Lion Electric Co 6-K, filed May 17, 2021
Lion Electric Co (LEVGQ)
About this 6-K
Lion Electric Co filed this 6-K on May 17, 2021.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of May, 2021
Commission File No. 001-40387
THE LION ELECTRIC COMPANY
(Translation of registrant’s name into English)
921 chemin de la Rivière-du-Nord
Saint-Jérôme (Québec) J7Y 5G2
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
EXHIBIT INDEX
| Exhibit Number |
Description of Exhibit | |
| 99.1 | Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Three-month Period Ended March 31, 2021 | |
| 99.2 | Condensed Interim Consolidated Financial Statements March 31, 2021 and 2020 | |
| 99.3 | First Quarter Earnings Release Dated May 17, 2021 | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| THE LION ELECTRIC COMPANY | ||||||
| Date: May 17, 2021 | By: | /s/ Nicolas Brunet | ||||
| Name: | Nicolas Brunet | |||||
| Title: | Executive Vice President & Chief Financial Officer | |||||
Exhibit 99.1
THE LION ELECTRIC COMPANY MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF LION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021
The following management’s discussion and analysis (“MD&A”) provides information concerning financial condition and results of operations of The Lion Electric Company (the “Company” or “Lion”) for the first three-month period of the fiscal year ending December 31, 2021. This MD&A should be read in conjunction with the unaudited condensed consolidated interim financial statements of the Company for the three-month period ended March 31, 2021 as well as the audited consolidated financial statements and MD&A for the year ended December 31, 2020 included in Lion’s non-offering final prospectus dated May 5, 2021 (the “Canadian Prospectus”) filed with the Autorité des marchés financiers (the “AMF”) and the registration statement on Form F-4 filed with the SEC and declared effective on March 24, 2021 (the “Registration Statement”). Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from underlying forward-looking statements as a result of various factors, including those described in the “Forward-Looking Statements” section of this MD&A. This MD&A reflects information available to the Company as of May 14, 2021.
Basis of Presentation
Lion’s unaudited condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) and in accordance with IAS 34 “Interim Financial Reporting”.
All amounts presented are in United States dollars unless otherwise indicated.
The Company’s fiscal year is the twelve-month period ending December 31 of each year. This MD&A, approved by Lion’s Board of Directors on May 14, 2021, is based on the Company’s unaudited condensed interim consolidated financial statements and accompanying notes thereto for the three-month periods ended March 31, 2021 and 2020.
Certain figures, such as interest rates and other percentages included in this MD&A, have been rounded for ease of presentation. Percentage figures included in this MD&A have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in Lion’s financial statements or in the associated text. Certain other amounts that appear in this MD&A may similarly not sum due to rounding.
Lion has one reportable operating segment, the manufacturing and sales of electric vehicles in Canada and in the United States.
Forward-Looking Statements
This MD&A contains “forward-looking information” and “forward-looking statements” (collectively, “forward-looking statements”) within the meaning of applicable securities laws. Any statements contained in this MD&A that are not statements of historical fact, including statements about Lion’s beliefs and expectations, are forward-looking statements and should be evaluated as such.
Forward-looking statements may be identified by the use of words such as “believe,” “may,” “will,” “continue,” “anticipate,” “intend,” “expect,” “should,” “would,” “could,” “plan,” “project,” “potential,” “seem,” “seek,” “future,” “target” or other similar expressions and any other statements that predict or indicate future events or trends or that are not statements of historical matters, although not all forward-looking statements contain such identifying words. Such forward-looking statements are based on a number of estimates and assumptions that Lion believes are reasonable when made including, but not limited to, that Lion will be able to retain and hire key personnel and maintain relationships with customers, suppliers or other business partners, that Lion will continue to operate the businesses of Lion in the normal course, that Lion will be
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able to implement its growth strategy, that Lion will be able to successfully and timely complete the construction of its U.S. manufacturing facility and its Québec battery plant, that Lion will be able to maintain its competitive position, that Lion will continue to improve its operational, financial and other internal controls and systems to manage its growth and size and that its results of operations and financial condition will not be adversely affected, that Lion will be able to maintain the benefits received by Lion from government subsidies and economic incentives and that Lion will be able to secure additional funding through equity or debt financing on terms acceptable to Lion. Such estimates and assumptions are made by Lion in light of the experience of management and their perception of historical trends, current conditions and expected future developments, as well as other factors believed to be appropriate and reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Lion believes that these risks and uncertainties include, but are not limited to, the following: any adverse changes in the U.S. and Canadian general economic, business, market, financial, political and legal conditions, including as consequences of the global COVID-19 pandemic; Lion’s inability to successfully and economically manufacture and distribute its vehicles at scale and meet its customers’ business needs; Lion’s inability to execute its growth strategy; Lion’s inability to maintain its competitive position; Lion’s inability to reduce its costs of supply over time; any inability to maintain and enhance Lion’s reputation and brand; any significant product repair and/or replacement due to product warranty claims or product recalls; any failure of information technology systems or any cybersecurity and data privacy breaches or incidents; the reduction, elimination or discriminatory application of government subsidies and economic incentives or the reduced need for such subsidies; natural disasters, epidemic or pandemic outbreaks, boycotts and geo-political events; the outcome of any legal proceedings that may be instituted against Lion or the Company from time to time. These and other risks and uncertainties related to the businesses of Lion are described in greater detail in the section entitled “Risk Factors” in the Canadian Prospectus and the Registration Statement and other documents publicly filed with the AMF and the SEC. Many of these risks are beyond Lion’s management’s ability to control or predict. All forward-looking statements attributable to Lion or persons acting on their behalf are expressly qualified in their entirety by the cautionary statements contained, and risk factors identified, in the Canadian Prospectus, the Registration Statement and other documents filed with the AMF and the SEC.
Because of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. Furthermore, forward-looking statements speak only as of the date they are made. Except as required under applicable securities laws, Lion undertakes no obligation, and expressly disclaims any duty, to update, revise or review any forward-looking information, whether as a result of new information, future events or otherwise.
Non-IFRS Measures and Other Performance Metrics
This MD&A makes reference to certain non-IFRS measures, including Adjusted EBITDA and Adjusted EBITDA margin, and other performance metrics, including the Company’s order book. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under IFRS.
The Company uses non-IFRS measures including Adjusted EBITDA. “Adjusted EBITDA” is defined as net earnings (loss) before finance costs, income tax expense or benefit, and depreciation and amortization, adjusted for share-based compensation, changes in fair value of share warrant obligation, foreign exchange loss (gain) and certain non-recurring expenses. Adjusted EBITDA is intended as a supplemental measure of performance that is neither required by, nor presented in accordance with, IFRS. Lion believes that the use of Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating
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results and trends and in comparing Lion’s financial measures with those of comparable companies, which may present similar non-IFRS financial measures to investors. However, you should be aware that when evaluating Adjusted EBITDA, Lion may incur future expenses similar to those excluded when calculating Adjusted EBITDA. In addition, Lion’s presentation of these measures should not be construed as an inference that Lion’s future results will be unaffected by unusual or non-recurring items. Lion’s computation of Adjusted EBITDA may not be comparable to other similarly entitled measures computed by other companies, because all companies may not calculate Adjusted EBITDA in the same fashion. “Adjusted EBITDA margin” is equal to Adjusted EBITDA for the period presented as a percentage of revenue for the same period.
This MD&A also makes reference to the Company’s order book with respect to vehicles and charging stations. The Company’s order book, expressed as a number of units or the amount of sales expected to be recognized in the future in respect of such number of units, is determined based on purchase orders that have been signed, orders that have been formally confirmed by clients or products in respect of which formal joint applications for governmental subsidies or economic incentives have been made by the applicable clients and the Company. The Company’s order book refers to products that have not yet been delivered but which are reasonably expected by management to be delivered within a time period that can be reasonably established and includes, in the case of charging stations, services that have not been completed but which are reasonably expected by management to be completed in connection with the delivery of the product. When the Company’s order book is expressed as an amount of sales, such amount has been determined by management based on the current specifications or requirements of the applicable order, assumes no changes to such specifications or requirements and, in cases where the pricing of a product or service may vary in the future, represents management’s reasonable estimate of the prospective pricing as of the time such estimate is reported. The order book is intended as a supplemental measure of performance that is neither required by, nor presented in accordance with, IFRS or any other applicable securities legislation. Lion believes that the disclosure of its order book provides an additional tool for investors to use in evaluating the Company’s performance and trends. Lion’s computation of its order book may not be comparable to other similarly entitled measures computed by other companies, because all companies may not calculate their order book, order backlog or order intake in the same fashion. In addition, Lion’s presentation of such measure should not be construed as a representation by Lion that all of the vehicles and charging stations included in its order book will translate into actual sales. A portion of the vehicles or charging stations included in the Company’s order book may be cancellable in certain circumstances within a certain period. The conversion of the Company’s order book in actual deliveries and sales is subject to a number of risks. For instance, a customer may default on a purchase order that has become binding, and the Company may not be able to convert orders included in its order books into sales. As a result, the Company’s realization of its order book could be affected by variables beyond its control and may not be entirely realized. See sections entitled “Forward-Looking Statements” and “Order Book”.
Because of these limitations, Adjusted EBITDA, Adjusted EBITDA Margin and order book should not be considered in isolation or as a substitute for performance measures calculated in accordance with IFRS. Lion compensates for these limitations by relying primarily on Lion’s IFRS results and using Adjusted EBITDA, Adjusted EBITDA Margin and order book on a supplemental basis. You should review the reconciliation of net earnings (loss) to Adjusted EBITDA presented by the Company under the section entitled “Reconciliation of Adjusted EBITDA” of this MD&A, and not rely on any single financial measure to evaluate Lion’s business.
Company Overview
Lion is a corporation existing under the Business Corporations Act (Québec). Lion is a leader in the design, development, manufacturing, and distribution of purpose-built all-electric medium and heavy-duty urban vehicles. Lion gained distinct industry expertise and a first-mover advantage in the medium and heavy-duty urban electric vehicles (“EV”) segment through more than 10 years of focused all-electric vehicle R&D, manufacturing and commercialization experience. Lion’s vehicles and technology benefit from over seven million miles driven by over 390 of its purpose-built all-electric vehicles that are on the road today, in real-life operating conditions.
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Lion’s growing line-up of purpose-built all-electric vehicles consists of seven urban truck and bus models available for purchase today.
Lion’s EVs are tailored to satisfy the needs of its customers and are entirely designed, manufactured, and assembled in-house in North America, without relying on traditional combustion-engine vehicle retrofitting or third-party integrators. To achieve this, Lion has developed its own purpose-built for electric chassis, truck cabins, and bus bodies, incorporating its proprietary battery technology with modular energy capacity and its proprietary Lion software.
Like others in the EV space, Lion has adopted a direct-to-customer sales model tailored for EVs, avoiding reliance on third-party dealerships in most instances. As part of its go-to-market strategy, Lion assists its customers through the EV transition journey in all critical aspects of vehicle selection, purchase and adoption, including EV education and training, identification and seeking of any applicable governmental grants, energy requirements, charging infrastructure, maintenance and advanced telematics solutions. To enhance customer experience and help drive repeat purchases, Lion leverages its growing network of Experience Centers, which are dedicated spaces where prospective customers, policymakers and other transportation industry stakeholders can interact with EVs, learn about their specifications and advantages, meet a sales representative, discuss grant and subsidy assistance, receive vehicle training, and have existing vehicles serviced. Services available on-site at Lion’s Experience Centers include product demonstrations and sales support, full-service training, charging infrastructure assistance and maintenance support. There are currently nine Experience Centers strategically located in key markets in the United States and Canada.
As of May 14, 2021, Lion had over 658 employees, of which over 200 were in its R&D department.
Financial Highlights of the Three-Month Period Ended March 31, 2021
For the three-month period ended March 31, 2021, the Company’s financial performance was the following when compared to the three-month period ended March 31, 2020:
| • | Revenues of $6.2 million, an increase of $5.0 million; |
| • | Gross profit of ($1.8) million, a decrease of $0.7 million; |
| • | Net loss of ($16.1) million, a decrease of $10.4 million, which resulted in basic and diluted earnings per share of ($0.15), a decrease of $0.10 per share; |
| • | Adjusted EBITDA of ($5.9) million, a decrease of $2.8 million. |
Operational Highlights of the Three-Month Period Ended March 31, 2021
Construction of Battery Manufacturing Plant and Innovation Center
On March 15, 2021, Lion announced the planned construction of a battery manufacturing plant and innovation center. The factory is expected to begin operations in the second half of 2022 and produce battery packs and modules made from Lithium-ion cells. Construction is projected to break ground over the next few months at a location to be confirmed in the near future. The project is expected to represent a total investment of approximately $150 million (C$185 million). As publicly announced on March 15, 2021, Lion expects to benefit from support by the Canadian federal and Quebec governments of up to approximately C$100 million (amounting to approximately up to C$50 million each) in connection with the planned construction of its battery manufacturing plant and innovation center in Québec, of which up to 30% is expected to be forgiven subject to certain criteria tied to Lion and to the operations of the facility.
Truck Order from Pride Group Enterprises
On March 25, 2021, Lion received a purchase order from Pride Group Enterprises (“Pride”) for 100 all-electric Lion6 and Lion8 trucks. The order represented Lion’s largest single order of zero-emission trucks
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to date. The majority of the trucks are expected to be delivered to Pride during 2021, with the remainder of deliveries expected to take place in 2022.
Truck Order from Heritage
On May 14, 2021, Lion announced that it has been selected to participate in the Heritage-Romeo Power Fleet Electrification Program to execute on Heritage’s fleet electrification strategy. Heritage will initially purchase five Lion battery-electric trucks for the 2021 fleet electrification validation program consisting of Class 6 and/or Class 8 vehicles. Subject to the validation program’s success to target specifications with operational excellence experienced, Heritage’s initial purchase could result in significantly more orders over a four-year period.
School Bus Order from Autobus Séguin
On January 19, 2021, Lion received a purchase order for up to 60 all-electric LionC school buses over a five-year period from Autobus Groupe Séguin (Autobus Séguin), a transportation operator headquartered in Laval, Quebec. The first 10 buses are expected to be delivered throughout the 2021 calendar year. Subject to continued satisfaction of certain conditions, up to 50 additional buses are expected to be delivered through 2026.
Senior Personnel Hires
Lion announced the appointment of Isabelle Adjahi as Vice President, Investor Relations and Sustainable Development. Ms. Adjahi is responsible for developing and implementing an investor relations strategy aimed at maintaining relationships with investors and analysts through an ongoing dialogue about Lion’s corporate, business, financial objectives and growth. Lion also announced the appointment of Rocco Mezzatesta as Senior Vice-president, Product development and Vehicle engineering. Mr. Mezzatesta is responsible for product development as well as management of engineering projects.
Recent Developments
Closing of Business Combination Agreement with Northern Genesis Acquisition Corp. and Concurrent Equity Private Placement
On May 6, 2021, Lion completed its previously-announced business combination with Northern Genesis Acquisition Corp. (“NGA”) pursuant to which (i) a newly-formed wholly-owned Delaware subsidiary of Lion (“Merger Sub”) merged with and into NGA through a statutory merger under the laws of the State of Delaware, with NGA surviving the merger as a wholly-owned subsidiary of Lion (the “Business Combination”), and (ii) as consideration for the merger, each outstanding share of NGA’s common stock held by an NGA stockholder was converted into the right to receive one newly issued common share of Lion (each, a “Lion Common Share”), and each outstanding warrant to purchase shares of NGA’s common stock, with each such whole warrant exercisable for one share of NGA’s common stock at an exercise price of $11.50, was converted into a warrant to acquire a number of Lion Common Shares (each, a “Lion Warrant”) equal to the number of shares of NGA’s common stock underlying each such warrant of NGA. At the time of closing of the Business Combination, NGA held (net of the redemptions exercised by NGA’s stockholders holding 20,449 shares) approximately $320 million in its trust account.
Immediately prior to the completion of the Business Combination, Lion completed a reorganization (the “Pre-Closing Reorganization”) which included a share split pursuant to which each Lion Common Share outstanding immediately prior to such share split was converted into 4.1289 Lion Common Shares. Immediately prior to the completion of the Business Combination, Lion also completed a private placement (the “PIPE Financing”) pursuant to which a number of investors agreed to purchase, and Lion agreed to sell to such investors, an aggregate of 20,040,200 Lion Common Shares, for a purchase price of $10.00 per share and an aggregate purchase price of $200,402,000.
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The Business Combination and the PIPE Financing resulted in proceeds of approximately $490 million, net of transaction fees. Approximately $90 million of the net proceeds were used to repay outstanding credit facilities and debt instruments. See section entitled “Update with Respect to Certain Debt Instruments” below.
