveness of up to 30% of the IQ Loan subject to certain criteria tied to the Company and to the operations of the facilities, including the creation and maintenance of workforce and certain minimum spending related to R&D activities was replaced with certain financial penalties of up to C$3,000,000 and/or C$15,000,000 for the Company, pro-rated based on the proportion of criteria achieved and the borrowing amount relative to the C$50,000,000 maximum. Funds will be provided to the Company by way of reimbursement of a predetermined percentage of qualified expenditures incurred by the Company, such that the ultimate amount to be received by the Company from Investissement Quebec is dependent upon qualified expenditures being made by the Company in connection with the Lion Campus. The Company will conduct work, incur expenses and fund all costs from its own capital resources, and then submit claims to Investissement Quebec for reimbursement of a predetermined percentage of eligible qualified expenditures up to C$50,000,000. Disbursement by Investissement Quebec is conditional upon, among other things, the Company’s compliance with certain affirmative and negative covenants as set out in the IQ Loan, including covenants relating to Company’s creation and maintenance of workforce, operations and R&D activities.
The IQ Loan bears interest at a fixed rate of 4.41%, and will be repayable over a ten-year term, beginning in June 2027. The IQ Loan contains certain affirmative and negative covenants, including covenants relating to the Company’s workforce, operations and research and development activities and to the location of its head office in the Province of Quebec, as well as certain financial covenants. Following the IQ Loan 2023 Amendment, and the purchase of the equipment used in the battery factory of the Company, the obligations under the IQ Loan will be secured by a second-priority hypothec on the Company’s immovable (real) property rights related to the Innovation Center facility located on the Lion Campus and the equipment used in connection with the battery factory of the Company, and a hypothec on substantially all of the Company’s other movable property and assets (subject to certain exceptions and limitations in regards to excluded assets) ranking after those securing the Revolving Credit Agreement, the Non-Convertible Debentures and the Finalta-CDPQ Loan Agreement.
17
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
7 - LONG-TERM DEBT AND OTHER DEBTS (CONTINUED)
7.3 Strategic Innovation Fund of the Government of Canada unsecured loan related to Battery Plant and Innovation Center
On August 19, 2021, the Company entered into an unsecured non-interest bearing loan agreement with the Strategic Innovation Fund of the Government of Canada relating to the construction of the Lion Campus (the “SIF Loan”). The SIF Loan provides for financing of up to C$49,950,000, of which up to 30% is expected to be forgiven subject to the satisfaction of certain criteria tied to the Company and to the operations of the facilities, including the creation and maintenance of workforce and certain minimum spending related to research and development activities. The SIF Loan is repayable over a 15-year term beginning in April 2026. The SIF Loan contains certain affirmative and negative covenants, including relating to the Company’s workforce, operations and research and development activities and to the location of its head office. As at March 31, 2024, the SIF Loan has a nominal value of $21,456,531 (December 31, 2023: $21,982,156) and is discounted at the rate of 4.03%. As at March 31, 2024 and December 31, 2023, the difference between the proceeds received and the fair value of the debt of $7,329,216 was accounted as a government grant and recorded as a reduction of property, plant and equipment in the amount of $3,849,847 and intangible assets in the amount of $310,311.
The Group has recognized the following related to the SIF Loan:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| $ | | $ |
Beginning balance | 15,124,280 | | 6,189,814 |
Addition | — | | | 8,903,080 | |
Accretion expense | 147,159 | | | 403,408 | |
Foreign currency translation adjustment | (362,314) | | (372,022) |
Balance at March 31, 2024 | 14,909,125 | | 15,124,280 |
7.4 Loans on research and development tax credits and subsidies receivable
Finalta-CDPQ Loan Agreement
On November 8, 2022, Lion entered into the Finalta-CDPQ Loan Agreement with Finalta, as lender and administrative agent, and Caisse de dépôt et placement du Québec ("CDPQ") (through one of its subsidiaries), as lender, to finance certain refundable tax credits and grants under government programs. The Finalta-CDPQ Loan Agreement provides for a loan facility of up to a principal amount of C$30,000,000 and bears interest at the rate of 10.95% per annum.
The obligations thereunder are secured by a first priority security interest, hypothec and lien in certain tax credits and government grants and a subordinate security interest, hypothec and lien in substantially all other movable property and assets. The Finalta-CDPQ Loan Agreement matures on November 6, 2024.
18
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
7 - LONG-TERM DEBT AND OTHER DEBTS (CONTINUED)
7.4 Loans on research and development tax credits and subsidies receivable (continued)
The Finalta-CDPQ Loan Agreement includes certain customary restrictions and negative covenants on Lion’s and its subsidiaries’ activities, subject to certain exceptions, baskets, and thresholds. The Finalta-CDPQ Loan Agreement also provides for customary events of default, in each case, subject to customary grace periods, baskets and materiality thresholds. Upon the occurrence and during the continuance of an event of default, the lenders would be entitled to demand the immediate repayment of all amounts owing to them under the Finalta-CDPQ Loan Agreement and/or the lenders may exercise their other rights, remedies and/or recourses. An aggregate amount of $22,233,751 (C$30,000,000) was advanced under the Finalta-CDPQ Loan Agreement on November 8, 2022 upon entering into the agreement and is outstanding as of the date hereof.
