The Lion Electric Company
Condensed Interim Consolidated Financial Statements
As at September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021
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Notes to Condensed Interim Consolidated Financial Statements | |
The Lion Electric Company
Consolidated Statements of Financial Position
As at September 30, 2022 and December 31, 2021
(Unaudited, In US dollars)
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| Notes | | September 30, 2022 | | December 31, 2021 |
| | | $ | | $ |
ASSETS | | | | | |
Current | | | | | |
Cash | | | 66,613,415 | | 241,702,030 |
Accounts receivable | | | 53,809,122 | | 37,899,085 |
Inventories | 4 | | 164,089,089 | | 115,978,979 |
Prepaid expenses and other current assets | | | 3,723,244 | | 4,647,163 |
Current assets | | | 288,234,870 | | 400,227,257 |
Non-current | | | | | |
Other non-current assets | | | 1,353,630 | | 793,298 |
Property, plant and equipment | 5 | | 123,846,849 | | 32,668,158 |
Right-of-use assets | 6 | | 61,792,536 | | 60,902,362 |
Intangible assets | | | 125,856,977 | | 81,899,830 |
Contract asset | 9 | | 13,053,905 | | 14,113,415 |
Non-current assets | | | 325,903,897 | | 190,377,063 |
Total assets | | | 614,138,767 | | 590,604,320 |
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LIABILITIES | | | | | |
Current | | | | | |
Trade and other payables | | | 75,642,955 | | 40,409,565 |
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Current portion of long-term debt and other debts | 8 | | 9,795,750 | | 13,015,584 |
Current portion of lease liabilities | 6 | | 5,079,945 | | 4,691,344 |
Current liabilities | | | 90,518,650 | | 58,116,493 |
Non-current | | | | | |
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Long-term debt and other debts | 8 | | 47,675,755 | | 62,086 |
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Lease liabilities | 6 | | 59,233,709 | | 57,517,973 |
Share warrant obligations | 9 | | 18,417,632 | | 106,225,934 |
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Non-current liabilities | | | 125,327,096 | | 163,805,993 |
Total liabilities | | | 215,845,746 | | 221,922,486 |
SHAREHOLDERS' EQUITY | | | | | |
Share capital | 14 | | 437,899,314 | | 418,709,160 |
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Contributed surplus | | | 132,477,906 | | 122,637,796 |
Deficit | | | (147,342,148) | | | (169,755,726) | |
Cumulative translation adjustment | | | (24,742,051) | | | (2,909,396) | |
Total shareholders' equity | | | 398,293,021 | | 368,681,834 |
Total shareholders' equity and liabilities | | | 614,138,767 | | 590,604,320 |
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The accompanying notes are an integral part of the condensed interim consolidated financial statements.
The Lion Electric Company
Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss)
For the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars)
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| | | Three months ended | | Nine months ended |
| Notes | | September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 |
| | | $ | | $ | | $ | | $ |
Revenue | 15 | | 40,978,001 | | 11,925,381 | | 93,145,810 | | 34,839,798 |
Cost of sales | | | 44,797,649 | | 13,152,702 | | 101,328,397 | | 36,974,147 |
Gross loss | | | (3,819,648) | | | (1,227,321) | | (8,182,587) | | | (2,134,349) | |
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Administrative expenses | 10 | | 12,165,843 | | 9,969,149 | | 34,846,047 | | 66,241,280 |
Selling expenses | 10 | | 5,232,860 | | 5,208,478 | | 17,330,842 | | 22,930,325 |
Transaction costs | | | — | | — | | — | | 13,654,851 |
Operating loss | | | (21,218,351) | | | (16,404,948) | | | (60,359,476) | | | (104,960,805) | |
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Finance costs | 11 | | 1,500,302 | | 229,494 | | 1,846,751 | | 7,138,518 |
Foreign exchange loss (gain) | | | 2,124,168 | | (1,223,617) | | 1,414,128 | | | (1,299,708) | |
Change in fair value of share warrant obligations | 9 | | (7,643,140) | | (138,423,798) | | (86,033,933) | | (39,208,584) |
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Net earnings (loss) | | | (17,199,681) | | | 123,012,973 | | | 22,413,578 | | | (71,591,031) | |
Other comprehensive earnings (loss) | | | | | | | | | |
Item that will be subsequently reclassified to net earnings (loss) | | | | | | | | | |
Foreign currency translation adjustment | | | (17,006,234) | | 1,003,693 | | | (21,832,655) | | | (2,016,700) | |
Comprehensive Earnings (Loss) | | | (34,205,915) | | | 124,016,666 | | | 580,923 | | | (73,607,731) | |
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Earnings (Loss) per share | | | | | | | | | |
Basic earnings (loss) per share | 12 | | (0.09) | | | 0.65 | | | 0.12 | | | (0.47) | |
Diluted earnings (loss) per share | 12 | | (0.09) | | | 0.60 | | | 0.11 | | | (0.47) | |
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The accompanying notes are an integral part of the condensed interim consolidated financial statements.
The Lion Electric Company
Consolidated Statements of Changes in Equity
For the nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except for number of shares)
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| Notes | | Number of shares | | Share capital | | Contributed surplus | | Conversion options | | Deficit | | Cumulative translation adjustment | | Total equity (deficiency) |
| | | | | $ | | $ | | $ | | $ | | $ | | $ |
Balance at January 1, 2022 | | | 190,002,712 | | 418,709,160 | | 122,637,796 | | — | | (169,755,726) | | | (2,909,396) | | 368,681,834 | |
Share-based compensation | 10 | | — | | — | | 9,840,110 | | — | | — | | — | | 9,840,110 |
Net earnings | | | — | | — | | — | | — | | 22,413,578 | | | — | | 22,413,578 | |
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Shares issued pursuant to exercise of stock options and warrants | | | 300 | | 3,798 | | — | | — | | — | | — | | 3,798 | |
Issuance of shares though "at-the-market" equity program | 14 | | 4,708,822 | | 19,186,356 | | — | | — | | — | | — | | 19,186,356 |
Other comprehensive loss | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | — | | — | | — | | — | | — | | (21,832,655) | | (21,832,655) | |
Balance at September 30, 2022 | | | 194,711,834 | | 437,899,314 | | 132,477,906 | | — | | (147,342,148) | | | (24,742,051) | | 398,293,021 |
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Balance at January 1, 2021 | | | 110,551,314 | | 32,562,541 | | — | | 1,472,520 | | (126,430,406) | | | (3,230,584) | | (95,625,929) |
Transfer from share-based compensation liability | 10 | | — | | — | | 130,276,188 | | — | | — | | — | | 130,276,188 |
Transfer of retractable common shares from liability | | | 17,994,857 | | 29,072,804 | | | | — | | — | | — | | 29,072,804 |
Share-based compensation | 10 | | — | | — | | 10,072,159 | | — | | — | | — | | 10,072,159 |
Shares issued pursuant to exercise of stock options | 10 | | 970,000 | | 15,280,347 | | (14,555,748) | | — | | — | | — | | 724,599 |
Issuance of shares through private placement | | | 20,040,200 | | 196,255,491 | | — | | — | | — | | — | | 196,255,491 |
Redemption of conversion option on convertible debt instruments | | | — | | — | | — | | (1,472,520) | | — | | — | | (1,472,520) |
Issuance of shares upon business combination transaction | | | 39,911,231 | | 137,124,375 | | — | | — | | — | | — | | 137,124,375 |
Net loss | | | — | | — | | — | | — | | (71,591,031) | | | — | | (71,591,031) | |
Other comprehensive loss | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | — | | — | | — | | — | | — | | (2,016,700) | | (2,016,700) |
Balance at September 30, 2021 | | | 189,467,602 | | 410,295,558 | | 125,792,599 | | — | | (198,021,437) | | (5,247,284) | | 332,819,436 |
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The accompanying notes are an integral part of the condensed interim consolidated financial statements.