Following the closing of the Business Combination and the PIPE Financing, the Lion Common Shares began trading on the Toronto Stock Exchange (“TSX”) and on the NYSE under the new symbol “LEV”, and the warrants of Lion began trading on the TSX under the new symbol “LEV.WT” and on the NYSE under the new symbol “LEV WS”.
Update with Respect to Certain Debt Instruments
In connection with the closing of the Business Combination, Lion entered into a new loan agreement (the “Finalta Loan Agreement”) with Finalta Capital Fund, L.P. (“Finalta”) amending and restating in their entirety the two (2) loan agreements that had previously been entered into with Finalta, as lender, to finance certain refundable tax credits and grants under government programs (collectively, the “Former Finalta Loan Agreements”). The Finalta Loan Agreement provides for a combined loan facility of up to a principal amount of approximately C$13,500,000 and bears interest at the rate of 7.50% per annum. The Finalta Loan Agreement has terms and conditions which improved on, or are substantially similar to, the terms and conditions of the Former Finalta Loan Agreements. See the section entitled “Finalta Loan Agreement” of this MD&A.
In connection with the closing of the Business Combination, Lion repaid in full all amounts owed under the Credit Agreement (as defined below) entered into with National Bank of Canada (“NBC”), as lender, and the Credit Agreement and all security related thereto were terminated. The Credit Agreement provided for the following credit facilities (i) a $27,489,000 (C$35 million) operating revolving facility, (ii) a $35,343,000 (C$45 million) term loan facility, and (iii) a $7,854,000 (C$10 million) additional term loan facility. See the section entitled “Credit Agreement with National Bank of Canada” of this MD&A.
Prior to the completion of the Business Combination, Lion had completed financings through (i) the issuance of an unsecured convertible loan (the “Convertible Loan”) to Investissement Québec in the principal amount of $3,927,000 (C$5,000,000), and (ii) the issuance of an unsecured convertible debenture (the “Convertible Debenture”) to Investissement Québec in the principal amount of $15,708,000 (C$20,000,000). See the section entitled “Convertible Instruments with Investissement Québec” of this MD&A. In connection with the closing of the Business Combination, the Convertible Debenture and the Convertible Loan were repaid in full.
Site Selection of U.S. Manufacturing Facility
On May 7, 2021, the Company announced the selection of Joliet, Illinois, for the construction of its U.S. manufacturing facility. The new 900,000 sq-ft production facility (the “Joliet Facility”) will be Lion’s largest footprint in the U.S. The Company expects to take possession of the facility in the second half of 2021, and is expected to begin production in the second half of 2022. The facility represents an expected total investment of approximately $130 million by Lion.
Appointment of Vice President, Chief Legal Officer and Corporate Secretary
On April 6, 2021, Lion announced the appointment of François Duquette as Vice President, Chief Legal Officer and Corporate Secretary. Mr. Duquette oversees all aspects of legal and regulatory affairs, as well as provides strategic counsel to the senior management team and board of directors.
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Appointment of Chief Commercial Officer
On May 11, 2021, Lion announced the appointment of Brian Piern as Chief Commercial Officer, with a start date of June 7th, 2021. Mr. Piern will oversee all aspects of Lion’s commercial and sales strategy and lead the related execution.
Appointment of Vice-President, Financial Reporting
Lion appointed Vince Spadafora as Vice President, Financial Reporting, effective May 17, 2021. In this newly created role, Mr. Spadafora will oversee all aspects of financial reporting and related compliance.
Order of 260 School Buses from a Leading School Bus Operator
On May 14, 2021, Lion secured an order for 260 buses from First Student, a leading school bus operator, with deliveries expected to take place from the second half of 2021 to the first half of 2023.
Order Book
As of May 14, 2021, Lion’s vehicle order book stood at 817 all-electric medium- and heavy-duty vehicles, consisting of 209 trucks and 608 buses, representing a combined total order value of over $225 million. Most vehicles are expected to be delivered within the next twelve months, with some deliveries expected to take place in as much as five years. Additionally, LionEnergy, Lion’s division which assists customers with selecting, purchasing, project managing and deploying charging infrastructure ahead of vehicle delivery and which generates revenues through project management and consulting services as well as the resale of charging stations from global charging infrastructure manufacturers, has a current order book of 76 charging stations, representing a combined total order value of over $800,000, as of May 14, 2021. Most charging stations are expected to be delivered within the next twelve months.
Current Situation with Regards to COVID-19
The decree of a COVID-19 state of pandemic in March 2020 has since then resulted in the enactment of numerous measures by the federal, provincial, state and municipal governments to protect the public had impacts on Lion’s operations. From time to time, these measures have resulted in either in a full shutdown or in a significant reduction in the operations of Lion’s manufacturing facility and have also impacted the Company’s research and development, marketing, sales and after-market activities. Similarly, these measures have significantly impacted customers, suppliers and other business partners, and their respective businesses.
There continues to be significant uncertainty surrounding the COVID-19 pandemic. The COVID-19 pandemic had a material negative impact on the global economy in 2020 and is expected to continue having a negative impact in 2021 and perhaps beyond. Given the dynamic nature of the pandemic, the extent to which it impacts the Lion’s business and future results will depend on unknown future developments and any further impact on the global economy and the markets in which Lion operates and sells its products, including Canada and the United States. Accordingly, as of the date of this MD&A, management was not able to assess how quickly Lion’s activities will get back to normal or the financial impact of these events at this time but continues to monitor closely the evolving situation.
Key Factors Affecting Lion’s Performance
Lion believes that its performance and future success is dependent on multiple factors that present significant opportunities for Lion, but also pose risks and challenges, including those discussed below and in the section of the Canadian Prospectus and the Registration Statement entitled “Risk Factors.”
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Customer Demand for Electrification
The electrification of medium and heavy-duty commercial vehicles has recently gained strong momentum as users and governmental authorities are looking for novel solutions to reduce greenhouse gas (“GHG”) emissions and atmospheric pollution generally while the cost competitiveness of electric vehicles continues to improve. Lion anticipates that an increasing number of fleet owners and operators will seek all-electric alternatives to reduce the carbon footprint of their diesel fleets. Lion intends to leverage its broad offering of electric vehicles available for purchase today, and its strong engagement with large fleet owners and other potential customers, in order to benefit from the growing customer demand for electric vehicles.
In order to meet customer demand and drive adoption of its vehicles and solutions, Lion plans to make comprehensive additions to its production capacity and expand its network of Experience Centers, which is expected to require significant capital and operating expenses.
Reduction in Total Cost of Ownership
The total cost of ownership (“TCO”), along with quality and reliability, are the primary drivers of truck and bus purchasing decisions for fleet owners and operators. Lion’s management believes that Lion’s truck TCO is favorable to comparable diesel vehicles today in most use cases. Going forward, the TCO advantage of electric trucks is expected to further increase as electric vehicle prices reduce, which will in turn further improve the economic benefit and rationale for fleet owners and operators to purchase Lion’s all-electric vehicles. In the school bus market, the lower annual mileage of individual units typically renders the lower energy and maintenance costs insufficient to account for the currently steeper upfront costs of electric vehicles over incumbent diesel units. As such, at the current time, subsidies are often required for electric buses to be competitive over diesel units from a pure TCO point of view in this category. Over time, as the cost of the vehicles decreases as a result, among other things, of reduction in battery costs from increased vertical integration in manufacturing of battery systems, increased purchasing power with suppliers through larger volume commitments, increased manufacturing capacity utilization, and other productivity gains, the TCO for electric buses is expected to become favorable even in the absence of subsidies.
Product Development
Lion’s growth strategy depends in part upon its ability to effectively introduce new products and implement new technology-driven services and solutions, which is expected to require significant capital and operating expenses.
Lion had seven all-electric urban vehicles available for purchase as of March 31, 2021. The product offering consisted of (i) trucks, being Lion6 (Class 6 truck), Lion8 (Class 8 truck), Lion8 Reefer, and Lion8 Refuse trucks, (ii) school buses, being LionC (Type C school bus) and LionA (Type A school bus) and (iii) a shuttle bus, the LionM. Lion’s development pipeline consists of eight additional all-electric urban vehicles, including the Lion8 Tractor truck, Lion8 Bucket truck, Lion6 Utility truck, LionD (Type D school bus), Lion5 (Class 5 truck), Lion7 (Class 7 truck), Lion8 Boom truck and the Lion Ambulance. In parallel, Lion intends to continue the development and improvement of its existing vehicle products, services and solutions.
Regulatory Landscape and Government and Economic Incentives
Lion operates within an industry that is subject to environmental regulations across the various jurisdictions in which it sells its products. With heightened focus on the global environment, commercial vehicles have come under significant scrutiny by customers, enterprises, and governmental and regulatory bodies as they represent a significant portion of the global GHG emissions. While regulations have become increasingly stringent over time, various subsidy and financial incentives programs have been introduced by governmental authorities in Canada and the United States to promote the adoption of emissions-free vehicles. Demand for Lion’s vehicles is and is expected to remain influenced by federal, state, provincial
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and local tax credits, rebates, grants and other government programs and incentives that promote the use of battery electric vehicles. These include various government programs that make grant funds available for the purchase of battery electric vehicles. Additionally, demand for Lion’s vehicles may be influenced by laws, rules, regulations and programs that require reductions in carbon emissions, such as the various measures implemented by lawmakers and regulators in California and Québec, among others, designed to increase the use of electric and other zero-emission vehicles, including the establishment of firm goals in certain instances for the number of these vehicles operating on state roads by specified dates and the enactment of various laws and other programs in support of these goals.
Costs of Raw Materials and Supplies
Components in Lion’s vehicles are made of various raw materials, including aluminum, steel, carbon fiber, non-ferrous metals (such as copper) and other materials and minerals used to manufacture lithium-ion batteries. The prices for these raw materials fluctuate depending on market conditions and global demand. While Lion manages some of these risks through long-term contractual arrangements with suppliers with respect to the supply of certain key components of its vehicles, including lithium-ion batteries, it does not currently hedge its long-term exposure to price fluctuations of raw materials and supplies. Therefore, an increase in prices of raw materials and supplies could negatively impact the Company’s operating results if it is not able to find other manufacturing or supply alternatives or transfer these cost increases to customers.
Foreign Exchange
The Company’s revenues are reported in U.S. dollars but its functional currency is the Canadian dollar and the majority of its transactions are in Canadian dollars. The Company’s current manufacturing facility is also located in Canada. Suppliers of the Company are located in Canada, in the United States and other foreign jurisdictions. The Company’s indebtedness is denominated in Canadian dollars. Going forward, the Company’s growth strategy will require substantial investments in Canada and in the United States. Therefore, the Company’s revenues, gross profit and net income (loss) reported in U.S. dollars is and is expected to continue to be exposed to foreign exchange fluctuations.
Seasonality
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. Historically, the Company’s peak season has been during its third and fourth fiscal quarters. 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.
Research and Development
Lion’s team of over 200 engineers and other R&D professionals conducts research and development from its two R&D centers in Saint-Jérôme, Québec, and Montréal, Québec.
Lion’s research and development is currently focused on developing additional purpose-built electric vehicle platforms and continuing to develop proprietary battery systems.
Lion expects research and development expense to increase in the foreseeable future in order to continue expanding on and improving its product offering.
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Components of Results of Operations
Revenues
To date, Lion has primarily generated revenues from the sale of its all-electric school bus vehicles. Following the ongoing ramp-up of Lion’s truck manufacturing, Lion anticipates a significant proportion of its revenues to be generated from the sale of all-electric trucks over time.
Cost of Sales
Lion’s cost of sales includes material costs, labor, manufacturing overhead, and other direct costs related to electric vehicle production.
Administrative Expenses
Administrative expenses consist of facility leasing, share-based compensation, management, information technology, human resources, accounting and general administrative functions. Lion expects its administrative expenses to increase for the foreseeable future as Lion increases headcount to support the growth of its business, and as a result of costs associated with operating as a public company, including compliance with the rules and regulations of the SEC and applicable Canadian securities laws and stock exchanges, legal, audit, additional insurance expenses, investor relations activities, and other administrative and professional services.
Selling Expenses
Selling expenses consist of personnel-related expenses for Lion’s bus and truck sales, share-based compensation, business development, aftermarket sales and marketing and communications, in addition to expenses incurred for publicity and marketing events. Lion expects its selling expenses to increase for the foreseeable future as Lion expands its sales force and increases headcount to support the growth of its business.
Finance Costs
Finance costs primarily consists of interest paid on Lion’s outstanding debt, interest on lease liabilities, as well as non-cash accretion expenses on retractable common shares and on balance of purchase price payable related to the acquisition of dealership rights.
Lion’s Unanimous Shareholders’ Agreement which provided for retraction rights in respect of certain common shares was terminated in accordance with its terms effective as of closing of the Business Combination and such retraction rights did not become exercisable at or before the closing of the Business Combination. As a result, such retraction rights will not impact results of operations for future periods.
Foreign Exchange Loss (Gain)
Foreign exchange loss and gain represents the losses and gains on instruments such as cash balances, accounts receivable, accounts payable, debt balances and other accounts that are not denominated in Canadian dollars, as a result of changes in foreign currency rates.
Change in Fair Value of Share Warrant Obligation
On July 1, 2020, in connection with the entering into of the MPA (as defined below) with Amazon Logistics, Inc., the Company issued the Specified Customer Warrant to 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 Lion’s products or services. Lion has determined that the Specified Customer Warrant is a derivative instrument and should be classified as a liability in accordance with IAS
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32—Financial Instruments: Presentation and IFRS 9—Financial Instruments. The vested portion of the Specified Customer Warrant is initially recorded at fair value as a share warrant obligation and then revalued at each reporting date, with a corresponding contract asset recognized at inception. The corresponding contract asset recognized at inception will be amortized as a reduction of revenues on a percentage per dollar of revenue generated with Amazon.com, Inc. and its affiliates. See section entitled “Common Equity Warrant Issued to the Warrantholder”.
Results of Operations
Comparison of the three-month period ended March 31, 2021 and the three-month period ended March 31, 2020
Lion’s results of operations for the three-month period ended March 31, 2021 and 2020 are presented below:
| (Unaudited) | ||||||||||||||||
| three-month period Ended March 31, | $ Change |
% Change |
||||||||||||||
| 2021 | 2020 | |||||||||||||||
| (dollar amounts in thousands, except share and per share data) | ||||||||||||||||
| Revenues |
$ | 6,225 | $ | 1,228 | $ | 4,997 | 407 | % | ||||||||
| Cost of sales |
$ | 8,032 | $ | 2,285 | 5,748 | 252 | % | |||||||||
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| Gross profit |
(1,807 | ) | (1,056 | ) | (751 | ) | n.a. | |||||||||
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| Gross profit margin |
(29.0 | %) | (86.0 | %) | 57.0 | % | ||||||||||
| Operating expenses: |
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| Administrative expenses |
6,270 | 761 | 5,509 | 724 | % | |||||||||||
| Selling Expenses |
4,384 | 1,607 | 2,777 | 173 | % | |||||||||||
| Finance costs |
3,907 | 1,880 | 2,028 | 108 | % | |||||||||||
| Foreign exchange loss (gain) |
(179 | ) | 366 | (545 | ) | (149 | %) | |||||||||
| Change in fair value of share warrant obligation |
(75 | ) | — | (75 | ) | n.a. | ||||||||||
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| Net loss |
($ | 16,114 | ) | ($ | 5,669 | ) | ($ | 10,445 | ) | 184 | % | |||||
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| Foreign currency translation adjustment |
($ | 1,302 | ) | ($ | 112 | ) | ($ | 1,190 | ) | 1,060 | % | |||||
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| Comprehensive loss |
($ | 17,416 | ) | ($ | 5,782 | ) | ($ | 11,635 | ) | 201 | % | |||||
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| Basic and diluted loss per share |
($ | 0.15 | ) | ($ | 0.05 | ) | ($ | 0.10 | ) | 184 | % | |||||
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| Weighted average number of common shares outstanding |
110,551,314 | 110,551,314 | — | n.a. | ||||||||||||
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Revenues
Revenues increased by $5.0 million, from $1.2 million for the three-month period ended March 31, 2020 to $6.2 million for the three-month period ended March 31, 2021. The increase in revenue was primarily due to an increase in vehicle sales volume of 22 units, from 2 units (2 school buses in the U.S.) for the three-month period ended March 31, 2020 to 24 units (18 school buses and 6 trucks; 22 vehicles in Canada and 2 vehicles in the U.S.) for the three-month period ended March 31, 2021.
Cost of Sales
Cost of sales increased by $5.7 million, from $2.3 million for the three-month period ended March 31, 2020 to $8.0 million for the three-month period ended March 31, 2021. The increase was primarily due to the addition of personnel and other resources to accommodate higher anticipated production volumes. Lion completed the manufacturing of 43 vehicles in the three-month period ending March 31, 2021.