7.5 Secured loans for the acquisition of rolling stock
As of March 31, 2024, the Group had an outstanding secured loan, maturing in August 2024, related to the financing of the acquisition of rolling stock in the amount of $6,402. As of December 31, 2023, the Group had outstanding secured loans, maturing from December 2023 to August 2024, related to the financing of the acquisition of rolling stock in the amount of $10,361. The loan has an interest rate of 2.35% (December 31, 2023: 2.35%) and was secured by the asset financed having a net carrying value of $15,998 (December 31, 2023: $19,283).
7.6 Credit facility for the supplier payment program
On February 8, 2023, the Company entered into a revolving credit facility with National Bank of Canada (the "Credit Facility") to finance the Company’s accounts payable related to good or services purchased in the normal course of its operations. The Credit Facility is insured by Export Development Canada ("EDC") and provides for financing of up to $5,000,000. Each term loan tranche has a period of minimum 30 days and a maximum of 120 days. Each advance expires at the later of the expiry date of the invoice payable or the date indicated as the expiry date on the term note and accepted by the National Bank of Canada and cannot be prepaid in whole or in part. The Credit Facility is subject to an annual review and may be cancelled by National Bank of Canada at any time. The Credit Facility bears interest at a floating rate by reference to the SOFR for a comparable period, plus the relevant credit adjustment spread of 1.5%.
As at March 31, 2024 and December 31, 2023 , the carrying amounts for Credit Facility for the supplier payment program were as follows: | | | | | | | | | | |
| March 31, 2024 | December 31, 2023 | | |
| $ | $ | | |
Carrying amount | | | | |
| | | | |
Presented in long-term debts and other debts of which suppliers has received payments | 5,000,000 | 4,363,520 | | |
Presented in long-term debts and other debts | 5,000,000 | 4,363,520 | | |
| | | | |
| | | | |
| | | | |
| | | | |
19
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
7 - LONG-TERM DEBT AND OTHER DEBTS (CONTINUED)
7.6 Credit facility for the supplier payment program (continued)
| | | | | | | | | | |
| March 31, 2024 | December 31, 2023 | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Range of payment due date | | | | |
Liabilities that are part of the arrangements | 120 days after invoice date | 119 - 120 days after invoice date | | |
Comparable trade payables that are not part of the arrangements | Net 30 days | Net 30 days | | |
7.7 2023 Debenture Financing
On July 19, 2023, the Company closed concurrent financing transactions for aggregate gross proceeds for the Company of $142,920,845 (the “2023 Debenture Financing”).
The 2023 Debenture Financing consists of:
i.the issuance by way of private placement of senior unsecured convertible debentures (the “Convertible Debentures”) for gross proceeds of $74,005,000. The Group allocated proceeds in the amount of $30,342,059 to the fair value of the conversion options on the convertible debt instruments (refer to Note 8) and $43,662,941 to the Convertible Debentures (refer to Note 7.7.2).
ii.the issuance by way of private placement of senior secured non-convertible debentures (the “Non-Convertible Debentures”) and the issuance by way of private placement to the holders of Non-Convertible Debentures of a number of common share purchase warrants (the "July 2023 Warrants") for gross proceeds of $68,915,845 (C$90,900,000). The Group allocated proceeds in the amount of $24,767,843 to the fair value of the July 2023 Warrants (refer to Note 9.4) and $44,148,002 to the Non-Convertible debentures at inception (refer to Note 7.7.1).
At issuance, transactions costs of $1,919,701 were netted against the proceeds received from the Convertible Debenture and $1,910,149 were netted against the proceeds received from the Non-Convertible Debenture.
7.7.1 Non-Convertible Debentures issued as part of 2023 Debenture Financing
The Non-Convertible Debentures with a principal amount of $68,915,845 (C$90,900,000) bear interest at the rate of 11% per annum and are payable in cash quarterly. The Non-Convertible Debentures will mature on July 19, 2028. The Company has the right, at any time since January 19, 2024, upon 30-day notice, to redeem all or part of the principal amount thereunder, without penalty, at a price equal to one hundred per cent (100%) of the principal amount so redeemed, plus accrued and unpaid interest on the principal amount so repaid, accruing to the date of such redemption.
20
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
7 - LONG-TERM DEBT AND OTHER DEBTS (CONTINUED)
7.7.1 Non-Convertible Debentures issued as part of 2023 Debenture Financing (continued)
The Non-Convertible Debentures contain customary covenants for an instrument of its nature, including covenants relating to compliance with the financial ratios and negative covenants included in the Revolving Credit Agreement (as defined below) (provided (i) that any amendment to the financial ratios to which the lenders under the Revolving Credit Agreement consent will automatically be incorporated in the Non-Convertible Debentures, and (ii) that a default shall only occur under the Non-Convertible Debentures if a financial ratio default occurs and is continuing on the date that is fifteen business days following the delivery of the Company’s consolidated financial statements evidencing such event of default, and only if the lenders under the Revolving Credit Agreement have not waived or tolerated such event of default before the expiry of this fifteen business day period), in addition to certain covenants relating to maintaining the current headquarters, employees and facilities of the Company in the province of Québec.
