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EXHIBIT 99.2
VICINITY MOTOR CORP.
Consolidated Financial Statements
For the Years Ended December 31, 2022 and December 31, 2021 |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Vicinity Motor Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Vicinity Motor Corp. and its subsidiaries (together, the Company) as of December 31, 2022 and 2021, and the related consolidated statements of loss, comprehensive loss, changes in equity and cash flows for the years then ended, including the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and its financial performance and its cash flows for the years then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, Canada
March 30, 2023
We have served as the Company’s auditor since 2017.
PricewaterhouseCoopers LLP
PricewaterhouseCoopers Place, 250 Howe Street, Suite 1400, Vancouver, British Columbia, Canada V6C 3S7
T: +1 604 806 7000, F: +1 604 806 7806
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Vicinity Motor Corp.
Consolidated Statements of Financial Position
(In thousands of US Dollars)
| | | | | | | | | | | | | |
| | | Note | | December 31, 2022 | | December 31, 2021 |
| | | | | $ | | $ |
| Current Assets | | | | | | | | | | | | |
| Cash and cash equivalents | | | | | | | 1,622 | | | | 4,402 | |
| Trade and other receivables | | | 4 | | | | 2,655 | | | | 2,810 | |
| Inventory | | | 5 | | | | 10,068 | | | | 9,416 | |
| Prepaids and deposits | | | | | | | 3,801 | | | | 4,178 | |
| | | | | | | | | | | | | |
| Current Assets | | | | | | | 18,146 | | | | 20,806 | |
| Long-term Assets | | | | | | | | | | | | |
| Intangible assets | | | 6 | | | | 14,273 | | | | 22,353 | |
| Property, plant, and equipment | | | 7 | | | | 22,613 | | | | 10,834 | |
| | | | | | | | | | | | | |
| Assets | | | | | | | 55,032 | | | | 53,993 | |
| | | | | | | | | | | | | |
| Current Liabilities | | | | | | | | | | | | |
| Accounts payable and accrued liabilities | | | | | | | 4,942 | | | | 2,915 | |
| Deferred consideration | | | 6 | | | | — | | | | 4,602 | |
| Credit facility | | | 8 | | | | 628 | | | | — | |
| Current portion of deferred revenue | | | 9 | | | | 2,382 | | | | 3,193 | |
| Current portion of provision for warranty cost | | | 10 | | | | 1,585 | | | | 1,414 | |
| Current debt facilities | | | 11 | | | | 6,587 | | | | 7,143 | |
| Current portion of other long-term liabilities | | | 12 | | | | 449 | | | | 134 | |
| | | | | | | | | | | | | |
| Current Liabilities | | | | | | | 16,573 | | | | 19,401 | |
| | | | | | | | | | | | | |
| Long-term Liabilities | | | | | | | | | | | | |
| Other long-term liabilities | | | 12 | | | | 1,503 | | | | 92 | |
| Provision for warranty cost | | | 10 | | | | 124 | | | | 255 | |
| Deferred revenue | | | 9 | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Liabilities | | | | | | | 18,200 | | | | 19,748 | |
| | | | | | | | | | | | | |
| Shareholders’ Equity | | | | | | | | | | | | |
| Share capital | | | 13 | | | | 75,983 | | | | 58,055 | |
| Contributed surplus | | | 13 | | | | 7,088 | | | | 6,035 | |
| Accumulated other comprehensive (loss) income | | | | | | | 1,403 | | | | (151 | ) |
| Deficit | | | | | | | (47,642 | ) | | | (29,694 | ) |
| | | | | | | | | | | | | |
| Shareholders’ Equity | | | | | | | 36,832 | | | | 34,245 | |
| | | | | | | | | | | | | |
| Liabilities and shareholders' equity | | | | | | | 55,032 | | | | 53,993 | |
NATURE OF OPERATIONS (Note 1)
COMMITMENTS (Note 20)
SUBSEQUENT EVENTS (Note 22)
Approved on behalf of the Board:
| /s/“William R. Trainer” | | /s/“Christopher Strong” |
| Director | | Director |
See accompanying notes to the consolidated financial statements
Vicinity Motor Corp.