The Lion Electric Company
Consolidated Statements of Cash Flows
For the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US Dollars) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended | | Nine months ended |
| Note | | September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 |
| | | $ | | $ | | $ | | $ |
OPERATING ACTIVITIES | | | | | | | | | |
Net earnings (loss) | | | (17,199,681) | | 123,012,973 | | 22,413,578 | | (71,591,031) |
Non-cash items: | | | | | | | | | |
Depreciation and amortization | 13 | | 3,046,488 | | 1,368,805 | | 7,768,914 | | 3,901,188 |
Share-based compensation | 10 | | 2,682,470 | | 5,996,191 | | 9,840,110 | | 66,001,039 |
Accretion expense on common shares, retractable | 11 | | — | | — | | — | | 2,031,863 |
Accretion and revaluation expense on balance of purchase price payable related to the acquisition of the dealership rights | 11 | | — | | (58,723) | | 82,850 | | 228,121 |
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Accretion expense on convertible debt instruments | 11 | | — | | — | | — | | 2,503,097 |
Gain on derecognition of the balance of purchase price payable related to the acquisition of the dealership rights | 8,11 | | — | | — | | (2,130,583) | | — |
Change in fair value of share warrant obligations | 9 | | (7,643,140) | | (138,423,798) | | (86,033,933) | | (39,208,584) |
Unrealized foreign exchange loss (gain) | | | 1,102,315 | | 201,818 | | 832,209 | | (232,551) |
Net change in non-cash working capital items | 13 | | (18,405,005) | | (22,842,689) | | (41,719,676) | | (45,095,632) |
Cash flows used in operating activities | | | (36,416,553) | | | (30,745,423) | | | (88,946,531) | | | (81,462,490) | |
INVESTING ACTIVITIES | | | | | | | | | |
Acquisition of property, plant and equipment | 5 | | (21,897,519) | | (4,991,385) | | (89,930,883) | | (9,388,107) |
Acquisition of intangible assets | | | (18,789,392) | | (9,480,960) | | (57,479,103) | | (26,647,917) |
Disposal of property, plant and equipment | | | 24,413 | | — | | 24,413 | | — |
Government assistance related to intangible assets | | | — | | 169,239 | | — | | 1,946,554 |
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Cash flows used in investing activities | | | (40,662,498) | | | (14,303,106) | | | (147,385,573) | | | (34,089,470) | |
FINANCING ACTIVITIES | | | | | | | | | |
Net change in credit facilities | | | — | | — | | — | | (16,262,610) |
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Repayment of loans on research and development tax credits and subsidies receivable | | | — | | — | | — | | (2,745,712) |
Increase in long-term debt | | | 45,234,309 | | — | | 48,938,114 | | 15,775,473 |
Repayment of long-term debt and other debts | | | (47,277) | | (75,138) | | (420,385) | | (41,480,736) |
Repayment of convertible debt instruments | | | — | | — | | — | | (23,903,068) |
Payment of lease liabilities | 6 | | (1,420,153) | | (629,978) | | (3,757,691) | | (1,659,950) |
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Proceeds from issuance of shares through private placement, net of issuance costs | | | — | | — | | — | | 196,255,491 |
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Proceeds from issuance of shares through "at-the-market" equity program | 14 | | 19,186,356 | | — | | 19,186,356 | | — |
Proceeds from the issuance of shares through exercise of stock options and warrants | 9,10 | | — | | 670,205 | | 3,798 | | 724,599 |
Proceeds from issuance of shares through business combination transaction | | | — | | — | | — | | 308,232,870 |
Cash flows from (used in) financing activities | | | 62,953,235 | | (34,911) | | 63,950,192 | | 434,936,357 |
Effect of exchange rate changes on cash held in foreign currency | | | (2,264,281) | | (1,374,045) | | (2,706,703) | | (1,446,597) |
Net (decrease) increase in cash | | | (16,390,097) | | (46,457,485) | | (175,088,615) | | 317,937,800 |
Cash (bank overdraft), beginning of period | | | 83,003,512 | | | 364,304,209 | | | 241,702,030 | | | (91,076) | |
Cash, end of period | | | 66,613,415 | | 317,846,724 | | 66,613,415 | | 317,846,724 |
Other information on cash flows related to operating activities: | | | | | | | | | |
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Interest paid | | | 697,218 | | 242,176 | | 1,551,338 | | 4,243,019 |
Interest paid under lease liabilities | | | 803,084 | | 114,618 | | 2,343,146 | | 304,223 |
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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
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
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 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 (" financial statements") are as at September 30, 2022 and December 31, 2021 and for the three and nine months ended September 30, 2022 and 2021 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 unaudited condensed interim 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. These financial statements should be read in conjunction with the most recent annual consolidated financial statements for the year ended December 31, 2021. 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.
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 the IASB, have been omitted or condensed and therefore these financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2021. These 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.
These unaudited financial statements have been approved for issue by the Board of Directors on November 9, 2022.
7
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
3 - SUMMARY OF ACCOUNTING POLICIES
3.1 Overall considerations
The Company applied the same accounting policies in the preparation of these financial statements as those disclosed in Note 3 of its most recent annual consolidated financial statements for the year ended December 31, 2021, except for the change in functional currency, as described below in Note 3.2 and the adoption of new standards effective January 1, 2022, as described below in Note 3.4.
When preparing the financial statements, management undertakes a number of judgements, estimates and assumptions about 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 Company applied the same judgements, estimates and assumptions in the 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, 2021.
3.2 Functional currency
The functional currency of Lion's subsidiary, The Lion Electric Co USA Inc., was changed to the US dollar effective January 1, 2022. This change was made to reflect the fact that the US has become the primary economic environment in which the entity operates. Over time, the US dollar's influence on sales prices and costs has increased. In addition, financing of the subsidiary is denominated in US dollars. The change has been implemented prospectively. The functional currency of the parent company remains the Canadian dollar.