Gross Profit
Gross profit decreased by $0.8 million, from ($1.1) million (-86.0% of revenues) for the three-month period ended March 31, 2020 to ($1.8) million (-29.0% of revenues) for the three-month period ended March 31, 2021. The decrease is primarily due to the addition of personnel and other resources to accommodate higher anticipated production volumes.
Administrative Expenses
Administrative expenses increased by $5.5 million, from $0.8 million for the three-month period ended March 31, 2020 to $6.3 million for the three-month period ended March 31, 2021. The increase was primarily due a significant increase in non-cash share-based compensation of $3.1 million for the three-month period ended March 31, 2021 ($0.2 million for the three-month period ended March 31, 2020), to Lion expanding its head office capabilities in preparation of an expected increase in business, and an increase in non-recurring professional fees.
Selling Expenses
Selling expenses increased by $2.8 million, from $1.6 million for the three-month period ended March 31, 2020 to $4.4 million for the three-month period ended March 31, 2021. The increase was primarily due a significant increase in non-cash share-based compensation of $2.1 million for the three-month period ended March 31, 2021 ($0.1 million for the three-month period ended March 31, 2020), to Lion expanding its sales force effective, and an increase in expenses associated with Experience Centers.
Finance Costs
Finance costs increased by $2.0 million, from $1.9 million for the three-month period ended March 31, 2020 to $3.9 million for the three-month period ended March 31, 2021. The increase was driven primarily by higher accretion expense on retractable shares, an increase in borrowing costs due to an increase in the amount of debt outstanding, an increase in interest expense on convertible debt instruments, and an increase in lease liabilities from new Experience Center openings.
Foreign Exchange Loss (Gain)
Foreign exchange loss (gain) increased by $0.5 million, from a loss of $0.4 million for the three-month period ended March 31, 2020 to a gain of $0.2 million for the three-month period ended March 31, 2020, largely as a result of a weakening of the Canadian dollar relative to the U.S. dollar during the three-month period ended March 31, 2020 and a strengthening of the Canadian dollar relative to the U.S. dollar during the three-month period ended March 31, 2021.
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Change in Fair Value of Share Warrant Obligation
Change in fair value of share warrant obligation increased from nil for the three-month period ended March 31, 2020 (as the Lion Warrant had not yet been issued), to a gain of $0.1 million for the three-month period ended March 31, 2021. The gain for the three-month period ended March 31, 2021 was largely related to a reduction in warrant life from the December 31, 2020 valuation, offset by an increase in the interest rate used to perform the valuation.
Net Loss
Net loss increased by $10.4 million, from ($5.7) million for the three-month period ended March 31, 2020 to ($16.1) million for the three-month period ended March 31, 2020, largely due to the factors discussed above.
Reconciliation of Adjusted EBITDA
The following table reconciles net loss to Adjusted EBITDA for the three-month periods ended March 31, 2021 and 2020:
| (Unaudited) | ||||||||
| three-month period ended March 31, |
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| 2021 | 2020 | |||||||
| (in thousands) | ||||||||
| Revenue |
$ | 6,225 | $ | 1,228 | ||||
| Net loss |
(16,114 | ) | ($ | 5,669 | ) | |||
| Finance costs |
3,907 | 1,880 | ||||||
| Depreciation and amortization |
984 | 483 | ||||||
| Share-based compensation(1) |
5,205 | 251 | ||||||
| Change in fair value of warrant(2) |
(75 | ) | — | |||||
| FX loss (gain)(3) |
(179 | ) | — | |||||
| Non-recurring fees(4) |
410 | 21 | ||||||
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| Adjusted EBITDA |
($ | 5,861 | ) | ($ | 3,034 | ) | ||
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| Adjusted EBITDA margin |
nmf | nmf | ||||||
| (1) | Represents non-cash expenses recognized in connection with the issuance and revaluation to fair value of options to participants under Lion’s legacy option plan. |
| (2) | Represents change in the fair value of the share warrant obligation under the Specified Customer Warrant valued at $31,868,091 as of March 31, 2021. |
| (3) | Represents non-cash losses (gains) relating to foreign exchange translation. |
| (4) | Represents non-recurring professional fees related to the acquisition of dealership rights and other professional fees, including as it relates to financing transactions, recruiting of senior management and other non-recurring items. |
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Financial Position
The following table sets out selected information related to the financial position of Lion as of March 31, 2021 and December 31, 2020:
| (Unaudited) | ||||||||
| March 31, 2021 | December 31, 2020 | |||||||
| Inventories |
47,852,275 | 38,073,303 | ||||||
| Total current assets |
64,082,089 | 57,656,523 | ||||||
| Property, plant and equipment |
6,340,776 | 5,446,807 | ||||||
| Total assets |
140,963,673 | 127,020,606 | ||||||
| Total current liabilities |
130,260,414 | 105,226,066 | ||||||
| Total non-current financial liabilities(1) |
79,687,680 | 76,389,971 | ||||||
| Total non-current liabilities |
123,745,518 | 117,420,469 | ||||||
| Total liabilities |
254,005,932 | 222,646,535 | ||||||
| Total shareholders’ deficiency |
(113,042,259 | ) | (95,625,929 | ) | ||||
| (1) | Represents financial liabilities related to long-term debt, convertible debt instruments, share warrant obligation and common shares (retractable), as reflected in the Company’s unaudited condensed consolidated interim financial statements for the three-month period ended March 31, 2021. |
Liquidity and Capital Resources
Liquidity and Capital Management
As of March 31, 2021, Lion had current assets of $64.1 million and trade and other payables of $15.3 million and an accumulated deficit of $142.5 million. Lion incurred a net loss of $16.1 million for the three-month period ended March 31, 2021 and a net loss of $5.7 million for the three-month period ended March 31, 2020. Lion expects to continue to incur net losses in the short term, as it continues to execute on its growth strategy.
Lion’s growth strategy and the development, design, manufacturing, sale and servicing of Lion’s vehicles are capital-intensive. Net cash used in investing activities is expected to continue to increase substantially as Lion purchases additional property and equipment, continues the development of its product offering, and scales its manufacturing operations to meet anticipated demand.
Lion’s primary sources of liquidity used in the funding of its operations are its sales volumes, its credit facilities, other borrowings and debt capital, and contributions from shareholders. Lion used a portion of the funds raised in connection with the Business Combination and the PIPE Financing to repay indebtedness and pay transaction expenses, and it expects to use a significant portion of the remaining funds to fund its growth strategy in the future. Lion’s ability to access capital when needed is not assured and, if capital is not available to Lion when and in the amounts needed, Lion could be required to delay, scale back or abandon all or part of its growth strategy, including planned additions to its current manufacturing facility as well as the construction of its planned large-scale U.S. manufacturing facility and of its battery assembly facility.
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Cash Flows Summary
Presented below is a summary of Lion’s operating, investing, and financing cash flows for the three-month period ending March 31, 2021 and 2020:
| For the three-month periods ended March 31, |
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| 2021 | 2020 | |||||||
| (in thousands) | ||||||||
| Cash flows used in operating activities |
($ | 10,064 | ) | ($ | 5,491 | ) | ||
| Cash flows used in investing activities |
(7,106 | ) | (2,426 | ) | ||||
| Cash flows from financing activities |
17,189 | 8,241 | ||||||
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| Effect of exchange rate changes on cash held in foreign currency |
(62 | ) | (22 | ) | ||||
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| Net change in cash |
($ | 43 | ) | $ | 302 | |||
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Cash Flows Used in Operating Activities
For the three-month period ended March 31, 2021, cash flows used in operating activities was $10.1 million. The cash used was related to Lion’s net loss of $16.1 million driven by the factors discussed above, and net changes in working capital of ($2.6) million, partially offset primarily by non-cash items of $2.6 million related to accretion expenses, $1.0 million related to depreciation and amortization, $5.2 million related to share-based compensation.
For the three-month period ended March 31, 2020, cash flows used in operating activities was $5.5 million. The cash used was related to Lion’s net loss of $5.7 million and changes in working capital of ($2.3) million, partially offset primarily by non-cash items of $1.4 million related to accretion expenses, $0.5 million related to depreciation and amortization, $0.3 million related to unrealized foreign exchange loss, and $0.3 million related to share-based compensation.
Cash Flows Used in Investing Activities
Cash used in investing activities primarily relate to capitalized R&D for vehicle and battery system development and capital expenditures for equipment and machinery, leasehold improvements, office furniture and equipment as Lion continues to invest in its business infrastructure and scales its manufacturing operations.
Cash used in investing activities was $7.1 million for the three-month period ended March 31, 2021. The cash used was related to acquisition of intangible assets of $6.5 million and capital expenditures of $1.1 million, partially offset by government assistance related to intangible assets of $0.5 million. The majority of acquisition of intangible assets is related to capitalized R&D for vehicle and battery system development. Property, plant and equipment and intangible assets totaled $54.5 million as of March 31, 2021.
Cash used in investing activities was $2.4 million for the three-month period ended March 31, 2020. The cash used was related to acquisition of intangible assets of $2.8 million and capital expenditures of $0.9 million, partially offset by government assistance related to intangible assets of $1.2 million.
Cash Flows from Financing Activities
Cash provided by financing activities was $17.2 million for the three-month period ended March 31, 2021, which was primarily due to a net increase of $17.6 million in long-term debt and other debt, partially offset by the repayment of lease liabilities of $0.4 million.
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Cash provided by financing activities was $8.2 million for the three-month period ended March 31, 2020, which was primarily due to a net increase of $4.8 million in long-term debt and other debt, and $3.7 million of proceeds from convertible debt instruments issuance, partially offset by the repayment of lease liabilities of $0.2 million.
Credit Agreement with National Bank of Canada
On February 25, 2019, Lion entered into a credit agreement with NBC which was amended on September 23, 2019, May 15, 2020, August 25, 2020, December 2, 2020 and December 18, 2020 (the “Credit Agreement”). The Credit Agreement provided for the following credit (i) a $27,489,000 (C$35 million) operating revolving facility, (ii) a $35,343,000 (C$45 million) term loan facility, and (iii) a $7,854,000 (C$10 million) additional term loan facility. The operating revolving credit facility included a sub-facility for standby letters of credit with an aggregate cap of $392,700 (C$500,000) (or the equivalent in other approved currencies). Such credit facilities bore interest at floating rates by reference to the Canadian prime rate or the U.S. prime rate, as applicable, plus a margin of 1.0% for the operating revolving facility, 9.0% for the term loan facility and 3.0% for the additional term loan facility. The obligations under the Credit Agreement were secured by a first priority security interest, hypothec and lien on substantially all of Lion’s property and assets, except for certain tax credits and government grants on which it holds a second priority security interest, hypothec and lien subject to the first priority security of Finalta under the loans made by it. The Credit Agreement also required Lion to maintain certain financial ratios. In connection with the third amendment to the Credit Agreement dated December 2, 2020, NBC waived any default or any event of default resulting from the failure by Lion to maintain such financial ratios until the maturity date. As of March 31, 2021, there was $23,369,339 (C$29,388,002) outstanding under the operating revolving credit facility, $31,808,000 (C$40,000,000) outstanding under the term loan facility and $7,952,000 (C$10,000,000) outstanding under the additional term loan facility. In connection with the closing of the Business Combination, Lion repaid in full all amounts owed under the Credit Agreement, and the Credit Agreement and all security related thereto were terminated. See section entitled “Recent Developments”.
Finalta Loan Agreement
On May 6, 2021, Lion entered into the Finalta Loan Agreement, which amended and restated in their entirety the two (2) loan agreements that had previously been entered into with Finalta, as lender, to finance certain refundable tax credits and grants under government programs. See the sections entitled “Description of Certain Indebtedness –Loan Agreement with Finalta Capital Fund, L.P. – December 2018” and “Description of Certain Indebtedness –Loan agreement with Finalta Capital Fund, L.P. – May 2020” in the Canadian Prospectus and the Registration Statement. As of March 31, 2021, there was $7,799,624 (C$9,808,380) outstanding under the loans governed by the Former Finalta Loan Agreements.
The Finalta Loan Agreement provides for a combined loan facility of up to a principal amount of approximately C$13,500,000 and bears interest at the rate of 7.50% per annum. The Finalta Loan Agreement matures on May 31, 2022, and may be extended by one (1) year. The obligations thereunder are secured by a first priority security interest, hypothec and lien in tax credits and government grants and a subordinate security interest, hypothec and lien in substantially all other property and assets.
The Finalta Loan Agreement includes certain customary restrictions and negative covenants on Lion’s activities, subject to certain exceptions, baskets and thresholds. The Finalta 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, Finalta would be entitled to demand the immediate repayment of all amounts owing to it under the Finalta Loan Agreement and/or it may exercise its other rights, remedies and/or recourses.
Convertible Instruments with Investissement Québec
March 2020 Convertible Loan. In March 2020, Lion completed a financing through the issuance of the Convertible Loan to Investissement Québec in the principal amount of $3,741,675 (C$5,000,000). The
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Convertible Loan had an initial maturity date of March 3, 2025 and bore interest at an annual rate of 7.5% with the interest payable at the maturity date. In connection with the closing of the Business Combination, the Convertible Loan was repaid in full. See section entitled “Recent Developments”.
September 2020 Convertible Debenture. In September 2020, Lion completed a financing through the issuance of the Convertible Debenture to Investissement Québec in the principal amount of $15,340,000 (C$20,000,000). The Convertible Debenture had an initial maturity date of September 1, 2023 and bore interest at a rate of 15% per annum for the first year, and 18% thereafter, subject to the terms and conditions set out therein. In connection with the closing of the Business Combination, the Convertible Debenture was repaid in full. See section entitled “Recent Developments”.
Off-Balance Sheet Arrangements
During the periods presented, Lion did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Overall Considerations
Lion’s unaudited condensed consolidated interim financial statements for the three-month period ended March 31, 2021 have been prepared in conformity with IFRS using the significant accounting policies and measurement bases that are in effect as of March 31, 2021, as summarized below with respect to areas requiring the most significant estimates and judgments. These were used throughout all periods presented in the consolidated financial statements.
Revenue
Lion’s principal sources of revenue are the sale of all-electric medium and heavy-duty urban vehicles. To determine whether to recognize revenue, Lion follows a five-step process:
| • | Identifying the contract with a customer; |
| • | Identifying the performance obligations; |
| • | Determining the transaction price; |
| • | Allocating the transaction price to the performance obligations; and |
| • | Recognizing revenue when/as performance obligation(s) are satisfied. |
Revenue is recognized at a point in time, when Lion satisfies performance obligations by transferring control of the goods to its customers, which generally occurs when the goods are delivered to the customers and when the customer confirms acceptance.
Lion guarantees its products against defects. An allowance for warranty expense is recorded when the revenue for the related product is recognized. The allowance is based upon the terms of the warranty, Lion’s historical experience and management estimates of future expense for replacement or repairs. The corresponding expense is recorded in cost of goods sold.
Intangible Assets
Acquired Software. Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and install the specific software.
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Dealership Rights with an Indefinite Useful Life. Dealership rights with an indefinite useful life are recorded initially at cost and are not amortized. Because the acquisition was based on future sales of a product, Lion has elected to measure the cost based on a financial liability model, whereby the fair value of all variable payments under the contract are recorded on initial recognition of the asset with a corresponding liability. Any re-measurements of the related liability are recognized in earnings. The cost also includes any directly attributable costs of preparing the asset for its intended use. Directly attributable cost includes professional fees arising directly from bringing the asset to its working conditions.
Dealership rights are subject to asset impairment testing as described below. The useful life is reviewed each period to determine whether events and circumstances continue to support an indefinite useful life assessment.
Internally Developed Intangible Assets.
Expenditure on the research phase is recognized as an expense as incurred. Costs that are directly attributable to a project’s development phase are recognized as intangible assets, provided they meet the following recognition requirements:
| • | Development costs can be measured reliably; |
| • | Project is technically and commercially feasible; |
| • | Lion and its subsidiaries intend to and have sufficient resources to complete the project; |
| • | Lion and its subsidiaries have the ability to use or sell the intangible assets; and |
| • | Intangible assets will generate probable future economic benefits. |
Development costs not meeting these criteria for capitalization are expensed as incurred.
Directly attributable costs include employee costs incurred along with an appropriate portion of relevant overheads and subcontractors’ fees.
Subsequent Measurement.
All finite-live intangible assets are accounted for using the cost model whereby capitalized costs are amortized on a straight-line basis over their estimated useful lives, as these assets are considered finite. Residual values and useful lives are reviewed at each reporting date. In addition, they are subject to impairment testing as described below. The following useful lives are applied:
| • | Software: 5 years |
| • | Development costs: According to production of 7,000 units |
Leased Assets
Identification of Leases.