Consolidated Statements of Loss
(In thousands of US dollars, except for per share amounts)
| | | | | | | | | | | | | |
| | | Note | | Year ended December 31, 2022 | | Year ended December 31, 2021 |
| | | | | $ | | $ |
| Revenue | | | | | | | | | | | | |
| Vehicle sales | | | 18 | | | | 13,165 | | | | 38,197 | |
| Other | | | 18 | | | | 5,310 | | | | 3,511 | |
| | | | | | | | 18,475 | | | | 41,708 | |
| | | | | | | | | | | | | |
| Cost of sales | | | 5, 7a | | | | (18,035 | ) | | | (37,473 | ) |
| | | | | | | | | | | | | |
| Gross profit | | | | | | | 440 | | | | 4,235 | |
| | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | |
| Sales and administration | | | | | | | 9,526 | | | | 7,812 | |
| Stock-based compensation | | | | | | | 1,380 | | | | 1,353 | |
| Amortization | | | | | | | 2,572 | | | | 872 | |
| Interest and finance costs | | | 8,11,12 | | | | 2,258 | | | | 716 | |
| Gain on modification of debt | | | 11 | | | | (803 | ) | | | — | |
| Foreign exchange loss | | | | | | | 3,253 | | | | 341 | |
| | | | | | | | | | | | | |
| Expenses | | | | | | | 18,186 | | | | 11,094 | |
| | | | | | | | | | | | | |
| Loss before taxes | | | | | | | (17,746 | ) | | | (6,859 | ) |
| | | | | | | | | | | | | |
| Current income tax expense | | | 15 | | | | 202 | | | | 464 | |
| | | | | | | | | | | | | |
| Net loss | | | | | | | (17,948 | ) | | | (7,323 | ) |
| | | | | | | | | | | | | |
| Loss per share | | | | | | | | | | | | |
| Basic & diluted | | | 19 | | | | (0.45 | ) | | | (0.24 | ) |
| | | | | | | | | | | | | |
| Weighted average number of common shares outstanding | | | | | | | | | | | | |
| Basic & diluted | | | 19 | | | | 39,650,426 | | | | 30,827,688 | |
See accompanying notes to the consolidated financial statements
Vicinity Motor Corp.
Consolidated Statements of Comprehensive Loss
(In thousands of US dollars)
| | | | | | | | | |
| | | Year ended December 31, 2022 | | Year ended December 31, 2021 |
| | | $ | | $ |
| Net loss | | | (17,948 | ) | | | (7,323 | ) |
| | | | | | | | | |
| Other comprehensive loss | | | | | | | | |
| Items that may be reclassified subsequently to net loss | | | | | | | | |
| Exchange differences on translation of foreign operations | | | 1,554 | | | | (296 | ) |
| Total other comprehensive (loss) income | | | 1,554 | | | | (296 | ) |
| Total comprehensive loss | | | (16,394 | ) | | | (7,619 | ) |
See accompanying notes to the consolidated financial statements
Vicinity Motor Corp.
Consolidated Statements of Changes in Equity
(In thousands of US dollars, except for per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Note | | Number of Shares | | Share Capital | | Contributed Surplus | | Accumulated Other Comprehensive Income | | Deficit | | Total Shareholders’ Equity |
| | | | | | | $ | | $ | | $ | | $ | | $ |
| Balance, January 1, 2021 | | | 20 | | | | 28,650,754 | | | | 37,175 | | | | 2,618 | | | | 145 | | | | (22,371 | ) | | | 17,567 | |
| Issuance of shares – private placement | | | 13.2 | (d) | | | 4,114,242 | | | | 17,563 | | | | — | | | | — | | | | — | | | | 17,563 | |
| Issuance of shares – warrants exercised | | | 13.2 | (e) | | | 1,924,721 | | | | 6,269 | | | | (141 | ) | | | — | | | | — | | | | 6,128 | |
| Issuance of shares – options exercised | | | 13.2 | (f) | | | 256,662 | | | | 615 | | | | (199 | ) | | | — | | | | — | | | | 416 | |
| Issuance of options | | | 13.4 | | | | — | | | | — | | | | 1,333 | | | | — | | | | — | | | | 1,333 | |
| Share issuance costs | | | 13.2 | (d) | | | — | | | | (3,567 | ) | | | — | | | | — | | | | — | | | | (3,567 | ) |
| Warrants | | | 13.3 | | | | — | | | | — | | | | 1,071 | | | | — | | | | — | | | | 1,071 | |