3.3 Changes in classification and presentation
Prepaid expenses and other non-current assets
During fiscal 2022, the Group changed the classification of a portion of the assets previously included in Prepaid expenses, subsequently renamed Prepaid expenses and other current assets, to Other non-current assets. This classification change was made to better reflect the nature of those assets and their maturity period. This classification change was applied retroactively and the comparative figures for the fiscal year ended December 31, 2021 were adjusted to reflect this change without impact on net loss and net loss per share.
The table below shows, for the impacted line items only, the previously published figures, the adjustment stemming from this change, and the adjusted figures:
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| Published | | Adjustment | | December 31, 2021 adjusted |
| $ | | $ | | $ |
Prepaid expenses and other current assets | 5,440,461 | | (793,298) | | 4,647,163 |
Other non-current assets | — | | 793,298 | | | 793,298 | |
8
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
3 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
3.3 Changes in classification and presentation (continued)
Lease Liability
During fiscal 2022, the Group changed its classification of the lease liabilities between the current portion of lease liabilities and the non-current portion of the lease liability in the consolidated statements of financial position. This classification change was made to better reflect the maturity of those obligations. This classification change was applied retroactively and the comparative figures for the fiscal year ended December 31, 2021 were adjusted to reflect this change without impact on net loss and net loss per share.
The table below shows, for the impacted line items only, the previously published figures, the adjustment stemming from this change and the adjusted figures:
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| Published | | Adjustment | | December 31, 2021 adjusted |
| $ | | $ | | $ |
Current portion of lease liabilities | 7,728,923 | | (3,037,579) | | 4,691,344 |
Lease liabilities | 54,480,394 | | 3,037,579 | | | 57,517,973 | |
3.4 Initial application of new accounting standards and interpretations in the reporting standards
Amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets
On May 12, 2020, the IASB issued amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets, to clarify what costs an entity must consider in assessing whether a contract is onerous. The amendments specify that the cost of fulfilling a contract comprises the costs that relate directly to the contract, which include incremental costs (direct labor, material) and allocation of other costs that relate directly to fulfilling the contract (allocation of depreciation charge for an item of property, plant and equipment). The adoption of the amendments as of January 1, 2022 did not have an impact on the Company’s financial statements.
3.5 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 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 Group.
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 Group’s financial statements.
9
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
4- INVENTORIES
Inventories consist of the following:
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| September 30, 2022 | | December 31, 2021 |
| $ | | $ |
Raw materials | 143,940,512 | | 97,094,671 |
Work in process | 12,470,832 | | | 14,122,704 |
Finished goods | 7,677,745 | | 4,761,604 |
| 164,089,089 | | 115,978,979 |
10
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
5 - PROPERTY, PLANT AND EQUIPMENT
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| Leasehold improvements | | Machinery and equipment | | Rolling stock | | Computer equipment | | Furniture and office equipment | | Production moulds | | Master patterns and templates | | Prototypes | | Construction in progress | | Total |
| $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ |
GROSS CARRYING AMOUNT | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2022 | 17,054,605 | | 6,421,141 | | 1,308,726 | | 2,992,982 | | 513,344 | | 1,462,683 | | 965,937 | | 78,709 | | 5,301,919 | | 36,100,046 |
Additions | 28,520,797 | | 37,090,148 | | 230,852 | | 3,082,745 | | 57,744 | | 1,243,564 | | 293,364 | | 117,340 | | 28,750,345 | | 99,386,899 |
Disposal | — | | — | | (83,130) | | — | | — | | — | | — | | — | | — | | (83,130) |
Foreign currency translation adjustment | (338,404) | | (1,964,912) | | (15,314) | | (320,273) | | (39,618) | | (164,521) | | (84,415) | | (14,396) | | (2,224,303) | | (5,166,156) |
Balance at September 30, 2022 | 45,236,998 | | 41,546,377 | | 1,441,134 | | 5,755,454 | | 531,470 | | 2,541,726 | | 1,174,886 | | 181,653 | | 31,827,961 | | 130,237,659 |
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ACCUMULATED DEPRECIATION | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2022 | 1,618,691 | | 343,839 | | 224,406 | | 758,100 | | 96,809 | | 246,449 | | 64,885 | | 78,709 | | — | | 3,431,888 |
Depreciation | 985,194 | | 1,163,771 | | 139,852 | | 563,867 | | 43,109 | | 462,794 | | 46,693 | | 38,447 | | — | | 3,443,727 |
Disposal | — | | — | | (58,142) | | — | | — | | — | | — | | — | | — | | (58,142) |
Foreign currency translation adjustment | (172,344) | | (99,412) | | (7,471) | | (89,801) | | (9,195) | | (44,433) | | (7,562) | | 3,555 | | — | | (426,663) |
Balance at September 30, 2022 | 2,431,541 | | 1,408,198 | | 298,645 | | 1,232,166 | | 130,723 | | 664,810 | | 104,016 | | 120,711 | | — | | 6,390,810 |
Carrying amount September 30, 2022 | 42,805,457 | | 40,138,179 | | 1,142,489 | | 4,523,288 | | 400,747 | | 1,876,916 | | 1,070,870 | | 60,942 | | 31,827,961 | | 123,846,849 |
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GROSS CARRYING AMOUNT | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2021 | 1,966,151 | | 1,988,193 | | 407,579 | | 1,294,565 | | 488,489 | | 416,858 | | 525,953 | | 78,370 | | — | | 7,166,158 |
Additions | 15,102,271 | | 4,186,427 | | 905,507 | | 1,702,475 | | 303,078 | | 1,051,343 | | 440,320 | | — | | 5,336,280 | | 29,027,701 |
Transfers | — | | 283,185 | | — | | — | | (283,185) | | — | | — | | – | | — | | — |
Foreign currency translation adjustment | (13,817) | | (36,664) | | (4,360) | | (4,058) | | 4,962 | | (5,518) | | (336) | | 339 | | (34,361) | | (93,813) |
Balance at December 31, 2021 | 17,054,605 | | 6,421,141 | | 1,308,726 | | 2,992,982 | | 513,344 | | 1,462,683 | | 965,937 | | 78,709 | | 5,301,919 | | 36,100,046 |
| | | | | | | | | | | | | | | | | | | |
ACCUMULATED DEPRECIATION | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2021 | 774,384 | | 96,356 | | 120,439 | | 363,142 | | 125,071 | | 114,635 | | 46,954 | | 78,370 | | — | | 1,719,351 |
Depreciation | 847,151 | | 165,129 | | 104,269 | | 396,321 | | 54,747 | | 132,470 | | 17,890 | | — | | — | | 1,717,977 |
Transfers | — | | 84,588 | | — | | — | | (84,588) | | — | | — | | — | | — | | — |
Foreign currency translation adjustment | (2,844) | | (2,234) | | (302) | | (1,363) | | 1,579 | | (656) | | 41 | | 339 | | — | | (5,440) |
Balance at December 31, 2021 | 1,618,691 | | 343,839 | | 224,406 | | 758,100 | | 96,809 | | 246,449 | | 64,885 | | 78,709 | | — | | 3,431,888 |
Carrying amount December 31, 2021 | 15,435,914 | | 6,077,302 | | 1,084,320 | | 2,234,882 | | 416,535 | | 1,216,234 | | 901,052 | | — | | 5,301,919 | | 32,668,158 |
11
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
6 - LEASE OBLIGATIONS