For any new contracts, Lion considers whether a contract is, or contains a lease. A lease is defined as “a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration.” To apply this definition Lion assesses whether the contract meets three key evaluations which are whether:
| • | Contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to Lion; |
| • | Lion and its subsidiaries have the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract; and |
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| • | Lion and its subsidiaries have the right to direct the use of the identified asset throughout the period of use. Lion assesses whether it has the right to direct “how and for what purpose” the asset is used throughout the period of use. |
Measurement and Recognition of Leases as a Lessee.
At lease commencement date, Lion recognizes a right-of-use asset and a lease liability on the consolidated statement of financial position. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by Lion, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received).
Lion depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. Lion also assesses the right-of-use asset for impairment when such indicators exist.
At the commencement date, Lion measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or Lion’s incremental borrowing rate. The incremental borrowing rate is the estimated rate that Lion would have to pay to borrow the same amount over a similar term, and with similar security to obtain an asset of equivalent value. This rate is adjusted should the lessee entity have a different risk profile to that of Lion’s.
Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised.
Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments.
When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero.
Lion has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognizing a right-of-use asset and lease liability, the payments in relation to these are recognized as an expense in profit or loss on a straight-line basis over the lease term.
Impairment Testing of Intangible Assets, Property, Plant and Equipment and Right-of-Use Assets
For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at the cash-generating unit level. Cash-generating units to which intangible assets with indefinite useful life have been allocated (determined by Lion’s management as equivalent to its operating segment) are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognized for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount, which is the higher of fair value less costs to sell and value-in-use. To determine the value-in-use, management estimates expected future cash flows from each cash-generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to Lion’s latest approved budget, adjusted as necessary to exclude the effects of future reorganizations and asset enhancements. Discount
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factors are determined individually for each cash-generating unit and reflect management’s assessment of respective risk profiles, such as market and asset-specific risks factors.
Impairment losses for cash-generating units are charged pro rata to the assets in the cash-generating unit. All assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist. An impairment charge is reversed if the cash-generating unit’s recoverable amount exceeds its carrying amount.
Inventories
Finished goods, goods in process and raw materials are valued at the lower of cost and net realizable value. Cost is determined using the identified cost method for finished goods and goods in process while the cost of raw materials is determined using the weighted average cost method. Supplier rebates are deducted to determine the cost of purchase.
The cost of inventories includes all purchase, conversion and other costs incurred to bring the inventories to their present location and condition. The net realizable value represents the estimated selling price in the normal course of business less the estimated costs necessary to make the sale. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the year the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realizable value, is recognized as a reduction in the amount of inventories recognized as an expense in the year in which the reversal occurs.
Common Equity Warrant Issued to the Warrantholder
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 “Specified Customer 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 Lion’s products or services.
At the election of the Warrantholder, any vested portion of the Specified Customer 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 Specified Customer Warrant. The exercise of the Specified Customer Warrant corresponds to $23.36 per share ($5.66 following the completion of the Business Combination and the Pre-Closing Reorganization). The Specified Customer Warrant grants the Warrantholder the right to acquire up to 8,561,603 (35,350,003 following the completion of the Business Combination and the Pre-Closing Reorganization) Lion Common Shares representing 19.99% (approximately 15% on a partially diluted basis following the completion of the Business Combination and the Pre-Closing Reorganization) of the issued and outstanding Lion Common Shares.
There was an initial vesting of a portion of the Specified Customer Warrant which is exercisable for 1,284,243 (5,302,511 following the completion of the Business Combination and the Pre-Closing Reorganization) Lion Common Shares. The remaining portion of the Specified Customer Warrant vests in three tranches based on the aggregate amount of spending by Amazon.com, Inc. and its affiliates on Lion’s products or services. The Specified Customer Warrant has a term of 8 years ending on July 1, 2028. Full vesting of the Specified Customer Warrant requires spending of at least $1.1 billion on Lion’s products or services over the term of the Specified Customer Warrant, subject to accelerated vesting upon the occurrence of certain events, including a change of control of Lion or a termination of the MPA for cause.
Lion has determined that the Specified Customer Warrant is a derivative instrument and should be classified as a liability in accordance with IAS 32—Financial Instruments: Presentation and IFRS 9—Financial Instruments. The vested portion of the Specified Customer Warrant is initially recorded at fair value and then revalued at each reporting date. The initial fair value of the Specified Customer Warrant of $13,227,703 was recorded as a share warrant obligation with a corresponding contract asset recognized
20
at inception. The corresponding contract asset recognized at inception will be amortized as a reduction of revenues on a percentage per dollar of revenue generated with Amazon.com, Inc. and its affiliates.
The fair value of the share warrant obligation was revalued as of March 31, 2021. The fair value of the Specified Customer Warrant was determined based on the Black-Scholes option pricing model taking into account the following assumptions (following the completion of the Business Combination and the Pre-Closing Reorganization):
| March 31, 2021 |
December 31, 2020 |
|||||||
| Exercise price ($) |
5.66 | 5.66 | ||||||
| Share price ($) |
10.00 | 10.00 | ||||||
| Volatility (%) |
40 | % | 40 | % | ||||
| Risk-free interest rate (%) |
1.24 | % | 0.69 | % | ||||
| Expected warrant life (years) |
7.25 | 7.50 | ||||||
Convertible Debt Instruments with Investissement Québec
| March 31, 2021 |
||||||||||||
| Convertible Loan |
Convertible Debentures |
Conversion Option |
||||||||||
| Balance at January 1, 2021 |
$ | 3,676,252 | $ | 15,190,638 | $ | 1,472,520 | ||||||
| Accretion expense |
92,447 | 712,121 | — | |||||||||
| Foreign currency translation adjustment |
46,492 | 194,323 | — | |||||||||
|
|
|
|
|
|
|
|||||||
| Balance at March 31, 2021 |
$ | 3,815,191 | $ | 16,097,082 | $ | 1,472,520 | ||||||
|
|
|
|
|
|
|
|||||||
March 2020 Convertible Loan.
An amount of $70,376 (C$94,043) in financing fees was incurred as a direct cost in the closing of the financing. This balance has been capitalized and netted against the proceeds received from the issuance of the Convertible Loan. The financial instrument meets the “Fixed for Fixed” criteria under IAS 32. As such, the conversion option was classified as an equity instrument at the issuance date and is not subsequently remeasured. The conversion option classified as equity will remain in equity until the conversion is exercised, in which case, the balance recognized in equity will be transferred to another equity account.
The debt portion of the Convertible Loan was recorded at the estimated fair value of $3,318,735 (C$4,400,000) using an effective interest rate of 10.76% per annum at the time of issuance with the residual value of $422,940 (C$600,000) recorded as contributed surplus.
As of March 31, 2021, the Convertible Loan balance was accreted to $3,815,191 (C$4,797,776) with an interest expense of $92,447 (C$117,036) and a foreign currency translation adjustment of $46,492 for the three-month period ending March 31, 2021.
September 2020 Convertible Debenture.
An amount of $313,131 (C$417,675) in financing fees was incurred as a direct cost in the closing of the financing. This balance has been capitalized and netted against the proceeds received from the issuance of the Convertible Debenture. The financial instrument meets the “Fixed for Fixed” criteria under IAS 32. As such, the conversion option was classified as an equity instrument at the issuance date and is not subsequently remeasured. The conversion option classified as equity will remain in equity until the conversion is exercised, in which case, the balance recognized in equity will be transferred to another equity account.
21
The debt portion of the Convertible Debenture was recorded at the estimated fair value of $14,290,420 (C$18,600,000) using an effective interest rate of 20.52% per annum at the time of issuance with the residual value of $1,049,580 (C$1,400,000) recorded as a separate component in equity.
As of March 31, 2021, the Convertible Debenture balance was accreted to $16,097,082 (C$20,242,809) with an interest expense of $712,121 (C$901,533) and a foreign currency translation adjustment of $194,323 for the three-month period ending March 31, 2021.
Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless Lion designated a financial liability at fair value through profit or loss.
Subsequently, financial liabilities are measured at amortized cost using the effective interest method except for derivatives and financial liabilities designated at fair value through profit or loss (FVTPL), which are carried subsequently at fair value with gains or losses recognized in profit or loss.
All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within finance costs or finance income.
Provisions, Contingent Assets and Contingent Liabilities
Provisions for product warranties, legal disputes, onerous contracts or other claims are recognized when Lion has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required from Lion and amounts can be estimated reliably. Timing or amount of the outflow may still be uncertain. Restructuring provisions are recognized only if a detailed formal plan for the restructuring has been developed and implemented, or management has at least announced the plan’s main features to those affected by it. Provisions are not recognized for future operating losses.
Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions are discounted to their present values, where the time value of money is material. Any reimbursement that Lion can be virtually certain to collect from a third party with respect to the obligation is recognized as a separate asset. However, this asset may not exceed the amount of the related provision. In those cases where the possible outflow of economic resources as a result of present obligations is considered improbable or remote, no liability is recognized.
Emerging Growth Company Status
As defined in Section 102(b)(1) of the JOBS Act, Lion is as an emerging growth company (“EGC”). As such, Lion is eligible for and relies on certain exemptions and reduced reporting requirements provided by the JOBS Act, including (a) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act, (b) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (c) reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements.
Lion will remain an EGC under the JOBS Act until the earliest of (i) the last day of the fiscal year in which the market value of Lion’s Common Shares that are held by non-affiliates exceeds $700 million as of the last business day of the second quarter of that fiscal year, (ii) the last day of the fiscal year in which it has total annual gross revenue of $1.07 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which it has issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of the date of the Closing.
22
Foreign Private Issuer Status
Lion qualifies as a “foreign private issuer” as defined under SEC rules. Even after Lion no longer qualifies as an emerging growth company, as long as Lion continues to qualify as a foreign private issuer under SEC rules, Lion is exempt from certain SEC rules that are applicable to U.S. domestic public companies, including:
| • | the rules requiring domestic filers to issue financial statements prepared under U.S. GAAP; |
| • | the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; |
| • | the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time; |
| • | the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial statements and other specified information, and current reports on Form 8-K upon the occurrence of specified significant events; and |
| • | the selective disclosure rules by issuers of material non-public information under Regulation FD. |
Notwithstanding these exemptions, Lion will file with the SEC, within four months after the end of each fiscal year, or such applicable time as required by the SEC or Canadian securities legislation, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm.
Lion may take advantage of these exemptions until such time as Lion is no longer a foreign private issuer. Lion would cease to be a foreign private issuer at such time as more than 50% of its outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (i) the majority of its executive officers or directors are U.S. citizens or residents, (ii) more than 50% of its assets are located in the United States or (iii) its business is administered principally in the United States.
Both foreign private issuers and emerging growth companies also are exempt from certain more stringent executive compensation disclosure rules. Thus, even if Lion no longer qualifies as an emerging growth company, but remains a foreign private issuer, Lion will continue to be exempt from the more stringent compensation disclosures required of companies that are neither an emerging growth company nor a foreign private issuer.
In addition, because Lion qualifies as a foreign private issuer under SEC rules, Lion is permitted to follow the corporate governance practices of Canada (the jurisdiction in which Lion is organized) in lieu of certain NYSE corporate governance requirements that would otherwise be applicable to Lion. For example, under Canadian securities laws, Lion is not required to, and does not intend to, have a board of directors comprised of a majority of directors meeting the independence standards described in the NYSE Listing Rules. In addition, under Canadian securities laws, Lion is not required to, and does not intend to, have a compensation committee or a nominations committee that is comprised solely of independent directors.
If at any time Lion ceases to be a foreign private issuer, Lion will take all action necessary to comply with the SEC and NYSE Listing Rules, including by appointing a majority of independent directors to its board of directors and having compensation and nominating committees that are comprised solely of independent directors, subject to a permitted “phase-in” period.
Qualitative Disclosure About Market Risk
Lion is exposed to various risks in relation to financial instruments. The main types of risks are currency risk and interest rate risk. While Lion may enter into hedging contracts from time to time, any change in the fair value of the contracts could be offset by changes in the underlying value of the transactions being hedged. Furthermore, Lion does not currently have foreign-exchange hedging contracts in place with respect to all currencies in which it does business.
23
Currency Risk
While Lion presents its financial statements in U.S. dollars, its functional currency is the Canadian dollar and the majority of Lion’s transactions are in Canadian dollars. Lion is exposed to currency risk due to cash, trade and other receivables, borrowings and trade and other payables denominated in foreign currency, being primarily the U.S. dollar.
Interest Rates
Lion is exposed to interest rate risk with respect to financial assets and liabilities bearing fixed and variable interest rates. In addition, credit facilities under the Finalta Loan Agreement bear interest at a fixed rate and Lion is, therefore, exposed to the risk of changes in fair value resulting from interest rate fluctuations.
Recently Issued Accounting Standards Not Yet Adopted
From time to time, new accounting standards, amendments to existing standards, and interpretations are issued by the International Accounting Standards Board (“IASB”). Unless otherwise discussed, Lion believes that the impact of recently issued standards or amendments to existing standards that are not yet effective will not have a material impact on Lion’s financial position or results of operations under adoption.
Internal Controls and Procedures
As a result of the Company becoming a reporting issuer under applicable Canadian securities legislation following the end of the three-month period ended March 31, 2021, the Company is not subject to the certification requirements of National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”) in respect of such period. The Company intends to comply with the certification requirements of NI 52-109 as of the second quarter of the current fiscal year, it being understood that the Company may rely on applicable exemptions from certain representations in such certifications that are available to new reporting issuers.
Disclosure of Outstanding Share Data
As of May 14, 2021, the Company had the following issued and outstanding shares, warrants and stock options:
| • | 188,497,602 Lion Common Shares, which are listed on the TSX and on the NYSE under the symbol “LEV” |
| • | 27,111,741 Lion Warrants, which are listed on the TSX under symbol “LEV.WT” and on the NYSE under the symbol “LEV WS” |
| • | the Specified Customer Warrant which, if and when fully vested, will be exercisable for up to 35,350,003 Lion Common Shares upon an exercise on a cash basis (see the section entitled “Common Equity Warrant Issued to the Warrantholder”). The portion of the Customer Warrant that is vested as of the date of this report is exercisable for 5,302,499 Lion Common Shares |
| • | stock options to purchase 10,375,186 Lion Common Shares |
Additional Information
Additional information relating to Lion is available on SEDAR at www.sedar.com and on Edgar at www.sec.gov.