| Stock-based compensation | | | 13.4-13.6 | | | | — | | | | — | | | | 1,353 | | | | — | | | | — | | | | 1,353 | |
| Other comprehensive loss | | | | | | | — | | | | — | | | | — | | | | (296 | ) | | | — | | | | (296 | ) |
| Net loss | | | | | | | — | | | | — | | | | — | | | | — | | | | (7,323 | ) | | | (7,323 | ) |
| Balance, December 31, 2021 | | | | | | | 34,946,379 | | | | 58,055 | | | | 6,035 | | | | (151 | ) | | | (29,694 | ) | | | 34,245 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of shares – private placement | | | 13.2 | (a) | | | 9,562,999 | | | | 18,449 | | | | — | | | | — | | | | — | | | | 18,449 | |
| Issuance of shares – RSU vested | | | 13.2 | (b) | | | 166,000 | | | | 900 | | | | (900 | ) | | | — | | | | — | | | | — | |
| Issuance of shares – options exercised | | | 13.2 | (c) | | | 66,661 | | | | 98 | | | | (23 | ) | | | — | | | | — | | | | 75 | |
| Share issuance costs | | | 13.2 | (a) | | | — | | | | (1,519 | ) | | | 152 | | | | — | | | | — | | | | (1,367 | ) |
| Warrants | | | 13.3 | | | | — | | | | — | | | | 444 | | | | — | | | | — | | | | 444 | |
| Stock-based compensation | | | 13.4-13.6 | | | | — | | | | — | | | | 1,380 | | | | — | | | | — | | | | 1,380 | |
| Other comprehensive loss | | | | | | | — | | | | — | | | | — | | | | 1,554 | | | | — | | | | 1,554 | |
| Net loss | | | | | | | — | | | | — | | | | — | | | | — | | | | (17,948 | ) | | | (17,948 | ) |
| Balance, December 31, 2022 | | | | | | | 44,742,039 | | | | 75,983 | | | | 7,088 | | | | 1,403 | | | | (47,642 | ) | | | 36,832 | |
See accompanying notes to the consolidated financial statements
Vicinity Motor Corp.
Consolidated Statements of Cash Flows
(In thousands of US dollars)
| | | | | | | | | | | | | |
| | | | | Year ended | | Year ended |
| | | Note | | December 31, 2022 | | December 31, 2021 |
| | | | | | | | $ | | | | $ | |
| OPERATING ACTIVITIES | | | | | | | | | | | | |
| Net loss for the year | | | | | | | (17,948 | ) | | | (7,323 | ) |
| Items not involving cash: | | | | | | | | | | | | |
| Loss on disposal of property and equipment | | | | | | | 27 | | | | 542 | |
| Gain on modification of debt | | | | | | | (803 | ) | | | — | |
| Amortization | | | | | | | 2,966 | | | | 1,241 | |
| Foreign exchange loss (gain) | | | | | | | 3,498 | | | | (2 | ) |
| Interest and finance costs | | | 8,11,12 | | | | 2,258 | | | | 716 | |
| Stock-based compensation | | | 13 | | | | 1,380 | | | | 1,353 | |
| | | | | | | | (8,622 | ) | | | (3,473 | ) |
| Changes in non-cash items: | | | | | | | | | | | | |
| Trade and other receivables | | | 4 | | | | (233 | ) | | | 471 | |
| Inventory | | | 5 | | | | (1,212 | ) | | | 14,073 | |
| Prepaids and deposits | | | | | | | 31 | | | | (2,339 | ) |
| Accounts payable and accrued liabilities | | | | | | | (1,627 | ) | | | (2,727 | ) |
| Deferred consideration | | | 6 | | | | 4,602 | | | | (4,602 | ) |
| Deferred revenue | | | 9 | | | | (622 | ) | | | 1,662 | |
| Warranty provision | | | 10 | | | | 69 | | | | 869 | |
| Taxes paid | | | | | | | (760 | ) | | | — | |
| Interest paid | | | | | | | (708 | ) | | | (340 | ) |
| Cash provided (used) in operating activities | | | | | | | (9,082 | ) | | | 3,594 | |
| | | | | | | | | | | | | |
| INVESTING ACTIVITIES | | | | | | | | | | | | |
| Purchase of intangible assets | | | 6 | | | | (658 | ) | | | (17,596 | ) |
| Proceeds from government subsidy | | | 6 | | | | 817 | | | | — | |
| Purchase of property and equipment | | | 7 | | | | (11,109 | ) | | | (6,537 | ) |
| Proceeds on disposal of property and equipment | | | 7 | | | | 252 | | | | 729 | |
| Restricted cash | | | | | | | — | | | | 284 | |