The Group has entered into lease agreements for the rental of premises and rolling stock. The leases have an initial term of 1.1 to 15 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
| | | | | | | | | | | | | | | | | |
| Premises | | Rolling stock | | Total |
| $ | | $ | | $ |
Balance at January 1, 2022 | 60,297,423 | | 604,939 | | 60,902,362 |
Additions | 6,661,404 | | 478,001 | | 7,139,405 |
Modifications | (450,567) | | | (19,446) | | | (470,013) | |
Depreciation expense | (4,850,245) | | | (125,359) | | | (4,975,604) | |
Foreign currency translation adjustment | (762,267) | | | (41,347) | | | (803,614) | |
Balance at September 30, 2022 | 60,895,748 | | 896,788 | | 61,792,536 |
| | | | | | | | | | | | | | | | | |
| Premises | | Rolling stock | | Total |
| $ | | $ | | $ |
Balance at January 1, 2021 | 7,353,957 | | 144,767 | | 7,498,724 |
Additions | 56,006,523 | | 568,498 | | 56,575,021 |
Depreciation expense | (3,031,148) | | | (103,704) | | | (3,134,852) | |
Foreign currency translation adjustment | (31,909) | | (4,622) | | (36,531) |
Balance at December 31, 2021 | 60,297,423 | | 604,939 | | 60,902,362 |
Depreciation was recognized as follows in the consolidated statements of earnings (loss):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| $ | | $ | | $ | | $ |
Cost of sales | 335,811 | | 348,555 | | 1,025,664 | | 910,286 |
Administrative expenses | 69,647 | | 63,437 | | 209,311 | | 161,565 |
Selling expenses | 454,354 | | | 293,819 | | 1,338,175 | | 723,061 |
Capitalized to property, plant and equipment | 815,937 | | — | | 2,402,454 | | — |
| 1,675,749 | | 705,811 | | 4,975,604 | | 1,794,912 |
12
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
6 - LEASE OBLIGATIONS (CONTINUED)
Lease liabilities
| | | | | |
| $ |
Balance at January 1, 2022 | 62,209,317 |
Additions | 7,139,405 |
Lease payments | (3,757,691) | |
Modifications | (470,013) | |
Foreign currency translation adjustment | (807,364) | |
Balance at September 30, 2022 | 64,313,654 |
Current portion | 5,079,945 |
Non-current portion | 59,233,709 |
| | | | | |
Balance at January 1, 2021 | 7,719,108 |
Additions | 56,575,021 |
Lease payments | (2,093,371) | |
Foreign exchange gain | (42,772) | |
Foreign currency translation adjustment | 51,331 |
Balance at December 31, 2021 | 62,209,317 |
Current portion | 4,691,344 |
Non-current portion | 57,517,973 |
13
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
7 - FINANCIAL ASSETS AND LIABILITIES
7.1 Categories of financial assets and financial liabilities
The classification of financial instruments is summarized as follows: | | | | | | | | | | | | | | | | | |
| Classifications | | September 30, 2022 | | December 31, 2021 |
| | | $ | | $ |
FINANCIAL ASSETS | | | | | |
Cash | Amortized cost | | 66,613,415 | | 241,702,030 |
Trade and other receivables | Amortized cost | | 25,230,380 | | 25,373,946 |
Incentives from "support program for the deployment of electric school buses" and from "zero-emission truck and bus program" receivable | Amortized cost | | 10,852,119 | | 3,904,401 | |
Other government assistance receivable | Amortized cost | | 6,638,021 | | 903,356 | |
| | | | | |
FINANCIAL LIABILITIES | | | | | |
| | | | | |
| | | | | |
Loans on research and development tax credits and subsidies receivable | Amortized cost | | 9,771,494 | | 10,564,590 | |
Trade and other payables | Amortized cost | | 65,419,051 | | 33,343,630 | |
Long-term debt and other debts | Amortized cost | | 47,700,011 | | 2,513,080 | |
| | | | | |
Share warrant obligations | FVTPL | | 18,417,632 | | 106,225,934 | |
| | | | | |
7.2 Fair value of financial instruments
Current financial instruments that are not measured at fair value on the consolidated statement of financial position as at September 30, 2022 include trade and other receivables, incentives from "support program for the deployment of electric school buses" and from "zero-emission truck and bus program" receivable, other government assistance receivable, loans on research and development tax credits and subsidies receivable and trade and other payables. Their carrying values are considered to be a reasonable approximation of their fair value because of their short-term maturity and / or contractual terms of these instruments.
As at September 30, 2022, the fair value of long-term debt and other debts was based on discounted cash flows and was not materially different from its carrying value because there was no material change in the assumptions used for fair value determination at inception. Therefore, their principal amount approximated their fair value. As at September 30, 2022, the fair value of the private share warrants was determined using the Black-Scholes option pricing model and the fair value of the public share warrants was determined using their market value. The fair value of the other share warrant obligations was determined as described in Note 9.
14
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
7 - FINANCIAL ASSETS AND LIABILITIES (CONTINUED)
7.2 Fair value of financial instruments (continued)
As at September 30, 2022, 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 private share warrants and the warrant issued to a customer and a corresponding decrease in consolidated net earnings of $649,556 and a 5.0% decrease in the value would have an impact of increasing consolidated net earnings by $611,596. As at September 30, 2022, the impact of a 5.0% increase or decrease in the value of the Company's share price would have an impact of $664,204 on the fair value of the public warrants, with a corresponding impact on the consolidated net earnings.
7.3 Fair Value Hierarchy
Fair value measurements are categorized in accordance with the following level:
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 follow 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- warrant issued to a customer | Level 3 |
FINANCIAL INSTRUMENTS MEASURED AT AMORTIZED COST | |
Long-term debt | Level 2 |
| |
| |
15
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
8 - LONG-TERM DEBT AND OTHER DEBTS
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| $ | | $ |
Banking Syndicate secured revolving credit, maturing August 11, 2024 (Note 8.1), | 36,902,809 | | | — | |
Investissement Quebec (IQ) secured loan for the financing of the battery manufacturing plant and innovation center (Note 8.2) | 5,987,902 | | | — | |
Strategic Innovation Fund of the Government of Canada unsecured non-interest bearing loan for the financing of the battery manufacturing plant and innovation center (Note 8.3) | 4,768,853 | | | — | |
Loans on research and development tax credits and subsidies receivable | 9,771,494 | | | 10,564,590 | |
Economic Development Canada (EDC) unsecured loans, maturing between January 2022 and February 2022 | — | | 24,397 | |
Secured loans for the acquisition of rolling stock, maturing between December 2023 and August 2024 (Note 8.4) | 40,447 | | | 95,949 | |
Balance of purchase price payable related to the acquisition of the dealership rights, without interest (Note 8.5) | — | | | 2,392,734 | |
| 57,471,505 | | 13,077,670 |
Current portion of long-term debt and other debts | 9,795,750 | | | 13,015,584 | |
Long-term portion of long-term debt and other debts | 47,675,755 | | | 62,086 | |
8.1 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 initially provided for a committed revolving credit facility in the maximum principal amount of $100,000,000, and was amended on January 25, 2022 to, inter alia, increase the maximum principal amount available thereunder to $200,000,000. 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 subject to customary eligibility and exclusionary criteria, advance rates and reserves.