24
Exhibit 99.2
The Lion Electric Company
Condensed Interim Consolidated
Financial Statements
March 31, 2021 and 2020
Unaudited Condensed Interim Consolidated
Financial Statements
| Consolidated Financial Position |
2 | |||
| Consolidated Comprehensive Loss |
3 | |||
| Consolidated Changes in Equity |
4 | |||
| Consolidated Cash Flows |
5 | |||
| Notes to Condensed Interim Consolidated Financial Statements |
6 - 20 |
The Lion Electric Company
Consolidated Statements of Financial Position
As of March 31, 2021 and December 31, 2020
(Unaudited, In US dollars)
| Notes | March 31, 2021 |
December 31, 2020 |
||||||||||
| ASSETS |
$ | $ | ||||||||||
| Current |
||||||||||||
| Inventories |
47,852,275 | 38,073,303 | ||||||||||
| Accounts receivable |
14,676,492 | 18,505,072 | ||||||||||
| Prepaid expenses |
1,553,322 | 1,078,148 | ||||||||||
|
|
|
|
|
|||||||||
| Current assets |
64,082,089 | 57,656,523 | ||||||||||
|
|
|
|
|
|||||||||
| Non-current |
||||||||||||
| Property, plant and equipment |
6 | 6,340,776 | 5,446,807 | |||||||||
| Right-of-use assets |
7 | 7,905,453 | 7,498,724 | |||||||||
| Intangible assets |
8 | 48,128,869 | 42,090,843 | |||||||||
| Contract asset |
10 | 14,506,486 | 14,327,709 | |||||||||
|
|
|
|
|
|||||||||
| Non-current assets |
76,881,584 | 69,364,083 | ||||||||||
|
|
|
|
|
|||||||||
| Total assets |
140,963,673 | 127,020,606 | ||||||||||
|
|
|
|
|
|||||||||
| LIABILITIES |
||||||||||||
| Current |
||||||||||||
| Bank indebtedness and other indebtedness |
31,303,033 | 28,733,983 | ||||||||||
| Trade and other payables |
15,336,249 | 12,404,614 | ||||||||||
| Current portion of share-based compensation liability |
11 | 39,200,456 | 35,573,558 | |||||||||
| Current portion of long-term debt |
42,717,680 | 26,699,276 | ||||||||||
| Current portion of lease liabilities |
7 | 1,702,996 | 1,814,635 | |||||||||
|
|
|
|
|
|||||||||
| Current liabilities |
130,260,414 | 105,226,066 | ||||||||||
|
|
|
|
|
|||||||||
| Non-current |
||||||||||||
| Share-based compensation liability |
11 | 37,621,575 | 35,126,025 | |||||||||
| Long-term debt |
87,326 | 118,539 | ||||||||||
| Convertible debt instruments |
12 | 19,912,273 | 18,866,890 | |||||||||
| Lease liabilities |
7 | 6,436,263 | 5,904,473 | |||||||||
| Share warrant obligation |
10 | 31,868,091 | 31,549,033 | |||||||||
| Common shares, retractable |
27,819,990 | 25,855,509 | ||||||||||
|
|
|
|
|
|||||||||
| Non-current liabilities |
123,745,518 | 117,420,469 | ||||||||||
|
|
|
|
|
|||||||||
| Total liabilities |
254,005,932 | 222,646,535 | ||||||||||
|
|
|
|
|
|||||||||
| SHAREHOLDERS’ DEFICIENCY |
||||||||||||
| Share capital |
32,562,541 | 32,562,541 | ||||||||||
| Conversion options on convertible debt instruments, net of tax |
12 | 1,472,520 | 1,472,520 | |||||||||
| Deficit |
(142,544,269 | ) | (126,430,406 | ) | ||||||||
| Cumulative translation adjustment |
(4,533,051 | ) | (3,230,584 | ) | ||||||||
|
|
|
|
|
|||||||||
| Total deficiency |
(113,042,259 | ) | (95,625,929 | ) | ||||||||
|
|
|
|
|
|||||||||
| Total deficiency and liabilities |
140,963,673 | 127,020,606 | ||||||||||
|
|
|
|
|
|||||||||
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
2
The Lion Electric Company
Consolidated Statements of Comprehensive Loss
For the three-month periods ended March 31,
(Unaudited, In US dollars except per share amounts)
| Notes | 2021 | 2020 | ||||||||||
| $ | $ | |||||||||||
| Revenue |
6,225,478 | 1,228,439 | ||||||||||
| Cost of sales |
8,032,301 | 2,284,676 | ||||||||||
|
|
|
|
|
|||||||||
| Gross profit |
(1,806,823 | ) | (1,056,237 | ) | ||||||||
|
|
|
|
|
|||||||||
| Administrative expenses |
11 | 6,269,969 | 760,753 | |||||||||
| Selling expenses |
11 | 4,383,579 | 1,606,863 | |||||||||
| Finance costs |
13 | 3,907,390 | 1,879,500 | |||||||||
| Foreign exchange loss (gain) |
(178,653 | ) | 365,926 | |||||||||
| Change in fair value of share warrant obligation |
10 | (75,245 | ) | — | ||||||||
|
|
|
|
|
|||||||||
| Net loss for the period |
(16,113,863 | ) | (5,669,279 | ) | ||||||||
| Other comprehensive loss Item that will be subsequently reclassified to net loss Foreign currency translation adjustment |
(1,302,467 | ) | (112,240 | ) | ||||||||
|
|
|
|
|
|||||||||
| Comprehensive loss for the period |
(17,416,330 | ) | (5,781,519 | ) | ||||||||
|
|
|
|
|
|||||||||
| Loss per share |
||||||||||||
| Basic loss per share |
(0.15 | ) | (0.05 | ) | ||||||||
|
|
|
|
|
|||||||||
| Diluted loss per share |
(0.15 | ) | (0.05 | ) | ||||||||
|
|
|
|
|
|||||||||
The accompanying notes are an integral part of condensed interim consolidated financial statements.
3
The Lion Electric Company
Consolidated Statements of Changes in Equity
For the three-month periods ended March 31, 2021 and 2020
(Unaudited, In US dollars, except for number of shares)
| Cumulative | ||||||||||||||||||||||||||||
| Number of | Share | Conversion | translation | Total | ||||||||||||||||||||||||
| Notes | shares | capital | options | Deficit | adjustment | deficiency | ||||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Balance at January 1, 2021 |
110,551,314 | 32,562,541 | 1,472,520 | (126,430,406 | ) | (3,230,584 | ) | (95,625,929 | ) | |||||||||||||||||||
| Net loss for the period |
— | — | — | (16,113,863 | ) | — | (16,113,863 | ) | ||||||||||||||||||||
| Other comprehensive loss |
||||||||||||||||||||||||||||
| Foreign currency translation adjustment |
— | — | — | — | (1,302,467 | ) | (1,302,467 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance at March 31, 2021 |
110,551,314 | 32,562,541 | 1,472,520 | (142,544,269 | ) | (4,533,051 | ) | (113,042,259 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance at January 1, 2020 |
110,551,314 | 32,562,541 | — | (29,078,739 | ) | 1,400,289 | 4,884,091 | |||||||||||||||||||||
| Issuance of convertible debt instruments |
12 | 422,940 | — | — | 422,940 | |||||||||||||||||||||||
| Net loss for the period |
— | — | — | (5,669,279 | ) | — | (5,669,279 | ) | ||||||||||||||||||||
| Other comprehensive loss |
||||||||||||||||||||||||||||
| Foreign currency translation adjustment |
— | — | — | — | (112,240 | ) | (112,240 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance at March 31, 2020 |
110,551,314 | 32,562,541 | 422,940 | (34,748,018 | ) | 1,288,049 | (474,488 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
The accompanying notes are an integral part of the consended interim consolidated financial statements.
4
The Lion Electric Company
Consolidated Statements of Cash Flows
For the three-month periods ended March 31,
(Unaudited, In US dollars)
| Notes | 2021 | 2020 | ||||||||||
| $ | $ | |||||||||||
| OPERATING ACTIVITIES |
||||||||||||
| Net loss for the period |
(16,113,863 | ) | (5,669,279 | ) | ||||||||
| Non-cash items: |
||||||||||||
| Amortization - property, plant and equipment |
291,396 | 110,117 | ||||||||||
| Amortization - right-of-use assets |
457,570 | 340,471 | ||||||||||
| Amortization - intangible assets |
234,848 | 34,953 | ||||||||||
| Stock-based compensation |
5,205,352 | 251,043 | ||||||||||
| Accretion expense on common shares, retractable |
1,616,013 | 1,196,421 | ||||||||||
| Accretion expense on balance of purchase price payable related to the acquisition of the dealership rights |
153,120 | 208,718 | ||||||||||
| Accretion expense on convertible debt instruments |
797,214 | 24,888 | ||||||||||
| Change in fair value of share warrant obligation |
(75,245 | ) | — | |||||||||
| Unrealized foreign exchange loss (gain) |
(35,926 | ) | 327,689 | |||||||||
| Net change in working capital items |
14 | (2,594,854 | ) | (2,315,638 | ) | |||||||
|
|
|
|
|
|||||||||
| Cash flows used in operating activities |
(10,064,375 | ) | (5,490,617 | ) | ||||||||
|
|
|
|
|
|||||||||
| INVESTING ACTIVITIES |
||||||||||||
| Acquisition of property, plant and equipment |
(1,111,899 | ) | (868,788 | ) | ||||||||
| Acquisition of intangible assets |
(6,450,184 | ) | (2,780,614 | ) | ||||||||
| Government assistance related to intangible assets |
456,190 | 1,222,987 | ||||||||||
|
|
|
|
|
|||||||||
| Cash flows used in investing activities |
(7,105,893 | ) | (2,426,415 | ) | ||||||||
|
|
|
|
|
|||||||||
| FINANCING ACTIVITIES |
||||||||||||
| Net change in credit facilities |
4,977,316 | 5,471,279 | ||||||||||
| Repayment of loans on research and development tax credits and subsidies receivable |
(2,745,712 | ) | — | |||||||||
| Long-term debt |
15,775,473 | — | ||||||||||
| Repayment of long-term debt |
(370,026 | ) | (685,988 | ) | ||||||||
| Repayment of lease liabilities |
(447,724 | ) | (215,633 | ) | ||||||||
| Proceeds from issuance of convertible debt instruments, net of issuance costs |
— | 3,671,299 | ||||||||||
|
|
|
|
|
|||||||||
| Cash flows from financing activities |
17,189,327 | 8,240,957 | ||||||||||
|
|
|
|
|
|||||||||
| Effect of exchange rate changes on instruments held in foreign currency |
(62,053 | ) | (21,701 | ) | ||||||||
|
|
|
|
|
|||||||||
| Net increase (decrease) in cash |
(42,994 | ) | 302,224 | |||||||||
| Bank overdraft, beginning of period |
(91,076 | ) | (168,108 | ) | ||||||||
|
|
|
|
|
|||||||||
| Cash (bank overdraft), end of period |
(134,070 | ) | 134,116 | |||||||||
|
|
|
|
|
|||||||||
| Other information on cash flows related to operating activities : |
||||||||||||
| Income taxes paid |
— | — | ||||||||||
| Interest paid |
1,050,469 | 390,041 | ||||||||||
| Interest paid under lease liabilities |
79,471 | 53,975 | ||||||||||
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
5
The Lion Electric Company
Notes to the Condensed Interim Consolidated Financial Statements
For the three-month periods ended March 31, 2021 and 2020
(Unaudited, In US dollars except per share amounts)
| 1. | 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.
| 2. | BASIS OF PRESENTATION AND STATEMENT OF COMPLIANCE WITH IFRS |
These unaudited condensed interim consolidated financial statements (“financial statements”) present the Group’s consolidated financial position as of March 31, 2021 and December 31, 2020 as well as its consolidated comprehensive loss for the three-month periods ended March 31, 2021 and 2020 and the Group’s cash flows and changes in shareholders’ deficiency for the three-month periods ended March 31, 2021 and 2020.
These financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34 - Interim Financial Reporting and are expressed in United States (“US”) dollars for reporting purposes. The functional currency of the Company and its subsidiaries is the Canadian dollar. 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 International Accounting Standards Board, 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, 2020.
These financial statements reflect all adjustments which are, in the opinion of management, to present a fair statement of the results for these interim periods. These adjustments are of a normal recurring nature.
These financial statements have been approved for issue by the Board of Directors on May 14, 2021.
| 3. | SIGNIFICANT ACCOUNTING POLICIES |
The financial statements have been prepared in accordance with the accounting policies adopted in the Group’s most recent annual consolidated financial statements for the year ended December 31, 2020, and use the same methods of computation compared with the Group’s most recent annual consolidated financial statements.
At the date of authorization of these financial statements, several 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.
6
The Lion Electric Company
Notes to the Condensed Interim Consolidated Financial Statements
For the three-month periods ended March 31, 2021 and 2020
(Unaudited, In US dollars except per share amounts)
| 3. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
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 period have not been disclosed as they are not expected to have a material impact on the Group’s condensed interim consolidated financial statements.
| 4. | ESTIMATES |
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 judgements, estimates and assumptions applied in the financial statements, including the key sources of estimation uncertainty, were the same as those applied in the Group’s last annual consolidated financial statements for the year ended December 31, 2020.
| 5. | SEGMENT REPORTING |
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 and its non-current assets are divided into the following geographical areas:
| Three-month period ended March 31, 2021 | ||||||||||||
| Canada | United States | Total | ||||||||||
| $ | $ | $ | ||||||||||
| Revenue |
5,577,757 | 647,721 | 6,225,478 | |||||||||
|
|
|
|
|
|
|
|||||||
| Three-month period ended March 31, 2020 | ||||||||||||
| Canada | United States | Total | ||||||||||
| $ | $ | $ | ||||||||||
| Revenue |
541,455 | 686,984 | 1,228,439 | |||||||||
|
|
|
|
|
|
|
|||||||
During the three-month period ended March 31, 2021, 71.0% (three-month period ended March 31, 2020: 53.3%) of the Group’s revenue depended on two customers, 46.6% and 24.4% respectively (three-month period ended March 31, 2020: two customers, 29.4% and 23.9% respectively).