| Cash used in investing activities | | | | | | | (10,698 | ) | | | (23,120 | ) |
| | | | | | | | | | | | | |
| FINANCING ACTIVITIES | | | | | | | | | | | | |
| Proceeds from issuance of common shares | | | 13 | | | | 18,523 | | | | 24,087 | |
| Share issuance costs | | | 13 | | | | (1,367 | ) | | | (2,213 | ) |
| (Repayments) proceeds of credit facility | | | 8 | | | | 659 | | | | (4,628 | ) |
| Proceeds from short-term loans | | | 11 | | | | — | | | | 7,959 | |
| Repayment of short-term loans | | | 11 | | | | — | | | | (2,038 | ) |
| Repayment of long-term loans | | | 12 | | | | (447 | ) | | | (222 | ) |
| Cash provided by financing activities | | | | | | | 17,368 | | | | 22,945 | |
| Effect of foreign exchange rate on cash | | | | | | | (368 | ) | | | (25 | ) |
| Increase in cash and cash equivalents | | | | | | | (2,780 | ) | | | 3,394 | |
| Cash and cash equivalents, beginning | | | | | | | 4,402 | | | | 1,008 | |
| Cash and cash equivalents, ending | | | | | | | 1,622 | | | | 4,402 | |
See accompanying notes to the consolidated financial statements
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
Vicinity Motor Corp. (“Vicinity”, “VMC” or the “Company”) is a Canadian company that is a North American supplier of electric vehicles for both public and commercial enterprise use. The Company leverages a dealer network and relationships with manufacturing partners to supply its flagship electric, compressed natural gas (“CNG”) and clean-diesel Vicinity buses and the VMC 1200 electric truck. VMC (formerly Grande West Transportation Group) was incorporated on December 4, 2012 under the laws of British Columbia. The Company conducts its active operations in Canada through its wholly owned operating subsidiary, Vicinity Motor (Bus) Corp. which was incorporated on September 2, 2008 under the laws of British Columbia. The Company also conducts its active operations in the U.S. through a wholly owned subsidiary, Vicinity Motor (Bus) USA Corp., incorporated on April 8, 2014 under the laws of the State of Delaware. The Company’s head office is located at 3168 262nd Street, Aldergrove, British Columbia.
The following companies are consolidated with Vicinity Motor Corp. as at December 31, 2022:
| Schedule of subsidiary | | | | | | | | |
| Company Name | | Registered | | Holding | | Functional Currency |
| Vicinity Motor Corp. | | British Columbia | | | Parent Company | | | United States Dollar (Canadian Dollar up to October 5, 2021) |
| Vicinity Motor (Bus) Corp. | | British Columbia | | | 100 | % | | Canadian Dollar |
| Vicinity Motor (Bus) USA Corp. | | United States | | | 100 | % | | United States Dollar |
Intercompany balances and transactions, and any unrealized gains arising from intercompany transactions, were eliminated in preparing the consolidated financial statements.
a) Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”).
The consolidated financial statements were authorized for issue by the Board of Directors on March 30, 2023.
b) Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments carried at fair value as described in Note 3.
c) Use of estimates and judgments
The preparation of the consolidated financial statements in conformity with IFRS requires the use of judgments and/or estimates that affect the amounts reported and disclosed in the consolidated financial statements and related notes. These judgments and estimates are based on management’s best knowledge of the relevant facts and circumstances, having regard to previous experience, but actual results may differ materially from the amounts included in the consolidated financial statements.