16
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
8 - LONG-TERM DEBT AND OTHER DEBTS (CONTINUED)
8.1 Credit Agreement with Banking Syndicate (continued)
The credit facility under the Revolving Credit Facility currently bears interest at a floating rate by reference to the Canadian prime rate or pursuant to banker’s acceptance based on the 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 September 30, 2022, the weighted average all-in interest rate was 4.88%, divided as follow:
| | | | | | | | |
| Repricing date | Interest Rate |
Loan in the amount of CA$30,000,000 | October 2022 | 3.67% -3.77% plus 1.50% stamping fee |
Loan in the amount of US$15,000,000 | October 2022 | 4.42%, including spread of 1.50% |
The Revolving Credit Agreement matures on August 11, 2024. 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’ 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. As at September 30, 2022, the Company was in compliance with the covenants and financial ratios.
8.2 Investissement Quebec 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 its battery manufacturing plant and innovation center projects in the Province of Quebec. The IQ Loan provides for financing of up to CA$50,000,000, of which up to 30% of the amount disbursed may be forgiven subject to the satisfaction of certain criteria tied to the Company and to the operations of the battery manufacturing plant and innovation center facilities.
The IQ Loan bears interest at a fixed rate of 4.41%, and will be repayable over a ten-year term, beginning on the fifth anniversary of the first draw. The obligations under the IQ Loan are secured by a security interest, hypothec, and lien on substantially all of the Company’s and certain of its subsidiaries’ property and assets (subject to certain exceptions and limitations).
17
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
8 - LONG-TERM DEBT AND OTHER DEBTS (CONTINUED)
8.3 Strategic Innovation Fund of the Government of Canada loan related to Battery Manufacturing 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 its battery manufacturing plant and innovation center projects in the Province of Quebec (the “SIF Loan”). The SIF Loan provides for financing of up to CA$49,950,000, of which up to 30% of the amount disbursed may be forgiven subject to the satisfaction of certain criteria tied to the Company and to the operations of the battery manufacturing plant and innovation center facilities. The SIF Loan is repayable over a 15-year term beginning in 2026.
8.4 Secured loans for the acquisition of rolling stock
On September 1, 2022, the Company repaid the carrying value of $ 24,413 for the loan in the amount of $58,753 for the acquisition of rolling stock.
8.5 Balance of purchase price payable related to the acquisition of the dealership rights, without interest
On May 7, 2022, the agreement with a private company relating to the previous acquisition of dealership rights in certain territories in the United States matured and the related financial liability was derecognized. The balance of the carrying amount was derecognized and the corresponding gain was recognized in finance costs in the consolidated statements of earnings (loss) and comprehensive earnings (loss) (refer to Note 11).
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 a warrant to purchase common shares of the Company (the “Warrant”) to Amazon.com NV Investment Holdings LLC (the “Warrant holder”) 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.
At the election of the Warrant holder, 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 of the Warrant corresponds to $5.66 per share. The Warrant grants the Warrant holder 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 is exercisable for 5,302,511 common shares as at September 30, 2022 and December 31, 2021. 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 $1.1 billion on Group products or services over the term of the Warrant, subject to accelerated vesting upon the occurrence of certain events, including a change of control of the Group or a termination of the MPA for cause.
18
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
9 - SHARE WARRANT OBLIGATIONS (CONTINUED)
9.1 Warrants issued to a customer (continued)
The fair value of the Warrant was determined using the Black-Scholes option pricing model taking into account the following assumptions:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| | | |
Exercise price ($) | 5.66 | | 5.66 |
Share price ($) | 2.86 | | 9.94 |
Volatility | 40% | | 40% |
Risk-free interest rate | 3.26% | | 1.27% |
Expected warrant life (years) | 5.75 | | 6.50 |
The Group has recognized the following contract asset and share warrant obligation:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| $ | | $ |
Contract asset | | | |
Beginning Balance | 14,113,415 | | 14,327,709 |
Amortization | — | | | (284,625) |
Foreign currency translation adjustment | (1,059,510) | | 70,331 |
Ending Balance | 13,053,905 | | 14,113,415 |
| | | |
Share warrant obligation | | | |
Beginning Balance | 30,871,444 | | 31,549,033 |
Fair value adjustment | (27,017,056) | | 492,091 |
Foreign currency translation adjustment | (465,502) | | | (1,169,680) |
Ending Balance | 3,388,886 | | 30,871,444 |
19
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
9 - SHARE WARRANT OBLIGATIONS (CONTINUED)
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 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. A total of 27,111,741 NGA warrants were converted into 27,111,741 warrants of the Company, 15,972,672 of which are publicly traded and 11,139,069 of which are private. As at September 30, 2022, there were 27,111,323 warrants outstanding (December 31, 2021: 27,111,623) of which 15,972,364 are publicly traded (December 31, 2021: 15,972,664) and 11,138,959 are private (December 31, 2021: 11,138,959).
Each public warrant entitles the holder to purchase one common share for a price $11.50 per share. The public warrants became exercisable 30 days after the completion of the business combination transaction and will expire five years after the completion of the business combination transaction, or earlier upon redemption or liquidation. The Company may redeem the outstanding public warrants after they become exercisable, in whole at a price of $0.01 per public warrant, provided that the last reported sales price of the Company’s common shares equals or exceeds $18.00 per share for any 20 trading days within a 30 trading-day period commencing once the public warrants become exercisable and ending on the third trading day prior to the date on which the Company gives proper notice of such redemption.
The fair value of the public warrants were determined using their market trading price as follows:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Warrant price ($) | 0.79 | | 2.73 |
Each private warrant entitles the holder to purchase one common share for a price of $11.50 per share and became exercisable 30 days following the completion of the business combination transaction and will expire five years after the completion of the business combination transaction. The private warrants are not redeemable by the Company so long as they are held by the NGA Sponsor or its permitted transferees. The fair value of the private warrants was determined using the Black-Scholes option pricing model taking into account the following assumptions:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| | | |
Exercise price ($) | 11.50 | | 11.50 |
Share price ($) | 2.86 | | 9.94 |
Volatility | 47% | | 40% |
Risk-free interest rate | 3.59% | | 1.27% |
Expected warrant life (years) | 3.58 | | 4.33 |
The expected volatility was determined by reference to historical data of comparable share prices over the expected life of the warrants.