7
The Lion Electric Company
Notes to the Condensed Interim Consolidated Financial Statements
For the three-month periods ended March 31, 2021 and 2020
(Unaudited, In US dollars except per share amounts)
| 5. | SEGMENT REPORTING (Continued) |
| March 31, 2021 | ||||||||||||
| Canada | United States | Total | ||||||||||
| $ | $ | $ | ||||||||||
| Property, plant and equipment |
5,755,792 | 584,984 | 6,340,776 | |||||||||
| Right-of-use assets |
5,380,342 | 2,525,111 | 7,905,453 | |||||||||
| Intangible assets |
42,586,311 | 5,542,558 | 48,128,869 | |||||||||
| Contract asset |
14,506,486 | — | 14,506,486 | |||||||||
|
|
|
|
|
|
|
|||||||
| 68,228,931 | 8,652,653 | 76,881,584 | ||||||||||
|
|
|
|
|
|
|
|||||||
| December 31, 2020 | ||||||||||||
| Canada | United States | Total | ||||||||||
| $ | $ | $ | ||||||||||
| Property, plant and equipment |
5,050,367 | 396,440 | 5,446,807 | |||||||||
| Right-of-use assets |
5,586,207 | 1,912,517 | 7,498,724 | |||||||||
| Intangible assets |
36,615,165 | 5,475,678 | 42,090,843 | |||||||||
| Contract asset |
14,327,709 | — | 14,327,709 | |||||||||
|
|
|
|
|
|
|
|||||||
| 61,579,448 | 7,784,635 | 69,364,083 | ||||||||||
|
|
|
|
|
|
|
|||||||
8
The Lion Electric Company
Notes to the Consolidated Financial Statements
For the three-month periods ended March 31, 2021 and 2020
(Unaudited, In US dollars except per share amounts)
| 6. | PROPERTY, PLANT AND EQUIPMENT |
Details of the Group’s property, plant and equipment and their carrying amounts are as follows:
| Machinery | Furniture | Master | ||||||||||||||||||||||||||||||||||
| Leasehold | and | Rolling | Computer | and office | Production | patterns and | ||||||||||||||||||||||||||||||
| improvements | equipment | stock | equipment | equipment | moulds | templates | Prototypes | Total | ||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| 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 |
48,253 | 406,010 | 128,343 | 320,499 | 144,689 | 63,750 | 355 | — | 1,111,899 | |||||||||||||||||||||||||||
| Foreign currency translation adjustment |
24,857 | 27,532 | 5,947 | 18,304 | 7,066 | 5,630 | 6,566 | 977 | 96,879 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Balance at March 31, 2021 |
2,039,261 | 2,421,735 | 541,869 | 1,633,368 | 640,244 | 486,238 | 532,874 | 79,347 | 8,374,936 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| AMORTIZATION |
||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 |
774,384 | 96,356 | 120,439 | 363,142 | 125,071 | 114,635 | 46,954 | 78,370 | 1,719,351 | |||||||||||||||||||||||||||
| Amortization |
140,036 | 20,296 | 22,348 | 73,686 | 19,244 | 13,242 | 2,544 | — | 291,396 | |||||||||||||||||||||||||||
| Foreign currency translation adjustment |
10,602 | 1,338 | 1,652 | 5,026 | 1,690 | 1,519 | 609 | 977 | 23,413 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Balance at March 31, 2021 |
925,022 | 117,990 | 144,439 | 441,854 | 146,005 | 129,396 | 50,107 | 79,347 | 2,034,160 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Carrying amount March 31, 2021 |
1,114,239 | 2,303,745 | 397,430 | 1,191,514 | 494,239 | 356,842 | 482,767 | — | 6,340,776 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| GROSS CARRYING AMOUNT |
||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2020 |
935,981 | 1,123,911 | 249,217 | 534,977 | 250,312 | 330,075 | 470,725 | 76,823 | 3,972,021 | |||||||||||||||||||||||||||
| Additions |
960,722 | 799,539 | 145,672 | 711,348 | 221,472 | 76,128 | 43,462 | — | 2,958,343 | |||||||||||||||||||||||||||
| Foreign currency translation adjustment |
69,448 | 64,743 | 12,690 | 48,240 | 16,705 | 10,655 | 11,766 | 1,547 | 235,794 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Balance at December 31, 2020 |
1,966,151 | 1,988,193 | 407,579 | 1,294,565 | 488,489 | 416,858 | 525,953 | 78,370 | 7,166,158 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| AMORTIZATION |
||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2020 |
324,332 | 64,534 | 57,037 | 182,205 | 67,343 | 87,259 | 40,305 | 73,964 | 896,979 | |||||||||||||||||||||||||||
| Amortization |
421,329 | 28,996 | 59,138 | 168,399 | 53,551 | 24,337 | 5,548 | 2,770 | 764,068 | |||||||||||||||||||||||||||
| Foreign currency translation adjustment |
28,723 | 2,826 | 4,264 | 12,538 | 4,177 | 3,039 | 1,101 | 1,636 | 58,304 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Balance at December 31, 2020 |
774,384 | 96,356 | 120,439 | 363,142 | 125,071 | 114,635 | 46,954 | 78,370 | 1,719,351 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Carrying amount December 31, 2020 |
1,191,767 | 1,891,837 | 287,140 | 931,423 | 363,418 | 302,223 | 478,999 | — | 5,446,807 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
9
The Lion Electric Company
Notes to the Condensed Interim Consolidated Financial Statements
For the three-month periods ended March 31, 2021 and 2020
(Unaudited, In US dollars except per share amounts)
| 7. | LEASES |
Right-of-use assets
| Premises | Rolling stock | Total | ||||||||||
| $ | $ | $ | ||||||||||
| Balance at January 1, 2021 |
7,353,957 | 144,767 | 7,498,724 | |||||||||
| Addition |
750,298 | 18,348 | 768,646 | |||||||||
| Amortization |
(441,025 | ) | (16,545 | ) | (457,570 | ) | ||||||
| Foreign currency translation adjustment |
93,835 | 1,818 | 95,653 | |||||||||
|
|
|
|
|
|
|
|||||||
| Balance at March 31, 2021 |
7,757,065 | 148,388 | 7,905,453 | |||||||||
|
|
|
|
|
|
|
|||||||
| Balance at January 1, 2020 |
6,371,563 | 202,401 | 6,573,964 | |||||||||
| Addition |
2,177,758 | 19,204 | 2,196,962 | |||||||||
| Amortization |
(1,366,378 | ) | (77,826 | ) | (1,444,204 | ) | ||||||
| Foreign currency translation adjustment |
171,014 | 988 | 172,002 | |||||||||
|
|
|
|
|
|
|
|||||||
| Balance at December 31, 2020 |
7,353,957 | 144,767 | 7,498,724 | |||||||||
|
|
|
|
|
|
|
|||||||
Lease liabilities
| $ | ||||
|
|
|
|||
| Balance at January 1, 2021 |
7,719,108 | |||
| Addition |
768,646 | |||
| Lease payments |
(446,970 | ) | ||
| Foreign currency translation adjustment |
98,475 | |||
|
|
|
|||
| Balance at March, 2021 |
8,139,259 | |||
| Current portion |
1,702,996 | |||
|
|
|
|||
| Non-current portion |
6,436,263 | |||
|
|
|
|||
| Balance at January 1, 2020 |
6,669,787 | |||
| Addition |
2,196,962 | |||
| Lease payments |
(1,327,707 | ) | ||
| Foreign currency translation adjustment |
180,066 | |||
|
|
|
|||
| Balance at December 31, 2020 |
7,719,108 | |||
| Current portion |
1,814,635 | |||
|
|
|
|||
| Non-current portion |
5,904,473 | |||
|
|
|
10
The Lion Electric Company
Notes to the Condensed Interim Consolidated Financial Statements
For the three-month periods ended March 31, 2021 and 2020
(Unaudited, In US dollars except per share amounts)
| 8. | INTANGIBLE ASSETS |
Details of the Group’s intangible assets and their carrying amounts are as follows:
| Software | Development costs |
Dealership rights |
Total | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Gross carrying amount |
||||||||||||||||
| Balance at January 1, 2021 |
2,152,616 | 35,672,946 | 5,463,882 | 43,289,444 | ||||||||||||
| Additions, separately acquired |
630,773 | — | — | 630,773 | ||||||||||||
| Additions, internally developed |
— | 5,048,311 | — | 5,048,311 | ||||||||||||
| Additions, borrowing costs |
— | 31,850 | — | 31,850 | ||||||||||||
| Foreign currency translation adjustment |
31,092 | 479,204 | 68,176 | 578,472 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Balance at March 31, 2021 |
2,814,481 | 41,232,311 | 5,532,058 | 49,578,850 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Amortization |
||||||||||||||||
| Balance at January 1, 2021 |
539,821 | 658,780 | — | 1,198,601 | ||||||||||||
| Amortization |
122,474 | 112,374 | — | 234,848 | ||||||||||||
| Foreign currency translation adjustment |
7,558 | 8,974 | — | 16,532 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Balance at March 31, 2021 |
669,853 | 780,128 | — | 1,449,981 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Carrying amount March 31, 2021 |
2,144,628 | 40,452,183 | 5,532,058 | 48,128,869 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Gross carrying amount |
||||||||||||||||
| Balance at January 1, 2020 |
1,255,871 | 21,140,220 | 5,356,051 | 27,752,142 | ||||||||||||
| Additions, separately acquired |
827,855 | — | — | 827,855 | ||||||||||||
| Additions, internally developed |
— | 12,788,264 | — | 12,788,264 | ||||||||||||
| Additions, borrowing costs |
— | 612,962 | — | 612,962 | ||||||||||||
| Foreign currency translation adjustment |
68,890 | 1,131,500 | 107,831 | 1,308,221 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Balance at December 31, 2020 |
2,152,616 | 35,672,946 | 5,463,882 | 43,289,444 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Amortization |
||||||||||||||||
| Balance at January 1, 2020 |
196,388 | 475,120 | — | 671,508 | ||||||||||||
| Amortization |
322,493 | 165,383 | — | 487,876 | ||||||||||||
| Foreign currency translation adjustment |
20,940 | 18,277 | — | 39,217 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Balance at December 31, 2020 |
539,821 | 658,780 | — | 1,198,601 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Carrying amount December 31, 2020 |
1,612,795 | 35,014,166 | 5,463,882 | 42,090,843 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
11
The Lion Electric Company
Notes to the Consolidated Financial Statements
For the three-month periods ended March 31, 2021 and 2020
(Unaudited, In US dollars except per share amounts)
| 9. | FINANCIAL ASSETS AND LIABILITIES |
| 9.1 | Categories of financial assets and financial liabilities |
The classification of financial instruments is summarized as follows:
| Classification | March 31, 2021 |
December 31, 2020 |
||||||||||
| $ | $ | |||||||||||
| FINANCIAL ASSETS |
||||||||||||
| Trade and other receivables |
Amortized cost | 5,581,273 | 8,692,439 | |||||||||
| Incentives from “support program for the deployment of electric school buses” and from “zero-emission truck and bus program” receivable |
Amortized cost | 4,627,905 | 5,216,118 | |||||||||
| Other government assistance receivable |
Amortized cost | 1,288,511 | 724,367 | |||||||||
| FINANCIAL LIABILITIES |
||||||||||||
| Bank overdraft |
Amortized cost | 134,070 | 91,076 | |||||||||
| Credit facilities |
Amortized cost | 23,369,339 | 18,209,335 | |||||||||
| Loans on research and development tax credits and subsidies receivable |
Amortized cost | 7,799,624 | 10,433,572 | |||||||||
| Trade and other payables |
Amortized cost | 14,878,414 | 9,413,387 | |||||||||
| Long-term debt |
Amortized cost | 42,805,006 | 26,817,815 | |||||||||
| Convertible debt instruments |
Amortized cost | 19,912,273 | 18,866,890 | |||||||||
| Share warrant obligation |
FVTPL | 31,868,091 | 31,549,033 | |||||||||
| Common shares, retractable |
Amortized cost | 27,819,990 | 25,855,509 | |||||||||
Fair value of financial instruments
Current financial instruments that are not measured at fair value on the consolidated statement of financial position are represented by 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, bank overdraft, credit facilities, 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 of March 31, 2021 and December 31, 2020, the fair value of long-term debt, the convertible debt instruments and the common shares, retractable 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. The long-term debt, convertible debt instruments and common shares, retractable are categorized in Level 2 of the fair value hierarchy.
The fair value of the share warrant obligation was determined as described in Note 10.
12
The Lion Electric Company
Notes to the Condensed Interim Consolidated Financial Statements
For the three-month periods ended March 31, 2021 and 2020
(Unaudited, In US dollars except per share amounts)
| 10. | SHARE WARRANT |
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 “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.
The Group determined that the Warrant is a derivative instrument and should be classified as a liability in accordance with IAS 32 - Financial Instruments: Presentation and IFRS 9 - Financial Instruments. The vested portion of the Warrant is initially recorded at fair value and then revalued at each reporting date with a corresponding contract asset recognized at inception.
The fair value of the Warrant was determined using the Black-Scholes option pricing model taking into account the following assumptions:
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Exercise price ($) |
5.66 | 5.66 | ||||||
| Share price ($) |
10.00 | 10.00 | ||||||
| Volatility (%) |
40 | % | 40 | % | ||||
| Risk-free interest rate (%) |
1.24 | % | 0.69 | % | ||||
| Expected warrant life (years) |
7.25 | 7.50 | ||||||
The Group has recognized the following contract asset and share warrant obligation:
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| $ | $ | |||||||
| Contract asset |
||||||||
| Beginning balance |
14,327,709 | 13,427,493 | ||||||
| Foreign currency translation adjustment |
178,777 | 900,216 | ||||||
|
|
|
|
|
|||||
| Total contract asset |
14,506,486 | 14,327,709 | ||||||
|
|
|
|
|
|||||
| Share warrant obligation |
||||||||
| Beginning balance |
31,549,033 | 13,227,703 | ||||||
| Fair value adjustment |
(75,245 | ) | 16,847,470 | |||||
| Foreign currency translation adjustment |
394,303 | 1,473,860 | ||||||
|
|
|
|
|
|||||
| Total share warrant obligation |
31,868,091 | 31,549,033 | ||||||
|
|
|
|
|
|||||
13
The Lion Electric Company
Notes to the Condensed Interim Consolidated Financial Statements
For the three-month periods ended March 31, 2021 and 2020
(Unaudited, In US dollars except per share amounts)
| 11. | SHARE-BASED EMPLOYEE REMUNERATION |
The following table summarizes share-based compensation costs recorded during the three-month periods ended:
| March 31, | March 31, | |||||||
| 2021 | 2020 | |||||||
| $ | $ | |||||||
| Administrative expenses |
3,058,595 | 191,204 | ||||||
| Selling expenses |
2,146,757 | 59,839 | ||||||
|
|
|
|
|
|||||
| 5,205,352 | 251,043 | |||||||
|
|
|
|
|
|||||
The following table summarizes share-based compensation liabilities recorded in the condensed interim statements of financial position:
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| $ | $ | |||||||
| Share-based compensation liability, current |
39,200,456 | 35,573,558 | ||||||
| Share-based compensation liability, non-current |
37,621,575 | 35,126,025 | ||||||
|
|
|
|
|
|||||
| 76,822,031 | 70,699,583 | |||||||
|
|
|
|
|
|||||
The following table summarizes the information relating to stock options outstanding:
| As of March 31, 2021 | ||||||||||||
| Weighted | ||||||||||||
| average | ||||||||||||
| remaining | Number of | |||||||||||
| Number of | contractual | stock options | ||||||||||
| Exercise price | stock options | life (years) | exercisable | |||||||||
| CA$0.93 (issued in 2018) |
5,902,399 | 6.71 | 4,279,237 | |||||||||
| CA$0.93 (issued in 2019) |
4,059,906 | 8.53 | 1,014,979 | |||||||||
| $5.66 (issued in 2020) |
412,890 | 9.47 | — | |||||||||
|
|
|
|
|
|||||||||
| 10,375,195 | 5,294,216 | |||||||||||
|
|
|
|
|
|||||||||
14
The Lion Electric Company
Notes to the Condensed Interim Consolidated Financial Statements
For the three-month periods ended March 31, 2021 and 2020
(Unaudited, In US dollars except per share amounts)
| 11. | SHARE-BASED EMPLOYEE REMUNERATION (Continued) |
| As of December 31, 2020 | ||||||||||||
| Weighted | ||||||||||||
| average | ||||||||||||
| remaining | Number of | |||||||||||
| Number of | contractual | stock options | ||||||||||
| Exercise price | stock options | life (years) | exercisable | |||||||||
| CA$0.93 (issued in 2018) |
5,902,399 | 6.86 | 4,205,458 | |||||||||
| CA$0.93 (issued in 2019) |
4,059,906 | 8.78 | 1,014,979 | |||||||||
| 5.66 (issued in 2020) |
412,890 | 9.71 | — | |||||||||
|
|
|
|
|
|||||||||
| 10,375,195 | 5,220,437 | |||||||||||
|
|
|
|
|
|||||||||
The following principal weighted assumptions were used in the valuation to remeasure the share-based compensation liability as at:
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Exercise price (CA$) |
1.18 | 1.20 | ||||||
| Share price (CA$) |
12.57 | 12.73 | ||||||
| Volatility (%) |
40 | % | 40 | % | ||||
| Risk-free interest rate (%) |
1.37 | % | 0.59 | % | ||||
| Expected option life (years) |
7.53 | 7.83 | ||||||
15
The Lion Electric Company
Notes to the Condensed Interim Consolidated Financial Statements
For the three-month periods ended March 31, 2021 and 2020
(Unaudited, In US dollars except per share amounts)
12. CONVERTIBLE DEBT INSTRUMENTS
| Total | ||||||||||||||||
| March 2020 Convertible Loan |
September 2020 Convertible Debenture |
Convertible Debt Instruments |
Conversion Option |
|||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Balance at January 1, 2021 |
3,676,252 | 15,190,638 | 18,866,890 | 1,472,520 | ||||||||||||
| Accretion expense |
92,447 | 712,121 | 804,568 | |||||||||||||
| Foreign currency translation adjustment |
46,492 | 194,323 | 240,815 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Balance at March 31, 2021 |
3,815,191 | 16,097,082 | 19,912,273 | 1,472,520 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| March 2020 Convertible Loan |
September 2020 Convertible Debenture |
Total Convertible Debt Instruments |
Conversion Option |
|||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Balance at January 1, 2020 |
||||||||||||||||
| Issuance of March 2020 |
||||||||||||||||
| Convertible Loan |
3,741,675 | — | 3,741,675 | |||||||||||||
| Conversion option—March 2020 |
||||||||||||||||
| Convertible Loan |
(422,940 | ) | — | (422,940 | ) | 422,940 | ||||||||||
| Issuance of September 2020 |
||||||||||||||||
| Convertible |
||||||||||||||||
| Debenture |
— | 15,340,000 | 15,340,000 | |||||||||||||
| Conversion option—September 2020 |
||||||||||||||||
| Convertible Debenture |
— | (1,049,580 | ) | (1,049,580 | ) | 1,049,580 | ||||||||||
| Accretion expense |
278,725 | 886,250 | 1,164,975 | |||||||||||||
| Less: financing fees |
(70,376 | ) | (313,131 | ) | (383,507 | ) | ||||||||||
| Foreign currency translation adjustment |
149,168 | 327,099 | 476,267 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Balance at December 31, 2020 |
3,676,252 | 15,190,638 | 18,866,890 | 1,472,520 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
March 2020 Convertible Loan
In March 2020, the Company completed a financing through the issuance of an unsecured convertible loan (the “March 2020 Convertible Loan”) to Investissement Québec in the principal amount of $3,741,675 (CA$5,000,000).
An amount of $70,376 (CA$94,043) in financing fees was incurred as a direct cost in the closing of the financing. This balance was capitalized and netted against the proceeds received from the issuance of the March 2020 Convertible Loan.
16
The Lion Electric Company
Notes to the Condensed Interim Consolidated Financial Statements
For the three-month periods ended March 31, 2021 and 2020
(Unaudited, In US dollars except per share amounts)
| 12. CONVERTIBLE | DEBT INSTRUMENTS (Continued) |
March 2020 Convertible Loan (continued)
Since the financial instrument meets the “Fixed for Fixed” criteria under IAS 32 – Financial Instruments: Presentation (“IAS 32”), the conversion option was classified as an equity instrument at the issuance date and is not subsequently remeasured.
The debt portion of the March 2020 Convertible Loan was recorded at the estimated fair value of $3,318,735 (CA$4,400,000) using an effective interest rate of 10.76% per annum at the time of issuance with the residual value of $422,940 (CA$600,000) recorded as separate component of equity.
As of March 31, 2021, the March 2020 Convertible Loan balance was accreted to $3,815,191 (CA$4,797,776)), with an interest expense of $92,447 (CA$117,036) (March 31, 2020: $25,575 (CA$34,361)) and a foreign currency translation adjustment of $46,492.
September 2020 Convertible Debenture
In September 2020, the Company completed a financing through the issuance of an unsecured convertible debenture (the “September 2020 Convertible Debenture”) to Investissement Québec in the principal amount of $15,340,000 (CA$20,000,000).