The Non-Convertible Debentures contain customary events of default for an instrument of its nature, including, among other things, (i) the occurrence of an event of default under the Revolving Credit Agreement if such default results in the acceleration of the payments owed thereunder and (ii) the occurrence of an event of default under any other debt instrument of the Company with a principal amount exceeding US$15,000,000 if such default permits the acceleration of the payment of such debt. The Non-Convertible Debentures constitute senior secured obligations of the Company and will be secured by a hypothec and other liens on substantially all of the Company’s and certain of its subsidiaries’ movable/personal property as well as on the immovable/real rights related to the Company’s Innovation Center facility located in Mirabel, Québec and guaranteed by such subsidiaries.
The Non-Convertible Debentures were recorded at the estimated fair value of $42,237,853 using an effective interest rate of 22.54% per annum at the time of issuance on July 19, 2023, representing proceeds received from the issuance of the Non-Convertible Debenture of $44,148,002, less an amount of $1,910,149 incurred as a direct cost in the closing of the financing.
The Group has recognized the following related to the Non-Convertible Debenture:
| | | | | | | | |
| March 31, 2024 | December 31, 2023 |
| $ | $ |
Beginning Balance | 44,532,212 | 42,237,853 |
Accretion expense | 1,298,932 | | 2,346,874 | |
Foreign currency translation adjustment | (1,070,783) | (52,515) |
Ending balance | 44,760,361 | 44,532,212 |
21
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
7 - LONG-TERM DEBT AND OTHER DEBTS (CONTINUED)
7.7.2 Convertible Debentures issued as part of 2023 Debenture Financing
The Convertible Debentures, with a principal amount of $74,005,000 bear interest at the rate of 13% per annum, compounded monthly on the last day of each month. Prior to any accrual date, the Company has the right, at its discretion, to make an election to pay interest accrued on the principal for the applicable month in cash (in which case any interest so paid shall not be compounded).The Convertible Debentures will mature on July 19, 2028. The Convertible Debentures contain customary covenants and events of default for an instrument of its nature, including covenants relating to compliance with the financial ratios and negative covenants included in the Revolving Credit Agreement (as defined below) (provided (i) that any amendment to the financial ratios to which the lenders under the Revolving Credit Agreement consent will automatically be incorporated in the Convertible Debentures, and (ii) that a default shall only occur under the Convertible Debentures if a financial ratio default occurs and is continuing on the date that is fifteen business days following the delivery of the Company’s consolidated financial statements evidencing such event of default, and only if the lenders under the Revolving Credit Agreement have not waived or tolerated such event of default before the expiry of this fifteen business day period).
The Convertible Debentures also include certain covenants relating to maintaining the current headquarters, employees and facilities of the Company in the province of Québec and certain covenants limiting the incurrence of capital expenditures over the term of the Convertible Debentures, including limits on capital expenditures towards increasing production capacity at the Company’s manufacturing facilities beyond certain capacity as well as limits on the incurrence of maintenance and other capital expenditures.
The Convertible Debentures contain customary events of default for an instrument of its nature, including, among other things, the occurrence of an event of default under any other debt of the Company with a principal amount exceeding US$15,000,000 if such default results in the acceleration of the amounts owed thereunder.
Upon the occurrence of an event of default under the Convertible Debentures or, if later, at the expiry of any agreed-upon period for curing an event of default, as the case may be, holders of Convertible Debentures will have the right, upon giving written notice to the Company, to (i) require the Company to redeem all of their Convertible Debentures, or (ii) require that the principal amount of the Convertible Debentures, plus any accrued, compounded and unpaid interest, be converted into Common Shares, with the number of Common Shares issuable upon such conversion being subject to a grid-based “make-whole” adjustment as set forth below.
In connection with the Debenture Financing, the Company issued 258,155 Common Shares in the aggregate (the “Closing Fee Shares”) to the holders of Convertible Debentures, representing 0.75% of the principal amount of Convertible Debentures, based on the 5-day volume weighted average price (“VWAP”) of the Common Shares on the NYSE on July 14, 2023.
22
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
7 - LONG-TERM DEBT AND OTHER DEBTS (CONTINUED)
7.7.2 Convertible Debentures issued as part of 2023 Debenture Financing (continued)
The Convertible Debentures were recorded at the estimated fair value of $41,743,240 using an effective interest rate of 21.02% per annum at the time of issuance on July 19, 2023, representing the proceeds received from the issuance of the Convertible Debenture of $43,662,941, less an amount of $1,919,701 incurred as a direct cost in the closing of the financing.