20
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
9 - SHARE WARRANT OBLIGATIONS (CONTINUED)
9.2 Warrants issued as part of the business combination transaction (continued)
The Group has recognized the following warrant obligations:
| | | | | | | | | | | | | | | | | |
| Public warrants | | Private warrants | | Total |
| $ | | $ | | $ |
Beginning balance at January 1, 2022 | 42,961,675 | | 32,392,815 | | 75,354,490 |
Fair value adjustment | (28,672,713) | | | (30,344,164) | | | (59,016,877) | |
Exercised | (348) | | | — | | | (348) | |
Foreign currency translation adjustment | (1,004,609) | | | (303,910) | | | (1,308,519) | |
Balance at September 30, 2022 | 13,284,005 | | 1,744,741 | | 15,028,746 |
| | | | | | | | | | | | | | | | | |
| Public warrants | | Private warrants | | Total |
| $ | | $ | | $ |
Beginning balance at May 6, 2021 | 95,836,032 | | 73,616,827 | | 169,452,859 |
Fair value adjustment | (48,935,404) | | (37,352,590) | | (86,287,994) |
Exercised | — | | | (442) | | | (442) |
Foreign currency translation adjustment | (3,938,953) | | | (3,870,980) | | | (7,809,933) | |
Balance at December 31, 2021 | 42,961,675 | | 32,392,815 | | 75,354,490 |
10 - SHARE-BASED COMPENSATION
10.1 Stock options
The Group has a stock option plan (the "Plan") for its key employees, officers and consultants under which it has authorized the grant of options for the purchase of its common shares for a maximum of 10% of outstanding common shares.
The Board of Directors shall determine the stock option term, which shall be no more than 10 years. Under the terms of the plan, the exercise price of each option cannot be below the fair value of the common shares on the grant date. Unless otherwise determined by the Board of Directors, the options granted under the plan vest within four years, beginning on the first anniversary of the date of granting. The option redemption value is the excess of the fair market value of the shares over the option exercise price, with the fair value of the shares being determined on the basis of the last approved financial statements.
21
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
10 - SHARE-BASED COMPENSATION (CONTINUED)
10.1 Stock options (continued)
Change in Method of Settlement
As of May 6, 2021, the cash settlement option in the Company’s stock option plan was removed. As a result, the liability for share-based compensation was re-measured to fair value at May 6, 2021, with changes in fair value recognized in net earnings (loss), and the resulting fair value of $130,276,188 was transferred to contributed surplus within shareholders’ equity.
The following principal weighted assumptions were used in the Black-Scholes option pricing model to remeasure the share-based compensation liability relating to stock options as at May 6, 2021:
| | | | | |
| May 6, 2021 |
| |
Exercise price (CA $) | 1.17 |
Share price (CA $) | 19.73 |
Volatility (%) | 40% |
Risk-free interest rate (%) | 1.40% |
Expected option life (years) | 7.58 |
The following table summarizes the outstanding options as at and changes during the nine months ended and year then ended:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Number of stock options | | Weighted average exercise price | | Number of stock options | | Weighted average exercise price |
| | | CA$ | | | | CA$ |
Outstanding, beginning of period | 9,072,149 | | 1.82 | | 10,375,195 | | 1.17 |
Granted | 558,697 | | 6.94 | | 294,854 | | 21.86 |
Exercised | — | | — | | (1,505,000) | | 0.93 |
Forfeited | (7,573) | | 9.62 | | (92,900) | | 6.90 |
| | | | | | | |
Outstanding, end of period | 9,623,273 | | 2.11 | | 9,072,149 | | 1.82 |
Exercisable, end of period | 6,825,325 | | 1.24 | | 5,054,976 | | 1.06 |
22
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
10 - SHARE-BASED COMPENSATION (CONTINUED)
10.1 Stock options (continued)
The following table summarizes the information relating to stock options outstanding:
| | | | | | | | | | | | | | | | | |
| As at September 30, 2022 |
| Number of stock options | | Remaining contractual life (years) | | Number of stock options exercisable |
Exercise price | | | | | |
CA$0.93 (issued in 2018) | 4,792,398 | | 5.19 | | 4,644,838 |
CA$0.93 (issued in 2019) | 3,664,907 | | 7.02 | | 2,007,201 |
CA$6.90 (issued in 2020) | 319,990 | | 7.96 | | 103,223 |
CA$15.45 (issued in 2021) | 26,389 | | 8.90 | | 6,597 |
CA$23.02 (issued in 2021) | 253,865 | | 8.74 | | 63,466 |
CA$13.29 (issued in 2021) | 14,600 | | 9.19 | | — |
CA$6.92 (issued in 2022) | 486,041 | | 9.62 | | — |
CA$7.05 (issued in 2022) | 65,083 | | 9.64 | | — |
| 9,623,273 | | | | 6,825,325 |
| | | | | | | | | | | | | | | | | |
| As at December 31, 2021 |
| Number of stock options | | Remaining contractual life (years) | | Number of stock options exercisable |
Exercise price | | | | | |
CA$0.93 (issued in 2018) | 4,792,398 | | 5.94 | | 3,316,799 |
CA$0.93 (issued in 2019) | 3,664,907 | | 7.77 | | 1,634,954 |
CA$6.90 (issued in 2020) | 319,990 | | 8.71 | | 103,223 |
CA$15.45 (issued in 2021) | 26,389 | | 9.65 | | — |
CA$23.02(issued in 2021) | 253,865 | | 9.49 | | — |
CA$13.29 (issued in 2021) | 14,600 | | 9.94 | | — |
| 9,072,149 | | | | 5,054,976 |
23
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
10 - SHARE-BASED COMPENSATION (CONTINUED)
10.1 Stock options (continued)
The following table summarizes the weighted average values for the assumptions used in the Black-Scholes option pricing model for the stock option grants during the nine months ended September 30, 2022 and year ended December 31, 2021. There were no stock option grants during the three months ended September 30, 2022.
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Expected dividends per share (CA$) | — | | — |
Exercise price (CA$) | 6.94 | | 21.86 |
Share price (CA$) | 6.94 | | 21.86 |
Expected Volatility (%) | 40% | | 40% |
Risk-free interest rate (%) | 2.78% | | 1.16% |
Expected option life (years) | 7.50 | | 7.50 |
The expected volatility was determined by reference to historical data of comparable companies share prices over the expected life of the stock options.