An amount of $313,131 (CA$417,675) in financing fees was incurred as a direct cost in the closing of the financing. This balance was capitalized and netted against the proceeds received from the issuance of the September 2020 Convertible Debenture.
Since the financial instrument meets the “Fixed for Fixed” criteria under IAS 32, the conversion option was classified as an equity instrument at the issuance date and is not subsequently remeasured.
The debt portion of the September 2020 Convertible Debenture was recorded at the estimated fair value of $14,290,420 (CA$18,600,000) using an effective interest rate of 20.52% per annum at the time of issuance with the residual value of $1,049,580 (CA$1,400,000) recorded as a separate component in equity.
As of March 31, 2021, the September 2020 Convertible Debenture balance was accreted to $16,097,082 (CA$20,242,809) with an interest expense of $712,121 (CA$901,533) and a foreign currency translation adjustment of $194,323.
17
The Lion Electric Company
Notes to the Condensed Interim Consolidated Financial Statements
For the three-month periods ended March 31, 2021 and 2020
(Unaudited, In US dollars except per share amounts)
| 13. FINANCE | COSTS |
Finance costs for the reporting periods consist of the following:
| Three-month periods ended March 31, |
||||||||
| 2021 | 2020 | |||||||
| $ | $ | |||||||
| Interest on long-term debt |
176,520 | 82,943 | ||||||
| Interest on current debt |
1,079,028 | 296,621 | ||||||
| Interest on lease liabilities |
81,873 | 66,024 | ||||||
| Interest on convertible debt instruments |
797,214 | 24,888 | ||||||
| Accretion expense on balance of purchase price payable related to the acquisition of the dealership rights |
153,120 | 208,718 | ||||||
| Accretion expense on common shares, retractable |
1,616,013 | 1,196,421 | ||||||
| Other financing fees |
3,622 | 3,885 | ||||||
|
|
|
|
|
|||||
| 3,907,390 | 1,879,500 | |||||||
|
|
|
|
|
|||||
| 14. | EARNINGS PER SHARE |
The calculation of basic and diluted loss per share for the three-month period ended March 31, 2021 was based on the net loss of $16,113,863 (net loss of $5,669,279 for the three-month period ended March 31, 2020) and the weighted average number of common shares outstanding of 110,551,314.
Excluded from the calculation of the diluted loss per share for the three-month period ended March 31, 2021 are 5,294,216 stock options (2,803,639 for the three-month period ended March 31, 2020) and 5,302,511 common shares exercisable pursuant to the Warrant (nil for the three-month period ended March 31, 2020).
| 15. | ADDITIONAL INFORMATION INCLUDED IN THE INTERIM CONDENSED STATEMENTS OF CASH FLOWS |
The net change in working capital items is detailed as follows:
| Three-month periods ended March 31, |
||||||||
| 2021 | 2020 | |||||||
| $ | $ | |||||||
| Inventories |
(9,241,896 | ) | (4,379,563 | ) | ||||
| Accounts receivable |
4,347,339 | 4,861,961 | ||||||
| Prepaid expenses |
(458,644 | ) | (839,990 | ) | ||||
| Trade and other payables |
2,758,347 | (1,958,046 | ) | |||||
|
|
|
|
|
|||||
| (2,594,854 | ) | (2,315,638 | ) | |||||
|
|
|
|
|
|||||
18
The Lion Electric Company
Notes to the Condensed Interim Consolidated Financial Statements
For the three-month periods ended March 31, 2021 and 2020
(Unaudited, In US dollars except per share amounts)
| 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 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 that had a material negative impact on the global economy in 2020, and will likely continue having a negative impact in 2021 and perhaps beyond. Given the dynamic nature of the pandemic, the extent to which it impacts the Group’s future results will depend on unknown future developments and any further impact on the global economy and the markets in which the Group operates and sells its products, including Canada and the United States of America. Accordingly, as of the date of completion of these financial statements, management was not able to assess the short term financial impact of these events at this time but continues to
monitor closely the evolving situation.
| 17. | BUSINESS COMBINATION, PLAN OF REORGANIZATION, REGISTRATION STATEMENT, PROSPECTUS AND SUBSEQUENT EVENTS |
On November 30, 2020, the Company entered into a business combination agreement and plan of reorganization (the “Business Combination Agreement”) with Northern Genesis Acquisition Corp. (“NGA”) pursuant to which a newly-incorporated wholly-owned subsidiary of the Company (“Merger Sub”) will be merged with NGA, with NGA surviving the business combination as a wholly-owned subsidiary of the Company (the “Transaction”).
Under the terms of the Business Combination Agreement, immediately prior to the completion of the Transaction, the Company will complete a 1:4.1289 share split and upon closing of the Transaction, the shares and warrants held by the shareholders of NGA will be converted into the Company’s common shares and warrants on the basis of an exchange ratio of one share or warrant held for one share or warrant of the Company, as applicable, subject to customary adjustments.
On May 6, 2021, the Transaction successfully closed and was consummated. The Company is treating the Transaction as a capital transaction equivalent to the issue of shares of the Company in exchange for the net monetary assets of NGA. The Transaction does not constitute a business combination as defined under IFRS 3, Business Combinations, as NGA is a non-operating entity that does not meet the definition of a business under IFRS 3. Accordingly, as of the closing of the Transaction, the Company issued the Company’s shares to the shareholders of NGA in exchange for their shares of NGA as well as exchanged the NGA warrants for the warrants of the Company. As a result, the Company will be consolidating cash of approximately $290 million, and be accounting for the warrants as a
19
The Lion Electric Company
Notes to the Condensed Interim Consolidated Financial Statements
For the three-month periods ended March 31, 2021 and 2020
(Unaudited, In US dollars except per share amounts)
| 17. | BUSINESS COMBINATION, PLAN OF REORGANIZATION, REGISTRATION STATEMENT, PROSPECTUS AND SUBSEQUENT EVENTS (Continued) |
liability at fair value. As part of the closing, the Company filed articles of amendment and consolidation whereby such articles provided, amongst other things, for the creation of an unlimited number of preferred shares and the stock split of 1:4.1289 was effective. Accordingly, all shares, stock options, warrants and per share information presented in the interim consolidated financial statements have been adjusted to reflect the stock split on a retroactive basis for all periods presented.
In addition to the closing of the Transaction, a concurrent privatement placement for the issuance of 20,040,200 common shares (post share split) for gross proceeds of $200,402,000 also closed.
In conjunction with the business combination, the Company filed a F-4 registration statement and subsequent amendments with the Securities and Exchange Commission as well as a non-offering prospectus with the Canadian securities regulators and upon consummation of the Transaction and effective May 7, 2021, the Company was listed on the New York Stock Exchange and the Toronto Stock Exchange.
Finally, in connection with the business combination, the Company and Investissement Québec, have agreed, subject to certain terms and conditions, that the convertible debt instruments will be repaid upon closing of the Transaction. In addition, the Company has also agreed to repay certain bank indebtedness and long-term debt owed to the National Bank of Canada.
20
Exhibit 99.3
For immediate release
LION ELECTRIC ANNOUNCES FIRST QUARTER 2021 RESULTS
FOLLOWING SUCCESSFUL PUBLIC LISTING
MONTREAL, QUEBEC—May 17, 2021 – The Lion Electric Company (NYSE: LEV) (TSX: LEV) (“Lion” or the “Company”), a leading manufacturer of all-electric medium and heavy-duty urban vehicles, today announced its financial and operating results for the first quarter of fiscal year 2021, which ended on March 31, 2021. All amounts are in U.S. dollars except where otherwise indicated.
Q1 2021 HIGHLIGHTS
| • | Delivery of 24 vehicles, a significant increase as compared to the 2 delivered in the same period last year. |
| • | Revenue of $6.2 million, up $5.0 million compared to $1.2 million in Q1 2020. |
| • | Negative gross profit of $1.8 million, down $0.8 million as compared to $1.1 million in Q1 2020. |
| • | Administrative expenses of $6.3 million, up $5.5 million as compared to Q1 2020. |
| • | Selling expenses of $4.4 million, up $2.8 million as compared to Q1 2020. |
| • | Adjusted EBITDA1 of negative $5.9 million, compared to negative $3.0 million in 2020. |
| • | Acquisition of intangible assets, which mainly consist of research & development activities, amounted to $6.5 million, up $3.7 million as compared to $2.8 million in Q1 2020. |
BUSINESS UPDATES
| • | Vehicle order book1 of 817 all-electric medium- and heavy-duty urban vehicles as of May 14th, 2021, consisting of 209 trucks and 608 buses, representing a combined total order value of over $225 million. |
| • | LionEnergy order book1 of 76 charging stations as of May 14th, 2021, representing a combined total order value of over $800,000. |
| • | Secured an order of 260 school buses from First Student, a leading school bus operator on May 14, 2021, with deliveries expected to take place from the second half of 2021 to the first half of 2023. |
| • | Obtained initial truck orders from sizable fleet owners, such as Pride Group, Ikea’s logistics partners (Second Closet and Metro Supply Chain Group), Sobeys, ConEdison and Heritage during and after the end of the quarter. |
| • | Delivery of the first 10 Lion6 trucks to Amazon completed shortly after the end of the quarter. |
| • | Significant progress in recruitment, with total company headcount exceeding 650 employees as of the date hereof, along with key strategic hires, as we look to accelerate and support long-term growth. |
| • | Significant progress on long-term strategy, including formal announcement of the site selection for the U.S. manufacturing facility and launch of the battery plant and innovation center construction, including C$100 million funding support towards construction costs. |
| 1 | See “Non-IFRS Measures and Other Performance Metrics” section of this press release. |
Page 1 of 11
| • | Successful debut as a publicly-traded company on both the NYSE and the TSX, with net transaction proceeds resulting from the related business combination transaction of approximately $490 million. |
| • | While the COVID-19 pandemic continues to impact Lion’s operations, its suppliers and its customers’ ability to take vehicle deliveries, numerous signs point to an upcoming market recovery. |
“The last few months were pivotal for Lion, as we made the transition from being a private to a publicly-listed company, which provides us with capital to support our long-term strategy. I would like to express my gratitude to everyone involved in our successful public listing and extend a warm welcome to all our new shareholders,” commented Marc Bedard, CEO – Founder of Lion. “On the operational front, despite the continued impact of the COVID-19 pandemic, we were able to post a positive performance for Q1 2021 as compared to Q1 2020. In addition, our clients continue to show a high level of satisfaction with our products and services. Not only have we shown growth in revenues in Q1, but we have improved our order book. With 7 types of purpose-built electric vehicles available for purchase today and eight additional ones expected to be available by the end of 2022, our focus is to accelerate our growth and execute on our long-term strategy, including by advancing our U.S. manufacturing facility and our battery plant projects, continuing to build our order book, accelerating vehicle deliveries and further strengthening our team. All these elements are the foundation of our success,” concluded Marc Bedard.
CHANGES TO THE BOARD OF DIRECTORS AND MANAGEMENT TEAM AND UPDATE ON COMPANY HEADCOUNT
Board of Directors
Ian Robertson and Chris Jarratt, both co-founders and directors of Norther Genesis Acquisition Corp. (“NGA”), joined Lion’s newly formed board of directors consisting of eight directors, including six former Lion board members.
Management team
During and shortly after the end of the quarter, Lion strengthened its management team, with the addition of Isabelle Adjahi as VP, Investor Relations and Sustainable Development and François Duquette as VP, Chief Legal Officer and Corporate Secretary.
The Company also welcomed and announced the following appointments:
| • | Brian S. Piern as Chief Commercial Officer, effective June 7, 2021. In this newly created role, Mr. Piern will guide Lion to the next level of its growth by expanding to new markets, building on long-standing relationships with existing clients, while developing new accounts and expanding market share. He is an experienced executive leader with a demonstrated history of working in the financial services, logistics, fleet and electrification industries. Since January of 2019 Brian led the development of the commercial team at XL Fleet, offering significant support to the company’s growth, merger and NYSE listing in late 2020. Prior to this, he spent 13 years in the fleet industry, most recently with Element Fleet Management and GE Capital Fleet, where he served as Senior Vice President of Sales. |
| • | Rocco Mezzatesta as Senior Vice-president – Product development and Vehicle engineering. Mr. Mezzatesta, who is tasked with product development as well as the |
Page 2 of 11
| management of engineering projects, brings over 20 years of engineering experience, mostly in the transportation industry for companies such as Tesla, Ford, and Toyota. |
| • | Vince Spadafora as Vice President, Financial Reporting, effective May 17, 2021. In this newly created role, Mr. Spadafora will oversee all aspects of financial reporting and related compliance. Mr. Spadafora has over 15 years of experience with public company financial reporting. He recently served as Director, External Reporting & Accounting Policies at Gildan Activewear Inc., a leading manufacturer of everyday basic apparel listed on the NYSE and the TSX. |
Company headcount
As of May 14, 2021, Lion had over 650 employees, of which over 200 were in its R&D department.
SELECT EXPLANATIONS ON RESULTS OF OPERATIONS
Revenues
Revenues increased by $5.0 million, from $1.2 million for the three-month period ended March 31, 2020, to $6.2 million for the three-month period ended March 31, 2021. The increase in revenue was primarily due to an increase in vehicle sales volume of 22 units, from 2 units (2 school buses in the U.S.) for the three-month period ended March 31, 2020, to 24 units (18 school buses and 6 trucks; 22 vehicles in Canada and 2 vehicles in the U.S.) for the three-month period ended March 31, 2021.
Cost of Sales
Cost of sales increased by $5.7 million, from $2.3 million for the three-month period ended March 31, 2020, to $8.0 million for the three-month period ended March 31, 2021. The increase was primarily due to the addition of personnel and other resources to accommodate higher anticipated production volumes. Lion completed the manufacturing of 43 vehicles in the three-month period ending March 31, 2021.
Gross Profit
Gross profit decreased by $0.8 million, from ($1.1) million (-86.0% of revenues) for the three-month period ended March 31, 2020, to ($1.8) million (-29.0% of revenues) for the three-month period ended March 31, 2021. The decrease is primarily due to the addition of personnel and other resources to accommodate higher anticipated production volumes.
Administrative Expenses
Administrative expenses increased by $5.5 million, from $0.8 million for the three-month period ended March 31, 2020, to $6.3 million for the three-month period ended March 31, 2021. The increase was primarily due a significant increase in non-cash share-based compensation of $3.1 million for the three-month period ended March 31, 2021 ($0.2 million for the three-month period ended March 31, 2020), to Lion expanding its head office capabilities in preparation of an expected increase in business, and an increase in non-recurring professional fees.
Page 3 of 11
Selling Expenses
Selling expenses increased by $2.8 million, from $1.6 million for the three-month period ended March 31, 2020, to $4.4 million for the three-month period ended March 31, 2021. The increase was primarily due a significant increase in non-cash share-based compensation of $2.1 million for the three-month period ended March 31, 2021 ($0.1 million for the three-month period ended March 31, 2020), to Lion expanding its sales force effective, and an increase in expenses associated with Experience Centers.
LIQUIDITY PROFILE
The business combination transaction with NGA and the concurrent equity private placement closed on May 6, 2021, and resulted in proceeds of approximately $490 million to the Company, net of transaction fees. Approximately $90 million of such proceeds were used to repay outstanding credit facilities and debt instruments. Immediately after the closing of the transaction and the repayment of such indebtedness, the Company had a debt balance of approximately $12 million, consisting mainly of a loan against vehicle subsidies to be received in the future, in addition to approximately $400 million of cash on hand.
CONFERENCE CALL
A conference call and webcast will be held on May 17, 2021, at 8:30 a.m. (Eastern Time) to discuss the results.
To participate in the conference call, dial (236) 714-3941 or (833) 329-1697 (toll free). A live webcast of the conference call will also be available at www.thelionelectric.com under the “Events and Presentation” page of the “Investors” section. An archive of the event will be available for a period of time shortly after the conference call.
FINANCIAL REPORT
This release incorporates by reference our 2021 first quarter financial report, including the unaudited interim consolidated financial statements of the Company as at and for the quarter ended March 31, 2021, and related MD&A, which will be filed by the Company with applicable Canadian securities regulatory authorities and with the U.S. Securities and Exchange Commission and which will be available on our website at www.thelionelectric.com.