The Group has recognized the following related to the Convertible Debenture:
| | | | | | | | |
| March 31, 2024 | December 31, 2023 |
| $ | $ |
Beginning balance | 44,656,323 | 41,743,240 |
Accretion expense | 1,596,312 | | 2,913,083 | |
| | |
Ending balance | 46,252,635 | 44,656,323 |
As at March 31, 2024 and March 31, 2023 and for the periods then ended, the Company was in compliance with all the covenants and financial ratios included in its long-term debt and other debts above.
8 - CONVERSION OPTIONS ON CONVERTIBLE DEBT INSTRUMENTS
The Convertible Debentures are convertible at the holders’ option into Common Shares at a conversion price of US$2.58 per Common Share (reflecting a 20% premium over the 5-day VWAP for the Common Shares on the New York Stock Exchange (“NYSE”) calculated on July 14, 2023, the last trading day prior to announcement of the 2023 Debenture Financing). The conversion price is subject to customary adjustments, including for share splits or consolidation, share dividends, rights offerings, asset or other distributions and above market repurchases of shares (including above market exchanges or tender offers), in each case in compliance with the rules and requirements of the TSX relating to anti-dilution mechanisms.
Upon the occurrence of a “fundamental change”, including a change of control of the Company or the Company failing to comply with the covenants to maintain the current headquarters, employees and facilities of the Company in the province of Québec, holders of Convertible Debentures will either (i) convert all of their Convertible Debentures, with the number of Common Shares issuable upon such conversion being subject to a grid-based “make-whole” adjustment, or (ii) require the Company to repurchase for cash all of their Convertible Debentures at a repurchase price equal to 150% of the principal amount and the accrued, compounded and unpaid interest. In the event holders of Convertible Debentures elect to convert their Convertible Debentures upon a fundamental change or an event of default, the number of Common Shares issuable upon such conversion will be subject to a grid-based “make-whole” adjustment pursuant to which the conversion rate determining the number of Common Shares issuable will be increased by a number of additional Common Shares (the “Additional Shares”), (i) in the case of a conversion in connection with a fundamental change, based on a reference price on the date on which the fundamental change occurs or becomes effective, or (ii) in the case of a conversion following an event of default, based on a reference price on the date on which the holder exercises its conversion right.
23
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
8 - CONVERSION OPTIONS ON CONVERTIBLE DEBT INSTRUMENTS (CONTINUED)
The fair value of the conversion options on convertible debt instruments was determined using the Black-Scholes or the binomial option pricing model taking into account the following assumptions:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| | | |
Exercise price ($) | 2.58 | | 2.58 |
Share price ($) | 1.42 | | 1.77 |
Volatility | 59% | | 57% |
Risk-free interest rate | 3.65% | | 3.28% |
Expected warrant life (years) | 4.29 | | 4.54 |
The expected volatility was determined by reference to historical data of comparable entities over the expected life of the conversion options on convertible debt instruments .
The Group has recognized the following conversion options on convertible debt instruments:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| $ | | $ |
Beginning balance | 25,034,073 | | 30,342,059 |
Paid in kind interest | 2,472,927 | | | 3,551,316 | |
Fair value adjustment | (10,746,034) | | | (8,533,552) | |
Foreign currency translation adjustment | (577,204) | | | (325,750) | |
Ending balance | 16,183,762 | | 25,034,073 |
9 - SHARE WARRANT OBLIGATIONS
9.1 Warrants issued to a customer
On July 1, 2020, in connection with the entering into of a master purchase agreement and a work order (collectively, the “MPA”) with Amazon Logistics, Inc., the Company issued warrants to purchase common shares of the Company (the “Warrant”) to Amazon.com NV Investment Holdings LLC (the “Warrantholder”) which vests, subject to the terms and conditions contained therein, based on the aggregate amount of spending by Amazon.com, Inc. and its affiliates on the Group’s products or services.
24
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
9 - SHARE WARRANT OBLIGATIONS (CONTINUED)
9.1 Warrants issued to a customer (continued)
At the election of the Warrantholder, any vested portion of the Warrant can be exercised either on a cash basis by the payment of the applicable exercise price or on a net issuance basis based on the in-the-money value of the Warrant. The exercise price of the Warrant corresponds to $5.66 per share. The Warrant grants the Warrantholder the right to acquire up to 35,350,003 common shares of the Company.
There was an initial vesting of a portion of the Warrant which are exercisable for 5,302,511 common shares as at March 31, 2024 and December 31, 2023. The remaining portion of the Warrant vests in three tranches based on the aggregate amount of spending by Amazon.com, Inc. and its affiliates on Group products or services.
The Warrant has a term of 8 years. Full vesting of the Warrant requires spending of at least $1.2 billion on Group products or services over the term of the Warrant, subject to accelerated vesting upon the occurrence of certain events, including a change of control of the Group or a termination of the MPA for cause.