Compensation expense related to the stock options was recognized in the consolidated statement of earnings (loss) as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
| September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 |
| $ | | $ | | $ | | $ |
Administrative expenses | 1,878,049 | | 4,473,594 | | 6,750,160 | | 52,293,945 |
Selling expenses | 631,423 | | | 1,522,597 | | 2,398,950 | | | 13,707,094 |
| 2,509,472 | | 5,996,191 | | 9,149,110 | | 66,001,039 |
10.2 Restricted share units (RSUs)
In June 2021, the Company approved a restricted share unit (“RSU”) plan for officers and other key employees of the Group. A RSU represents the right of an individual to receive one common share of the Company on the vesting date without any monetary consideration being paid to the Company.
All RSUs vest within a maximum three-year vesting period and they can be settled in cash based on the Company’s share price on the vesting date, or through the delivery of common shares issued from treasury or purchased on the open market, at the Company's option. RSUs are expected to be settled in common shares purchased on the open market. As at September 30, 2022 and December 31, 2021, none of the outstanding RSUs were vested.
24
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
10 - SHARE-BASED COMPENSATION (CONTINUED)
10.2 Restricted share units (RSUs) (continued)
The following table summarizes the information relating to restricted share units outstanding:.
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Number of restricted share units | | Weighted average exercise price | | Number of restricted share units | | Weighted average exercise price |
| | | CA$ | | | | CA$ |
Outstanding, beginning of period | 36,247 | | 18.59 | | — | | — |
Granted | 276,584 | | 6.93 | | 36,247 | | 18.59 |
Forfeited | (15,173) | | 6.92 | | — | | — |
Outstanding, end of period | 297,658 | | 8.35 | | 36,247 | | 18.59 |
Vested, end of period | — | | — | | — | | — |
All RSUs have an average remaining contractual life of approximately 2.7 years as at September 30, 2022 and 2.9 years as at December 31, 2021.
Compensation cost for RSUs is measured at the fair value of the underlying common share at the grant date and is expensed over the award's vesting period. Compensation expense related to the RSUs was recognized in the consolidated statement of earnings (loss) is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
| September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 |
| $ | | $ | | $ | | $ |
Administrative expenses | 133,118 | | — | | 271,808 | | — |
Selling expenses | 39,880 | | | — | | | 83,393 | | | — | |
| 172,998 | | — | | 355,201 | | — |
The corresponding increase is recorded in contributed surplus. When the underlying shares are issued, the amounts previously credited to contributed surplus are transferred to share capital.
25
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
10 - SHARE-BASED COMPENSATION (CONTINUED)
10.3 Deferred share units (DSUs)
In June 2021, the Company approved a deferred share unit (“DSU”) plan for officers and other key employees of the Group. A DSU represents the right of an individual to receive one common share of the Company on the vesting date without any monetary consideration being paid to the Company.
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Number of deferred share units | | Weighted average exercise price | | Number of deferred share units | | Weighted average exercise price |
| | | CA$ | | | | CA$ |
Outstanding, beginning of period | 18,755 | | 14.07 | | — | | — |
Granted | 62,181 | | 6.92 | | 18,755 | | 14.07 |
Settled | 2,026 | | 14.07 | | — | | — |
Outstanding, end of period | 78,910 | | 8.44 | | 18,755 | | 14.07 |
Vested, end of period | 78,910 | | 8.44 | | 18,755 | | 14.07 |
Compensation cost for DSUs is measured at the fair value of the underlying common share at the grant date. All DSUs issued vest on the date of the grant, except as otherwise determined by the Board of Directors, and they can be settled through the delivery of common shares issued from treasury or purchased on the open market, or in cash (based on the Company’s share price on the vesting date) at the Company's option, or a combination of both. Compensation expense related to the DSUs was recognized in the consolidated statement of earnings (loss) is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
| September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 |
| $ | | $ | | $ | | $ |
Administrative expenses | — | | — | | 335,799 | | — |
| | | | | | | |
| — | | — | | 335,799 | | — |
26
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
11 - FINANCE COSTS
Finance costs for the reporting periods consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
| September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 |
| $ | | $ | | $ | | $ |
Interest on long-term debt and other debts | 718,404 | | 288,873 | | 1,600,451 | | 2,178,879 |
Interest on lease liabilities | 803,084 | | | 114,618 | | | 2,343,146 | | | 304,223 | |
Interest on convertible debt instruments | — | | | — | | | — | | | 2,503,097 | |
Accretion and revaluation expense on balance of purchase price payable related to the acquisition of the dealership rights | — | | | (58,723) | | | 82,850 | | | 228,121 | |
Accretion expense on common shares, retractable | — | | | — | | | — | | | 2,031,863 | |
Gain on derecognition of the balance of purchase price payable related to the acquisition of the dealership rights | — | | | — | | | (2,130,583) | | | — | |
Other | (21,186) | | | (115,274) | | | (49,113) | | | (107,665) | |
| 1,500,302 | | 229,494 | | 1,846,751 | | 7,138,518 |
a.On May 7, 2022, the agreement with a private company relating to the previous acquisition of dealership rights in certain territories in the United States matured and the related financial liability was derecognized. The carrying amount of $2,130,583 was recognized as a gain under finance costs (income) in the consolidated statements of earnings (loss) and comprehensive earnings (loss) for the nine months ended September 30, 2022.
27
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
12 - EARNINGS PER SHARE
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
| September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 |
| $ | | $ | | $ | | $ |
Net earnings (loss) | (17,199,681) | | | 123,012,973 | | | 22,413,578 | | | (71,591,031) | |
Basic weighted average number of common shares outstanding | 191,791,723 | | 189,007,819 | | 190,605,623 | | 152,985,749 |
Basic earnings (loss) per share | (0.09) | | | 0.65 | | | 0.12 | | | (0.47) | |
| | | | | | | |
Basic weighted average number of common shares outstanding | 191,791,723 | | 189,007,819 | | 190,605,623 | | 152,985,749 |
Plus dilutive impact of stock options, RSUs, DSUs, and warrants | — | | 15,702,038 | | 7,331,235 | | — |
Diluted weighted average number of common shares outstanding | 191,791,723 | | 204,709,857 | | 197,936,858 | | 152,985,749 |
Diluted earnings (loss) per share | (0.09) | | | 0.60 | | | 0.11 | | | (0.47) | |
Excluded from the above calculations for the three and nine months ended September 30, 2022 and 2021 are outstanding stock options, share warrant obligations, RSUs, and DSUs, which are deemed to be anti-dilutive as they would have the effect of decreasing the earnings or loss per share.
13 - SUPPLEMENTAL CASH FLOW DISCLOSURE
The depreciation and amortization is detailed as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
| September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 |
| $ | | $ | | $ | | $ |
Depreciation – property, plant and equipment | 1,419,804 | | 413,580 | | 3,443,727 | | 1,087,848 |
Depreciation – right-of-use assets | 859,812 | | 705,811 | | 2,573,150 | | 1,794,912 |
Amortization – intangible assets | 766,872 | | 249,414 | | 1,752,037 | | 733,803 |
Amortization – contract asset | — | | — | | — | | 284,625 |
| 3,046,488 | | | 1,368,805 | | | 7,768,914 | | | 3,901,188 | |
See Note 6 for additional information related to the depreciation of right-of-use assets.