Estimates that have a risk of resulting in material adjustment to the carrying amounts of assets and liabilities within the next year are summarized below:
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
| | 2. | BASIS OF PRESENTATION (continued) |
| i. | Impairment assessment of intangible assets: |
The determination of the recoverable amount of intangible assets involves significant estimates and assumptions. At year end, management concluded that there were material breaches of contract by Optimal Electric Vehicles LLC (“Optimal EV”) and consequently the Company terminated the Sales and Marketing Agreement with Optimal EV. Accordingly, the Company also concluded that impairment indicators existed in relation to the Optimal EV intangible asset. The Company tested the intangible asset for impairment at December 31, 2022. The Company determined the recoverable amount of the intangible asset based on a scenario weighted discounted cash flow model. The significant assumptions applied to the determination of the recoverable amount included the probability of recovery of the $12,000 pursuant to the termination of the Sales and Marketing Agreement from Optimal EV and the estimated discount rate and future cashflows from the rights to the intellectual property in the event of bankruptcy of Optimal EV. As a result of the impairment assessment the Company concluded the recoverable amount exceeded the carrying value of the intangible asset and no impairment was required.
| | ii. | Inventory net realizable value: |
The Company estimates net realizable value of inventory for its vehicles and spare parts. Net realizable value is the estimated selling price in the ordinary course of business, less any costs to complete and sell the product. An allowance for obsolete, slow-moving or defective inventory is made when necessary.
| | iii. | The determination of provision for warranty cost: |
The Company offers warranties on the buses and trucks it sells. The Company estimates the provision for future warranty claims based on historical warranty claim information, as well as recent trends that might suggest the past results may differ from future warranty claims. The Company does not have a long history of estimating warranty provisions. In addition, the items covered by the Company’s warranty may be subject to interpretation because the warranty items are not specific in all cases, and the warranty demands made by different customers may also vary.
| iv. | Contingent liability estimate: |
In the normal course of business, the Company receives notice of potential legal proceedings or is named as defendant in legal proceedings, including those that may be related to product liability, wrongful dismissal or personal injury, many of which are covered by the Company’s insurance policies. Contingent liabilities are recognized when present obligations as a result of a past event will probably lead to an outflow of economic resources from the Company and amounts can be estimated reliably. The Company has accrued for claims where it is probable there will be an outflow of resources. The amounts accrued are based on management’s assumptions with regards to the outcomes of legal proceedings and/or any settlements that may occur. Therefore, are subject to estimation uncertainty and as such, the final settlements could be materially different from those accrued.
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
| 3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Revenue from contracts with customers, is based upon the principle that revenue is recognized when control of a good or service is transferred to a customer. The Company considers that control has passed when there is a present obligation to pay, physical possession, and when legal title and the risks and rewards of ownership have passed to the customer.
In the case of buses and trucks, revenue is recognized when the buses and trucks have been delivered to the customer. The buses and trucks are considered delivered when it is picked up from the Company’s yard by the customer or when it has been delivered to a customer specified location in accordance with the agreement. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue when the sales are recognized.
In the case of revenue from the sale of parts inventory, revenue is recognized when control of the parts inventory transfers to the customer upon delivery.
In the case where the performance obligation is to stand ready to deliver a bus and deliver a bus if requested, revenue is recognized when the bus has been delivered to the customer or when the stand ready period is complete.
In circumstances where the Company receives consideration or sales deposits from the customer in advance of meeting the revenue recognition criteria, deferred revenue is recognized.
In circumstances where the Company facilitates sales through an agent, and the agent is paid a commission for acting on behalf of the Company, revenue is recorded as the amount of consideration agreed by the ultimate customer and the commission to the agent is recorded as commissions and services expense and included in sales and administration.
In certain circumstances, the Company may agree to accept pre-owned buses or other non-cash considerations as consideration for the purchase of new buses. In these circumstances, the Company recognizes revenue based on the fair value of the non-cash consideration received.
In circumstances where the Company modifies a contract judgement is applied to determine if the modification should be accounted for as a new contract or part of the existing contract, depending upon the nature of the contract. Modifications that defer the delivery of buses or change the type of bus to be delivered in the future are generally accounted for prospectively and deferred revenue is continued to be deferred. A modification that adds additional distinct performance obligations at stand-alone selling prices are accounted for as a new contract.
Revenue from operating leases of buses is recognized in accordance with the terms of the relevant agreement with the customer evenly over the term of that agreement.
| b) | Cash and cash equivalents |
Cash and cash equivalents consist of cash deposits with banks and highly liquid investments that are readily convertible to cash with maturities of three months or less when purchased, or which are redeemable at the option of the Company.
Any cash which is contractually restricted is classified as restricted cash, as it is not available for ongoing operational purposes until the restriction is removed.