The fair value of the Warrant was determined using the Black-Scholes option pricing model taking into account the following assumptions:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| | | |
Exercise price ($) | 5.66 | | 5.66 |
Share price ($) | 1.42 | | 1.77 |
Volatility | 59% | | 57% |
Risk-free interest rate | 3.59% | | 3.30% |
Expected warrant life (years) | 4.25 | | 4.50 |
The Group has recognized the following contract asset and share warrant obligation:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Contract asset | $ | | $ |
| | | |
Beginning Balance | 13,528,646 | | 13,211,006 |
| | | |
Foreign currency translation adjustment | (323,490) | | 317,640 |
Ending Balance | 13,205,156 | | 13,528,646 |
| | | |
25
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
9 - SHARE WARRANT OBLIGATIONS (CONTINUED)
9.1 Warrants issued to a customer (continued)
| | | | | | | | | | | |
| | | |
| | | |
| March 31, 2024 | | December 31, 2023 |
Share warrant obligation | $ | | $ |
Beginning Balance | 1,897,791 | | 2,172,269 |
Fair value adjustment | (625,492) | | (262,569) |
Foreign currency translation adjustment | (42,833) | | | (11,909) |
Ending Balance | 1,229,466 | | 1,897,791 |
9.2 Warrants issued as part of the business combination transaction
Upon completion of the business combination transaction on May 6, 2021, each outstanding warrant to purchase shares of Northern Genesis Acquisition Corp. (“NGA”)’s common stock was converted into a warrant to acquire one common share of the Company at a price of $11.50 per share until May 6, 2026, subject to adjustment in certain customary events. A total of 27,111,741 NGA warrants were converted into 27,111,741 Business Combination Warrants, 15,972,672 of which are publicly traded and 11,139,069 of which are private. As at March 31, 2024 and December 31, 2023, there were 27,111,323 Business Combination Warrants outstanding of which 15,972,364 are publicly traded and 11,138,959 are private.
The public Business Combination Warrants may be redeemed by the Company, in whole at a price of $0.01 per public Business Combination Warrant, provided that the last reported sales price of the Company’s common shares equals or exceeds $18.00 per share for any 20 trading days within a 30 trading-day period commencing once the public Business Combination Warrants become exercisable and ending on the third trading day prior to the date on which the Company gives proper notice of such redemption.
The fair value of the public Business Combination Warrants was determined using their market trading price as follows:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Warrant price ($) | 0.03 | | | 0.05 |
Each private Business Combination Warrant may not be redeemed by the Company so long as they are held by NGA or any of its permitted transferees. Once transferred to any person that is not NGA or any of its permitted transferees, a private Business Combination Warrant becomes treated as a public Business Combination Warrant.
26
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
9 - SHARE WARRANT OBLIGATIONS (CONTINUED)
9.2 Warrants issued as part of the business combination transaction (continued)
The fair value of the private Business Combination Warrants was determined using the Black-Scholes option pricing model taking into account the following assumptions:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| | | |
Exercise price ($) | 11.50 | | 11.50 |
Share price ($) | 1.42 | | 1.77 |
Volatility | 53% | | 53% |
Risk-free interest rate | 4.15% | | 3.81% |
Expected warrant life (years) | 2.08 | | 2.33 |
The expected volatility was determined by reference to historical data of comparable share prices over the expected life of the private Business Combination Warrants.
The Group has recognized the following Business Combination Warrant obligations:
| | | | | | | | | | | | | | | | | |
| Public warrants | | Private warrants | | Total |
| $ | | $ | | $ |
Beginning balance at January 1, 2024 | 905,737 | | 177,183 | | 1,082,920 |
Fair value adjustment | (177,959) | | | (131,101) | | | (309,060) | |
| | | | | |
Foreign currency translation adjustment | (20,514) | | | (3,670) | | | (24,184) | |
Balance at March 31, 2024 | 707,264 | | 42,412 | | 749,676 |
| | | | | | | | | | | | | | | | | |
| Public warrants | | Private warrants | | Total |
| $ | | $ | | $ |
Beginning balance at January 1, 2023 | 7,075,767 | | 914,881 | | 7,990,648 |
Fair value adjustment | (6,173,511) | | | (727,873) | | | (6,901,384) | |
| | | | | |
Foreign currency translation adjustment | 3,481 | | | (9,825) | | | (6,344) | |
Balance at December 31, 2023 | 905,737 | | 177,183 | | 1,082,920 |
27
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
9 - SHARE WARRANT OBLIGATIONS (CONTINUED)
9.3 Warrants issued as part of the December 2022 Offering
On December 16, 2022, the Company closed the "December 2022 Offering", pursuant to which the Company issued of 19,685,040 "2022 Warrants". On January 17, 2023, the Company announced the exercise and closing of the underwriters’ over-allotment option with respect to the offering of units closed in December 2022, pursuant to which the Company issued 2,952,755 2022 Warrants. Each whole 2022 Warrant entitles the holder to purchase one common share for a price of $2.80 per share for a period of five years ending on December 15, 2027, subject to adjustment in certain customary events.
The over-allotment option aggregate gross proceeds of $2,907,226 were allocated to the warrants, representing the fair value of the 2022 Warrants on the day of issuance. Issuance fees of $247,586 were recognized in administrative expenses in the consolidated statement of loss and comprehensive loss, relating to legal and other professional costs ($58,916) and net commissions paid to the agents ($188,670). As at March 31, 2024 and December 31, 2023, all warrants are outstanding.