28
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
13 - SUPPLEMENTAL CASH FLOW DISCLOSURE (CONTINUED)
The net changes in non-cash working capital items are detailed as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
| September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 |
| $ | | $ | | $ | | $ |
Inventories | (22,038,951) | | | (32,405,121) | | | (60,021,809) | | | (52,697,177) | |
Accounts receivables | (20,457,958) | | | (5,128,175) | | | (14,738,291) | | | (15,040,396) | |
Prepaid expenses and other assets | 1,277,901 | | | (526,255) | | | 84,614 | | | (5,435,590) | |
Trade and other payables (1) | 22,814,003 | | | 15,216,862 | | 32,955,810 | | 28,077,531 |
| (18,405,005) | | | (22,842,689) | | | (41,719,676) | | | (45,095,632) | |
(1)For the three months ended September 30, 2022, the net change in trade and other payables excludes trade and other payables as at September 30, 2022 related to the following non-cash working capital items: $878,554 related to the acquisition of intangible assets and $15,946,498 related to the acquisition of property, plant and equipment as at September 30, 2022, and includes trade and other payables as at June 30, 2022 related to the acquisition of intangible assets of $1,420,738 and related to the acquisition of property, plant and equipment of $19,205,285.
For the nine months ended September 30, 2022, the net change in trade and other payables excludes trade and other payables as at September 30, 2022 related to the following non-cash working capital items: $878,554 related to the acquisition of intangible assets and $15,946,498 related to the acquisition of property, plant and equipment as at September 30, 2022, and includes trade and other payables as at December 31, 2021 related to the acquisition of intangible assets of $554,310 and related to the acquisition of property, plant and equipment of $8,797,575.
There were no outstanding payables related to the acquisition of intangible assets and property, plant and equipment as at September 30, 2021 and December 31, 2020.
As at September 30, 2022, the Company had contractual purchase obligations outstanding of $59,902,591 (December 31, 2021: $35,102,660) for the acquisition of property, plant and equipment and intangible assets. The Company has an additional commitment of $10,000,000 related to a signed equipment lease for Joliet plant production equipment which has not yet commenced.
14 - SHARE CAPITAL
14.1 - ATM Program
On June 17, 2022, the Company established an "at-the-market" equity program (the "ATM Program") that allows 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). During the quarter ended September 30, 2022, the Company issued 4,708,822 common shares pursuant to the ATM Program at an average price of $4.35 per share for aggregate gross proceeds of $20,507,517, and for aggregate net proceeds of $19,186,356 after the deduction of equity issuance fees of $1,321,161. Equity issuance fees were mainly related to legal costs which includes one-time fees incurred to establish the ATM Program ($1,013,496 for the three months ended September 30, 2022) and net commissions paid to the agents under the ATM program ($307,665 for the three months ended September 30, 2022).
29
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
15 - 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 are divided into the following geographical areas:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
| September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 |
Revenue from External Customers | $ | | $ | | $ | | $ |
Canada | 35,431,209 | | 7,884,626 | | 81,007,166 | | 24,475,638 |
United States | 5,546,792 | | 4,040,755 | | 12,138,644 | | 10,364,160 |
| 40,978,001 | | 11,925,381 | | 93,145,810 | | 34,839,798 |
During the three months ended September 30, 2022, 34.4% (three months ended September 30, 2021: 41.2%) of the Group's revenue depended on one customer (September 30, 2021: two customers, 20.9% and 20.4% respectively).
During the nine months ended September 30, 2022, 36.6% (nine months ended September 30, 2021: 10.0%) of the Group's revenue depended on one customer (nine months ended September 30, 2021: one customer).
The Group’s following non-current assets are allocated to geographic areas as follows:
| | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| Canada | | United States | | Total |
| $ | | $ | | $ |
Property, plant and equipment | 64,085,575 | | | 59,761,274 | | | 123,846,849 | |
Right-of-use assets | 11,064,960 | | | 50,727,576 | | | 61,792,536 | |
Intangible assets | 118,646,375 | | | 7,210,602 | | | 125,856,977 | |
Contract asset | 13,053,905 | | | — | | | 13,053,905 | |
| 206,850,815 | | | 117,699,452 | | | 324,550,267 | |
30
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
15 - ENTITY-WIDE DISCLOSURES (CONTINUED)
| | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Canada | | United States | | Total |
| $ | | $ | | $ |
Property, plant and equipment | 18,035,651 | | | 14,632,507 | | | 32,668,158 | |
Right-of-use assets | 7,446,976 | | | 53,455,386 | | | 60,902,362 | |
Intangible assets | 76,127,010 | | | 5,772,820 | | | 81,899,830 | |
Contract asset | 14,113,415 | | | — | | | 14,113,415 | |
| 115,723,052 | | | 73,860,713 | | | 189,583,765 | |
Geographical areas are determined according to where the sales take place and according to the location of the long-term assets.
16 - COVID-19
In March 2020, the decree of a COVID-19 state of pandemic and the numerous measures put in place by the federal, provincial and municipal governments to protect the public, which had impacts on the Group’s operations. This state of pandemic could cause significant changes to the assets or liabilities and / or have a significant impact on future operations.
There continues to be significant uncertainty surrounding the COVID-19 pandemic. The COVID-19 pandemic significantly has negatively impacted the global economy since March 2020 and may continue to do so in the future. Global conditions that originated during the pandemic continue to persist and may have a long-lasting adverse impact on Lion's business and its industry. Given the dynamic nature of the pandemic, as demonstrated by the emergence of COVID-19 variants, infection and vaccination rates, and governmental regulations and measures that continue to fluctuate, the full extent to which COVID-19 (including as a result of the currently prevalent variants and the potential emergence of other variants of the virus in the future) impacts Lion’s business or the global economy and the markets in which Lion operates and sells its products, including Canada and the United States, will depend on unknown future developments which Lion cannot predict. Accordingly, as of the date of these financial statements, management continues to closely monitor the evolving situation.
17 - SUBSEQUENT EVENTS
On October 4, 2022, Lion received $2,712,668 under the Strategic Innovation Fund of the Government of Canada loan related to the Battery Manufacturing Plant and Innovation Center (Note 8.3).
31
The Lion Electric Company
Notes to Condensed Interim Consolidated Financial Statements
As at and for the three and nine months ended September 30, 2022 and 2021
(Unaudited, In US dollars, except number of shares)
17 - SUBSEQUENT EVENTS (CONTINUED)
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 (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 ($22,233,751) 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.
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 of the agreement and is outstanding as of the date hereof. A portion of the advances made under the Finalta-CDPQ Loan Agreement was used to repay in full the Company’s previous credit facilities entered into with Finalta on May 6, 2021, under which $9.8 million was outstanding as of September 30, 2022 (refer to Note 8). All previous hypothecs and other liens relating to the Previous Finalta Credit Facilities were discharged upon repayment thereof.