Page 4 of 11
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the three-month periods ended March 31
(Unaudited)
| 2021 | 2020 | |||||||
| $ | $ | |||||||
| Revenue |
6,225,478 | 1,228,439 | ||||||
| Cost of sales |
8,032,301 | 2,284,676 | ||||||
|
|
|
|
|
|||||
| Gross profit |
(1,806,823 | ) | (1,056,237 | ) | ||||
|
|
|
|
|
|||||
| Administrative expenses |
6,269,969 | 760,753 | ||||||
| Selling expenses |
4,383,579 | 1,606,863 | ||||||
| Finance costs |
3,907,390 | 1,879,500 | ||||||
| Foreign exchange loss (gain) |
(178,653 | ) | 365,926 | |||||
| Change in fair value of share warrant obligation |
(75,245 | ) | — | |||||
|
|
|
|
|
|||||
| Net loss for the period |
(16,113,863 | ) | (5,669,279 | ) | ||||
| Other comprehensive income (loss) Item that will be subsequently reclassified to net loss Foreign currency translation adjustment |
(1,302,467 | ) | (112,240 | ) | ||||
|
|
|
|
|
|||||
| Comprehensive loss for the three-month period |
(17,416,330 | ) | (5,781,519 | ) | ||||
|
|
|
|
|
|||||
| Loss per share |
||||||||
| Basic loss per share |
(0.15 | ) | (0.05 | ) | ||||
|
|
|
|
|
|||||
| Diluted loss per share |
(0.15 | ) | (0.05 | ) | ||||
|
|
|
|
|
|||||
Page 5 of 11
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As of March 31, 2021, and December 31, 2020
(Unaudited)
| March 31, 2021 | December 31, 2020 |
|||||||
| ASSETS | $ | $ | ||||||
| Current |
||||||||
| Inventories |
47,852,275 | 38,073,303 | ||||||
| Accounts receivable |
14,676,492 | 18,505,072 | ||||||
| Prepaid expenses |
1,553,322 | 1,078,148 | ||||||
|
|
|
|
|
|||||
| Current assets |
64,082,089 | 57,656,523 | ||||||
|
|
|
|
|
|||||
| Non-current |
||||||||
| Property, plant and equipment |
6,340,776 | 5,446,807 | ||||||
| Right-of-use assets |
7,905,453 | 7,498,724 | ||||||
| Intangible assets |
48,128,869 | 42,090,843 | ||||||
| Contract asset |
14,506,486 | 14,327,709 | ||||||
|
|
|
|
|
|||||
| Non-current assets |
76,881,584 | 69,364,083 | ||||||
|
|
|
|
|
|||||
| Total assets |
140,963,673 | 127,020,606 | ||||||
|
|
|
|
|
|||||
| LIABILITIES |
||||||||
| Current |
||||||||
| Bank indebtedness and other indebtedness |
31,303,033 | 28,733,983 | ||||||
| Trade and other payables |
15,336,249 | 12,404,614 | ||||||
| Current portion of share-based compensation liability |
39,200,456 | 35,573,558 | ||||||
| Current portion of long-term debt |
42,717,680 | 26,699,276 | ||||||
| Current portion of lease liabilities |
1,702,996 | 1,814,635 | ||||||
|
|
|
|
|
|||||
| Current liabilities |
130,260,414 | 105,226,066 | ||||||
|
|
|
|
|
|||||
| Non-current |
||||||||
| Share-based compensation liability |
37,621,575 | 35,126,025 | ||||||
| Long-term debt |
87,326 | 118,539 | ||||||
| Convertible debt instruments |
19,912,273 | 18,866,890 | ||||||
| Lease liabilities |
6,436,263 | 5,904,473 | ||||||
| Share warrant obligation |
31,868,091 | 31,549,033 | ||||||
| Common shares, retractable |
27,819,990 | 25,855,509 | ||||||
|
|
|
|
|
|||||
| Non-current liabilities |
123,745,518 | 117,420,469 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
254,005,932 | 222,646,535 | ||||||
|
|
|
|
|
|||||
| SHAREHOLDERS’ EQUITY (DEFICIENCY) |
||||||||
| Share capital |
32,562,541 | 32,562,541 | ||||||
| Conversion options on convertible debt instruments, net of tax |
1,472,520 | 1,472,520 | ||||||
| Deficit |
(142,544,268 | ) | (126,430,406 | ) | ||||
| Cumulative translation adjustment |
(4,533,051 | ) | (3,230,584 | ) | ||||
|
|
|
|
|
|||||
| Total equity (deficiency) |
(113,042,258 | ) | (95,625,929 | ) | ||||
|
|
|
|
|
|||||
| Total equity (deficiency) and liabilities |
140,963,674 | 127,020,606 | ||||||
|
|
|
|
|
|||||
Page 6 of 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three-month periods ended March 31
(Unaudited)
| 2021 | 2020 | |||||||
| $ | $ | |||||||
| OPERATING ACTIVITIES |
||||||||
| Net loss for the year |
(16,113,863 | ) | (5,669,279 | ) | ||||
| Non-cash items: |
||||||||
| Amortization - property, plant and equipment |
291,396 | 110,117 | ||||||
| Amortization - right-of-use assets |
457,570 | 340,471 | ||||||
| Amortization - intangible assets |
234,848 | 34,953 | ||||||
| Stock-based compensation |
5,205,352 | 251,043 | ||||||
| Accretion expense on common shares, retractable |
1,616,013 | 1,196,421 | ||||||
| Accretion expense on balance of purchase price payable related to the acquisition of the dealership rights |
153,120 | 208,718 | ||||||
| Accretion expense on convertible debt instruments |
797,214 | 24,888 | ||||||
| Change in fair value of share warrant obligation |
(75,245 | ) | — | |||||
| Unrealized foreign exchange loss (gain) |
(35,926 | ) | 327,689 | |||||
| Net change in working capital items |
(2,594,854 | ) | (2,315,638 | ) | ||||
|
|
|
|
|
|||||
| Cash flows used in operating activities |
(10,064,375 | ) | (5,490,617 | ) | ||||
|
|
|
|
|
|||||
| INVESTING ACTIVITIES |
||||||||
| Acquisition of property, plant and equipment |
(1,111,899 | ) | (868,788 | ) | ||||
| Acquisition of intangible assets |
(6,450,184 | ) | (2,780,614 | ) | ||||
| Government assistance related to intangible assets |
456,190 | 1,222,987 | ||||||
| Contract asset, other costs |
— | — | ||||||
|
|
|
|
|
|||||
| Cash flows used in investing activities |
(7,105,893 | ) | (2,426,415 | ) | ||||
|
|
|
|
|
|||||
| FINANCING ACTIVITIES |
||||||||
| Net change in credit facilities |
4,977,316 | 5,471,279 | ||||||
| Repayment of loans on research and development tax credits and subsidies receivable |
(2,745,712 | ) | — | |||||
| Long-term debt |
15,775,473 | — | ||||||
| Repayment of long-term debt |
(370,026 | ) | (685,988 | ) | ||||
| Repayment of lease liabilities |
(447,724 | ) | (215,633 | ) | ||||
| Proceeds from issuance of convertible debt instruments, net of issuance costs |
— | 3,671,299 | ||||||
|
|
|
|
|
|||||
| Cash flows from financing activities |
17,189,327 | 8,240,957 | ||||||
|
|
|
|
|
|||||
| Effect of exchange rate changes on instruments held in foreign currency |
(62,053 | ) | (21,701 | ) | ||||
|
|
|
|
|
|||||
| Net increase in cash |
(42,994 | ) | 302,224 | |||||
| Bank overdraft, beginning of three-month period |
(91,076 | ) | (168,108 | ) | ||||
|
|
|
|
|
|||||
| Bank overdraft, end of three-month period |
(134,070 | ) | 134,116 | |||||
|
|
|
|
|
|||||
| Other information on cash flows related to operating activities: |
|
|||||||
| Income taxes paid |
— | — | ||||||
| Interest paid |
1,050,469 | 390,041 | ||||||
| Interest paid under lease liability |
79,471 | 53,975 | ||||||
|
|
|
|
|
|||||
Page 7 of 11
NON-IFRS MEASURES AND OTHER PERFORMANCE METRICS
The Company reports its financial results in accordance with the International Financial Reporting Standards (“IFRS”). This press release makes reference to certain non-IFRS measures, including Adjusted EBITDA, and other performance metrics, including the Company’s order book. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under IFRS. Additional details relating to these non-IFRS measures and other performance metrics can be found in Lion’s MD&A, which is available under the Company’s SEDAR profile at www.sedar.com.
“Adjusted EBITDA” is defined as net earnings (loss) before finance costs, income tax expense or benefit, and depreciation and amortization, adjusted for share-based compensation, changes in fair value of share warrant obligation, foreign exchange loss (gain) and certain non-recurring expenses. Adjusted EBITDA is intended as a supplemental measure of performance that is neither required by, nor presented in accordance with, IFRS. The Company believes that the use of Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company’s financial measures with those of comparable companies, which may present similar non-IFRS financial measures to investors. However, you should be aware that when evaluating Adjusted EBITDA, the Company may incur future expenses similar to those excluded when calculating Adjusted EBITDA. In addition, the Company’s presentation of these measures should not be construed as an inference that the Company’s future results will be unaffected by unusual or non-recurring items. The Company’s computation of Adjusted EBITDA may not be comparable to other similarly entitled measures computed by other companies, because all companies may not calculate Adjusted EBITDA in the same fashion.
The Company’s order book, expressed as a number of units or the amount of sales expected to be recognized in the future in respect of such number of units, is determined based on purchase orders that have been signed, orders that have been formally confirmed by clients or products in respect of which formal joint applications for governmental subsidies or economic incentives have been made by the applicable clients and the Company. The Company’s order book refers to products that have not yet been delivered but which are reasonably expected by management to be delivered within a time period that can be reasonably established and includes, in the case of charging stations, services that have not been completed but which are reasonably expected by management to be completed in connection with the delivery of the product. When the Company’s order book is expressed as an amount of sales, such amount has been determined by management based on the current specifications or requirements of the applicable order, assumes no changes to such specifications or requirements and, in cases where the pricing of a product or service may vary in the future, represents management’s reasonable estimate of the prospective pricing as of the time such estimate is reported. The order book is intended as a supplemental measure of performance that is neither required by, nor presented in accordance with, IFRS or any other applicable securities legislation. Lion believes that the disclosure of its order book provides an additional tool for investors to use in evaluating the Company’s
Page 8 of 11
performance and trends. Lion’s computation of its order book may not be comparable to other similarly entitled measures computed by other companies, because all companies may not calculate their order book, order backlog or order intake in the same fashion. In addition, Lion’s presentation of such measure should not be construed as a representation by Lion that all of the vehicles and charging stations included in its order book will translate into actual sales. A portion of the vehicles or charging stations included in the Company’s order book may be cancellable in certain circumstances within a certain period. The conversion of the Company’s order book in actual deliveries and sales is subject to a number of risks. For instance, a customer may default on a purchase order that has become binding, and the Company may not be able to convert orders included in its order books into sales. As a result, the Company’s realization of its order book could be affected by variables beyond its control and may not be entirely realized.
ADJUSTED EBITDA RECONCILIATION
The following table reconciles net loss to Adjusted EBITDA for the three-month periods ended March 31, 2021, and 2020.
For the three-month periods ended March 31
(Unaudited)
| 2021 | 2020 | |||||||
| $ | $ | |||||||
| (in thousands) | ||||||||
| Revenue |
$ | 6,225 | $ | 1,228 | ||||
| Net loss |
(16,114 | ) | ($ | 5,669 | ) | |||
| Finance costs |
3,907 | 1,880 | ||||||
| Depreciation and amortization |
984 | 483 | ||||||
| Share-based compensation(1) |
5,205 | 251 | ||||||
| Change in fair value of warrant(2) |
(75 | ) | — | |||||
| FX loss (gain)(3) |
(179 | ) | — | |||||
| Non-recurring fees(4) |
410 | 21 | ||||||
|
|
|
|
|
|||||
| Adjusted EBITDA |
($ | 5,861 | ) | ($ | 3,034 | ) | ||
|
|
|
|
|
|||||
| (1) | Represents non-cash expenses recognized in connection with the issuance and revaluation to fair value of options to participants under Lion’s legacy option plan. |
| (2) | Represents change in the fair value of the share warrant obligation under the Specified Customer Warrant valued at $31,868,091 as of March 31, 2021. |
| (3) | Represents non-cash losses (gains) relating to foreign exchange translation. |
| (4) | Represents non-recurring professional fees related to the acquisition of dealership rights and other professional fees, including as it relates to financing transactions, recruiting of senior management and other non-recurring items. |
ABOUT LION ELECTRIC
Lion Electric is an innovative manufacturer of zero-emission vehicles. The company creates, designs and manufactures all-electric class 5 to class 8 commercial urban trucks and all-electric buses and minibuses for the school, paratransit and mass transit segments. Lion is a North American leader in electric transportation and designs, builds and assembles many of its vehicles’ components, including chassis, battery packs, truck cabins and bus bodies.
Always actively seeking new and reliable technologies, Lion vehicles have unique features that are specifically adapted to its users and their everyday needs. Lion believes that transitioning to
Page 9 of 11
all-electric vehicles will lead to major improvements in our society, environment and overall quality of life. Lion shares are traded on the New York Stock Exchange and the Toronto Stock Exchange under the symbol LEV.
FORWARD-LOOKING STATEMENTS
This press release contains “forward-looking information” and “forward-looking statements” (collectively, “forward-looking statements”) within the meaning of applicable securities laws. Any statements contained in this press release that are not statements of historical fact, including statements about Lion’s beliefs and expectations, are forward-looking statements and should be evaluated as such.
Forward-looking statements may be identified by the use of words such as “believe,” “may,” “will,” “continue,” “anticipate,” “intend,” “expect,” “should,” “would,” “could,” “plan,” “potential,” “seem,” “seek,” “future,” “target” or other similar expressions and any other statements that predict or indicate future events or trends or that are not statements of historical matters, although not all forward-looking statements contain such identifying words. These forward-looking statements include, but are not limited to, statements regarding the Company’s current and projected order book, the Company’s long-term strategy and future growth, the Company’s battery plant project in Quebec and U.S. manufacturing facility, and the expected launch of new models of electric vehicles.
The Company made a number of economic, market and operational assumptions in preparing and making certain forward-looking statements contained in this press release including, but not limited to, that the Company will be able to retain and hire key personnel and maintain relationships with customers, suppliers or other business partners, that the Company will continue to operate its businesses in the normal course, that the Company will be able to implement its growth strategy, that the Company will be able to successfully and timely complete the construction of its U.S. manufacturing facility and its Québec battery plant, that the Company will be able to maintain its competitive position, that the Company will continue to improve its operational, financial and other internal controls and systems to manage its growth and size and that its results of operations and financial condition will not be adversely affected, that the Company will be able to maintain the benefits received by it from government subsidies and economic incentives and that the Company will be able to secure additional funding through equity or debt financing on terms acceptable to it. Such estimates and assumptions are made by the Company in light of the experience of management and their perception of historical trends, current conditions and expected future developments, as well as other factors believed to be appropriate and reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. The Company believes that these risks and uncertainties include, but are not limited to, the following: any adverse changes in the U.S. and Canadian general economic, business, market, financial, political and legal conditions, including as consequences of the global COVID-19 pandemic; the Company’s inability to successfully and economically manufacture and distribute its vehicles at scale and meet its customers’ business needs; the Company’s inability to execute its growth strategy; the Company’s inability to maintain its competitive position; the Company’s inability to reduce its costs of supply over time; any inability to maintain and enhance the Company’s reputation and brand; any significant product repair and/or replacement due to product warranty
Page 10 of 11
claims or product recalls; any failure of information technology systems or any cybersecurity and data privacy breaches or incidents; the reduction, elimination or discriminatory application of government subsidies and economic incentives or the reduced need for such subsidies; natural disasters, epidemic or pandemic outbreaks, boycotts and geo-political events; and the outcome of any legal proceedings that may be instituted against Lion from time to time.
These and other risks and uncertainties related to the businesses of Lion are described in greater detail in the section entitled “Risk Factors” in the Company’s final prospectus dated May 5, 2021 (the “Canadian Prospectus”) filed with the Autorité des marchés financiers (the “AMF”) and the registration statement on Form F-4 (the “Registration Statement”) filed with the Securities and Exchange Commission (the “SEC”) and declared effective on March 24, 2021 and other documents publicly filed with the AMF and the SEC. Many of these risks are beyond the Company’s management’s ability to control or predict. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements contained, and risk factors identified, in the Canadian Prospectus, the Registration Statement and other documents filed with the AMF and the SEC.
Because of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. Furthermore, forward-looking statements speak only as of the date they are made. Except as required under applicable securities laws, the Company undertakes no obligation, and expressly disclaims any duty, to update, revise or review any forward-looking information, whether as a result of new information, future events or otherwise.
Contacts:
MEDIA
Patrick Gervais
Vice President of Marketing and Communications
Patrick.Gervais@thelionelectric.com
514-992-1060
INVESTORS
Isabelle Adjahi
Vice President, Investor Relations and Sustainable Development
Isabelle.Adjahi@thelionelectric.com
450-432-5466, extension 171
Page 11 of 11