The fair value of the 2022 Warrants was determined using their market trading price as follows:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Warrant price ($) | 0.32 | | | 0.41 |
The Group has recognized the following warrant obligation:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| $ | | $ |
Beginning balance | 8,558,066 | | 13,080,646 |
Additions | — | | | 2,907,226 | |
Fair value adjustment | (999,413) | | | (7,378,042) | |
Foreign currency translation adjustment | (207,634) | | | (51,764) | |
Ending balance | 7,351,019 | | 8,558,066 |
9.4 July 2023 Warrants issued as part of 2023 Debenture Financing
In connection with the 2023 Debenture Financing, the Company issued Warrants ("July 2023 Warrants") to holders of Non-Convertible Debentures (refer to Note 7.7) entitling them to purchase, until July 19, 2028, 22,500,000 Common Shares in the aggregate at an exercise price of C$2.81 per Common Share (representing the 5-day VWAP of the Common Shares on the Toronto Stock Exchange ("TSX") as of July 14, 2023). The exercise price of the Warrants is subject to customary adjustments, including for share splits or consolidation, share dividends, rights offerings, asset or other distributions and above market repurchases of shares (including above market exchanges or tender offers), in each case in compliance with the rules and requirements of the TSX relating to anti-dilution mechanisms.
28
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
9 - SHARE WARRANT OBLIGATIONS (CONTINUED)
9.4 July 2023 Warrants issued as part of 2023 Debenture Financing (continued)
Upon a change of control of the Company, the Company will have the right to redeem and cancel all of the outstanding Warrants for a cash purchase price based on the remaining term of the Warrants and the value of the consideration offered or payable per Common Share in the transaction constituting the change of control. In addition, upon a change of control of the Company resulting in (or which is reasonably anticipated to result in) the Common Shares ceasing to be listed on a stock exchange, the holders of Warrants may require the Company to redeem and cancel all Warrants at the Redemption Price subject to and on the date such transaction resulting in a change of control is completed.
The fair value of the warrants was determined using the Black-Scholes option pricing model taking into account the following assumptions:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| | | |
Exercise price (C$) | 2.81 | | 2.81 |
Share price (C$) | 1.93 | | 2.36 |
Volatility | 59% | | 57% |
Risk-free interest rate | 3.65% | | 3.28% |
Expected warrant life (years) | 4.29 | | 4.54 |
The expected volatility was determined by reference to historical data of comparable entities over the expected life of the warrants. The Group has recognized the following warrant obligation: | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| $ | | $ |
Beginning balance | 18,043,426 | | 24,767,843 |
Fair value adjustment | (4,815,280) | | | (6,421,117) | |
Foreign currency translation adjustment | (415,410) | | | (303,300) | |
Ending balance | 12,812,736 | | 18,043,426 |
29
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
10 - SHARE-BASED COMPENSATION
Compensation expense related to the share-based compensation was recognized in the consolidated statements of loss and comprehensive loss as follows:
| | | | | | | | | | | | | | |
| Three months ended | |
| March 31, 2024 | | March 31, 2023 | | | |
| $ | | $ | | | |
Administrative expenses | 319,924 | | 1,039,866 | | | |
Selling expenses | 80,712 | | 373,977 | | | |
| 400,636 | | 1,413,843 | | | |
10.1 Stock options
The following table summarizes the outstanding options as at March 31, 2024 and 2023 and changes during the
three months then ended: | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | March 31, 2023 |
| Number of stock options | | Weighted average exercise price | | Number of stock options | | Weighted average exercise price |
| | | C$ | | | | C$ |
Outstanding, beginning of period | 10,759,583 | | 1.65 | | 9,547,185 | | 2.11 |
Granted | — | | — | | 1,543,793 | | 2.75 |
| | | | | | | |
Forfeited | (25,248) | | 2.75 | | — | | — |
| | | | | | | |
Outstanding, end of period | 10,734,335 | | 1.65 | | 11,090,978 | | 2.20 |
Exercisable, end of period | 9,243,264 | | 1.32 | | 7,755,107 | | 1.35 |
The description of the Company's stock option plan is included in Note 16 of annual consolidated financial statements for the year ended December 31, 2023.
30
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
10 - SHARE-BASED COMPENSATION (CONTINUED)
10.2 Restricted share units
The following table summarizes the outstanding options as at March 31, 2024 and 2023 and changes during the
three months then ended:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | March 31, 2023 |
| Number of restricted share units | | Weighted average exercise price | | Number of restricted share units | | Weighted average exercise price |
| | | C$ | | | | C$ |
Outstanding, beginning of period | 897,240 | | 3.99 | | 297,658 | | 8.35 |
Granted | — | | — | | 811,458 | | 2.75 |
Settled | (1,628) | | 23.02 | | — | | — |
Forfeited | (25,033) | | 2.75 | | (3,613) | | 6.92 |
Outstanding, end of period | 870,579 | | 4.04 | | 1,105,503 | | 4.24 |
Vested, end of period | — | | — | | — | | — |
The description of the Company's restricted share unit plan is included in Note 16 of annual consolidated financial statements for the year ended December 31, 2023.