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
| | 3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Trade receivables are recognized initially at fair value and subsequently measured at amortized cost, less expected credit losses. Trade receivables do not carry any interest. The expected credit losses for trade receivables are measured at initial recognition and throughout its life at an amount equal to lifetime expected credit loss and are presented within sales and administration.
Inventory for buses, trucks, and aftermarket parts is stated at the lower of cost and net realizable value. Cost for aftermarket parts is determined on a first-in first-out basis. The cost of finished goods comprises raw materials, direct labor, other direct costs, freight, import duties and related production overheads. Net realizable value is the estimated selling price in the ordinary course of business, less any costs to complete and sell the product. An allowance for obsolete, slow-moving or defective inventory is made when necessary.
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Intangible assets consist of intellectual property rights and developed software and licences. Intellectual property rights acquired are initially recognized at cost and are subsequently carried at cost less accumulated amortization and accumulated impairment losses, if any. Software implementation costs have finite lives and are carried at cost less accumulated amortization and accumulated impairment losses, if any. Intellectual property costs are amortized to profit or loss using the straight-line method over 8-10 years, which is their estimated useful life. Software implementation costs are to be amortized over 5 years, which is its estimated useful life. These assets with finite lives are tested at the end of every reporting period for possible impairment or when there are events or changes in circumstances that indicate that their carrying amounts may not be recoverable.
Expenditure incurred in the development of products or enhancements to existing product ranges is capitalized as an intangible asset only when the future economic benefits expected to arise are deemed probable and the costs can be reliably measured. Development costs not meeting these criteria are expensed in the statement of operations as incurred. Capitalized development costs are amortized on a straight-line basis over their estimated useful economic lives once the product or enhancement is available for use. Product research costs are expensed as incurred.
Debt issue costs are recognized in connection with proposed financing transactions which are specifically identified in that the form of financing is known and its completion is probable. When the financing is completed, these costs are recognized and netted against the value of the debt for debt transactions. Debt issue costs include only those costs which are incremental and directly attributable to the proposed financing transaction. In the event that the transaction is abandoned, previously capitalized debt issue costs are expensed through the consolidated statements of (loss) income and comprehensive (loss) income.
Professional, consulting, regulatory and other costs directly attributable to equity financing transactions are recorded as deferred financing costs until the financing transactions are completed, if the completion of the transaction is considered likely; otherwise they are expensed as incurred. Share issuance costs are charged to share capital when the related shares are issued. Deferred financing costs related to financing transactions that are not completed are expensed through the consolidated statements of (loss) income and comprehensive (loss) income.
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
| 3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Property and equipment are stated at cost net of accumulated depreciation and accumulated impairment losses, if any. Cost includes the acquisition price, any direct costs to bring the asset into productive use at its intended location, the cost of replacing part of the property and equipment and borrowing costs for long-term construction projects if the recognition criteria are met.
Depreciation of property and equipment is recorded in operating expenses with the exception of our buses under lease which is included in cost of sales. Property and equipment are depreciated annually using the following methods and rates:
| Schedule of property and equipment depreciation | | | |
| | Office equipment | | Declining balance, 20% - 55% |
| | Vehicles | | Declining balance, 30% |
| | Buses under lease | | Straight-line over the expected life of the bus, up to 12 years |
| | Asset under lease | | Straight-line, over lease term |
| | Plant and manufacturing equipment | | Straight-line, 25 years |
Government assistance is recorded as receivable when the Company qualifies under the terms of a government program and the Company has reasonable assurance the assistance will be received. Government assistance related to the acquisition of property, plant and equipment is recorded as a reduction of the cost of the asset to which it relates, with any amortization calculated on the net amount. Government assistance related to non-capital projects is recorded as a reduction of the related expenses.
At the inception of a contract, the Company as the lessee assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company assesses whether the contract involves the use of an identified asset, whether the Company has the right to obtain substantially all of the economic benefits from the use of the asset during the term of the arrangement and if the Company has the right to direct the use of the asset.
Leases are recognized as a right-of-use asset and a corresponding liability when the leased asset is available for use by the Company. Lease liabilities are initially measured at the net present value of the fixed lease payments and variable lease payments that are based on an index or a rate, discounted using the rate implicit in the lease, or if that cannot be determined, the Company’s incremental borrowing rate. Right-of-use assets are initially measured at cost, comprising of the amount of the initial measurement of the lease liability, any lease payments made at or before the lease commencement date, and restoration costs.