10.3 Deferred share units
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | March 31, 2023 |
| Number of deferred share units | | Weighted average exercise price | | Number of deferred share units | | Weighted average exercise price |
| | | C$ | | | | C$ |
Outstanding, beginning of period | 779,975 | | 3.21 | | 301,091 | | 4.23 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Settled | (30,981) | | 2.79 | | — | | — |
Outstanding, end of period | 748,994 | | 3.23 | | 301,091 | | 4.23 |
Vested, end of period | 748,994 | | 3.23 | | 301,091 | | 4.23 |
The description of the Company's deferred share unit plan is included in Note 16 of annual consolidated financial statements for the year ended December 31, 2023.
31
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
11 - RESTRUCTURING COSTS
In November 2023, the Company announced a restructuring consisting of a workforce reduction aimed at rationalizing the Company’s cost structure and improving its ability to reach its profitability objectives.
The following table summarizes the activities related to the restructuring:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| $ | | $ |
Liability beginning of period | 711,622 | | — |
Expenses | — | | 1,426,487 |
Payments | (711,622) | | (714,865) |
Liability end of period | — | | 711,622 |
12 - FINANCE COSTS
Finance costs for the reporting periods consist of the following:
| | | | | | | | | | | | | | |
| Three months ended | |
| March 31, 2024 | | March 31, 2023 | | | |
| $ | | $ | | | |
Interest on long-term debt and other debtsa | 6,664,811 | | 1,046,648 | | | |
Interest on lease liabilitiesa | 1,190,489 | | 36,425 | | | |
Accretion expense | 3,026,073 | | — | | | |
| | | | | | |
| | | | | | |
Financing cost | 262,168 | | 435,212 | | | |
Other | (525,800) | | (97,931) | | | |
| 10,617,741 | | 1,420,354 | | | |
a.Net of capitalized borrowing costs of $315,039 for the three months ended March 31, 2024 (March 31, 2023: $1,718,711), $247,325 included in interest on long-term debt and other debts and $67,714 in interest on lease liabilities, respectively (March 31, 2023: $756,233 included in interest on long-term debt and other debts, $962,478 in interest on lease liabilities, respectively). The weighted average interest rate used to capitalize the borrowing costs is 8.00% for the three months ended March 31, 2024 (three months ended March 31, 2023: 5.68%).
32
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
13 - EARNINGS PER SHARE
| | | | | | | | | | | | | | |
| Three months ended | |
| March 31, 2024 | | March 31, 2023 | | | |
| $ | | $ | | | |
Net loss | (21,697,240) | | | (15,583,446) | | | | |
Basic weighted average number of common shares outstanding | 226,201,847 | | 220,777,661 | | | |
Basic loss per share | (0.10) | | | (0.07) | | | | |
| | | | | | |
Basic weighted average number of common shares outstanding | 226,201,847 | | 220,777,661 | | | |
Plus dilutive impact of stock options, RSUs, DSUs, and warrants | — | | — | | | |
Diluted weighted average number of common shares outstanding | 226,201,847 | | 220,777,661 | | | |
Diluted loss per share | (0.10) | | | (0.07) | | | | |
Excluded from the above calculations for the three months ended March 31, 2024 and 2023 are all outstanding stock options, share warrant obligations, convertible debentures, RSUs, and DSUs, which are deemed to be anti-dilutive.
14 - SHARE CAPITAL
14.1 ATM Program
On June 17, 2022, the Company established an "at-the-market" equity program (the "ATM Program") that allowed the Company to issue and sell, from time to time through a syndicate of agents, newly issued common shares of the Company, for an aggregate offering amount of up to $125,000,000 (or the Canadian dollar equivalent). On July 19, 2023, the Company terminated its ATM Program which was set to expire in July 2024.
During the three months ended March 31, 2023, the Company issued 2,680,121 common shares pursuant to the ATM Program at an average price of $1.90 per share for aggregate gross proceeds of $5,083,056, and for aggregate net proceeds of $4,955,648 after the deduction of equity issuance fees of $127,408. Equity issuance fees for the three months ended March 31, 2023 were mainly related to net commissions paid ($76,246) to the agents under the ATM Program and legal fees ($51,162).
14.2 December 2022 Offering
On January 17, 2023, the Company closed the over-allotment option with respect to the December 2022 Offering in full, to purchase an additional 2,952,755 Units at a price of $2.54 per unit with respect to the December 2022 Units Offering. This resulted in aggregate gross proceeds to the Group of $7,499,998, and for aggregate net proceeds of $6,835,476 after the deduction of underwriting commission and offering costs of $664,522.
33
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
14 - SHARE CAPITAL (CONTINUED)
14.2 December 2022 Offering (continued)
Each Unit consisted of one common share in the capital of the Company and one common share purchase warrant. The allocation of the proceeds between the warrants and the common shares at the issuance date was based on allocating the fair value of the warrants based on the Black-Scholes option pricing model (refer to Note 9.3), with the residual value allocated to the common shares.
Pursuant to the December 2022 Offering over-allotment, the Company issued 2,952,755 common shares of which gross proceeds of $4,592,772 were allocated to the shares, and for net proceeds of $4,175,836 after the deduction of equity issuance fees of $416,936. Equity issuance fees were mainly related to legal costs ($114,294) and net commissions paid to the agents ($302,642).
15 - SUPPLEMENTAL CASH FLOW DISCLOSURE
The depreciation and amortization is detailed as follows:
| | | | | | | | | | | |
| Three months ended |
| March 31, 2024 | | March 31, 2023 |
| $ | | $ |
Depreciation – property, plant and equipment | 3,564,356 | | 1,990,676 |
Depreciation – right-of-use assets | 2,510,723 | | 1,551,834 |
Amortization – intangible assets | 2,012,235 | | 1,371,147 |
| | | |
| 8,087,314 | | | 4,913,657 | |
See Note 4 for additional information related to the depreciation of right-of-use assets.
34
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
15 - SUPPLEMENTAL CASH FLOW DISCLOSURE (CONTINUED)
The net change in non-cash working capital is detailed as follows:
| | | | | | | | | | | | | | |
| Three months ended | |
| March 31, 2024 | | March 31, 2023 | | | |
| $ | | $ | | | |
Inventories | 7,515,614 | | | (7,587,116) | | | | |
Accounts receivable | (9,446,490) | | | (25,395,951) | | | |
Prepaid expenses | (2,252,240) | | | (706,031) | | | | |
Trade and other payables (1) | (10,741,783) | | | 10,391,961 | | | | |
Deferred revenue and other deferred liabilities | (6,206,075) | | | 80,752 | | | | |
| (21,130,974) | | | (23,216,385) | | | | |
(1)The net change in trade and other payables excludes trade and other payables as at March 31, 2024 related to the following non-cash working capital items: $1,111,914 related to the additions of intangible assets and $8,197,410 related to the acquisition of property, plant and equipment and includes trade and other payables as at December 31, 2023 related to the additions of intangible assets of $634,331 and related to the acquisition of property, plant and equipment of $11,750,398.
The net change in trade and other payables excludes trade and other payables as at March 31, 2023 related to the following non-cash working capital items: $665,590 related to the additions of intangible assets and $11,966,566 related to the acquisition of property, plant and equipment and includes trade and other payables as at December 31, 2022 related to the additions of intangible assets of $4,757,926 and related to the acquisition of property, plant and equipment of $16,229,912.
16 - ENTITY-WIDE DISCLOSURES
The Group has one reportable operating segment, the manufacturing and sales of electric vehicles in Canada and in the United States.
The Group’s revenue from external customers is divided into the following geographical areas:
| | | | | | | | | | | | | | | | | |
| Three months ended | | |
| March 31, 2024 | | March 31, 2023 | | | | |
Revenue from external customers | $ | | $ | | | | |
Canada | 43,250,852 | | 52,436,969 | | | | |
United States | 12,230,037 | | 2,266,436 | | | | |
| 55,480,889 | | 54,703,405 | | | | |
35
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited, In US dollars, except number of shares or where otherwise indicated)
16 - ENTITY-WIDE DISCLOSURES (CONTINUED)
During the three months ended March 31, 2024, 20.4% of the Group's revenue depended on one customer (March 31, 2023: 29.0% of the Group’s revenue depended on two customers).
The Group’s non-current assets are allocated to geographic areas as follows:
| | | | | | | | | | | | | | | | | |
| March 31, 2024 |
| Canada | | United States | | Total |
| $ | | $ | | $ |
Other non-current assets | 6,984,388 | | | 192,551 | | | 7,176,939 | |
Property, plant and equipment | 91,169,977 | | | 102,045,387 | | | 193,215,364 | |
Right-of-use assets | 33,646,641 | | | 52,790,770 | | | 86,437,411 | |
Intangible assets | 168,946,269 | | | 8,716,542 | | | 177,662,811 | |
Contract asset | 13,205,156 | | | — | | | 13,205,156 | |
| 313,952,431 | | | 163,745,250 | | | 477,697,681 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Canada | | United States | | Total |
| $ | | $ | | $ |
Other non-current assets | 6,812,370 | | | 182,445 | | | 6,994,815 | |
Property, plant and equipment | 94,684,032 | | | 103,852,651 | | | 198,536,683 | |
Right-of-use assets | 35,469,879 | | | 54,193,260 | | | 89,663,139 | |
Intangible assets | 167,106,057 | | | 8,597,200 | | | 175,703,257 | |
Contract asset | 13,528,646 | | | — | | | 13,528,646 | |
| 317,600,984 | | | 166,825,556 | | | 484,426,540 | |
Geographical areas are determined according to where the sales take place and according to the location of the long-term assets.
17 - SUBSEQUENT EVENTS
On April 18, 2024, the Company announced a reduction of its workforce, which affects approximately 120 employees in overhead and product development functions. These measures are aimed at further reducing its operating expenses and aligning its cost structure to current market dynamics. Restructuring costs of $1,400,000 are estimated to be incurred as part of this reduction.