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
| | 3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Right of use assets are depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. Lease liabilities are subsequently measured at amortized cost using the effective interest rate method.
The Company has elected to not recognize right-of-use assets and lease liabilities for leases with a term of less than 12 months and low value leases. The lease payments for these leases are recorded as expenses as they are incurred.
Provisions are recorded when a present legal or constructive obligation exists as a result of past events where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount can be made. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
At the time of sale, a provision for warranty claims is recorded in cost of sales. This warranty provision is based upon management’s best estimate of expected future warranty costs for the particular contract. Actual warranty expenditures are charged against the provision as incurred during the two-year warranty period. If actual expense is different from the provision, management re-estimates the remaining provision required and records a change in estimate in cost of sales.
| m) | Impairment of non-financial assets |
Assets that are subject to depreciation and amortization, such as property and equipment and intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
If there are indicators of impairment, an evaluation is undertaken to determine whether the carrying amounts are in excess of their recoverable amounts. An asset’s recoverable amount is determined as the higher of its fair value less costs to sell and its value-in-use. Such reviews are undertaken on an asset-by-asset basis, except where assets do not generate cash flows independent of other assets, in which case the review is undertaken at the cash-generating unit level.
If the carrying amount of an individual asset or cash-generating unit exceeds its recoverable amount, an impairment loss is recorded in the consolidated statements of (loss) income and comprehensive (loss) income to reflect the asset at the recoverable amount. In assessing the value-in-use, the relevant future cash flows expected to arise from the continuing use of such assets and from their disposal are discounted to their present value using a pre-tax discount rate which reflects the current market’s assessments of the time value of money and asset-specific risks for which the cash flow estimates have not been adjusted. Fair value less costs to sell is determined as the price that would be received to sell the asset or group of assets in an orderly transaction between market participants at the measurement date less incremental costs directly attributed to the disposal of the asset or group of assets.
A reversal of a previously recognized impairment loss is recorded in the consolidated statements of (loss) income and comprehensive (loss) income when events or circumstances dictate that the estimates used to determine the recoverable amount have changed since the prior impairment loss was recognized. The carrying amount is increased to the recoverable amount but not beyond the carrying amount net of amortization which would have arisen if the prior impairment loss had not been recognized. After such a reversal, the amortization charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
| 3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Cash and cash equivalents and restricted cash are classified as loans and receivables and are recorded at amortized cost. Interest income is recognized by applying the effective interest rate.
Derivative instruments, including embedded derivatives, are recorded at fair value through profit or loss and, accordingly, are recorded on the consolidated statements of financial position at fair value. Unrealized gains and losses on derivatives held for trading are recorded in profit or loss for the year. Fair values for derivative instruments are determined using valuation techniques, with assumptions based on market conditions existing at the consolidated statements of financial position date or settlement date of the derivative.
Accounts payable, accrued liabilities and debt are classified as other financial liabilities and are recognized initially at fair value, net of any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are held at amortized cost using the effective interest method.
| o) | Impairment of financial assets |
The Company recognizes a loss allowance for expected credit losses on its financial assets. At each reporting date, the Company measures the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. If, at the reporting date, the credit risk on the financial asset has not increased significantly since initial recognition, the Company measures the loss allowance for the financial asset at an amount equal to twelve month expected credit losses.
Income tax expense comprises current and deferred tax and is recognized in operations except to the extent that it relates to business combinations, or items recognized directly in equity or in other comprehensive loss.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is recognized at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the reporting date.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
| q) | (Loss) earnings per share |
Basic (loss) earnings per share is computed by dividing net (loss) income available to common shareholders by the weighted average number of common shares outstanding during the year. The Company applies the treasury stock method in calculating diluted (loss) earnings per share. Diluted (loss) earnings per share exclude all dilutive potential common shares if their effect is anti-dilutive.
| r) | Related party transactions |
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Related parties may be individuals or corporate entities. Parties are also considered to be related if they are subject to common control or common significant influence. A transaction is considered to be a related party transaction when there is a transfer of resources, services or obligations between related parties.
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
| 3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Equity-settled stock-based payments to employees and others providing similar services are measured at the fair value of equity instruments at the grant date. The fair value is measured at grant date, using the Black-Scholes option pricing model, and each tranche is recognized on a graded-vesting basis over the period in which options vest. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to contributed surplus.
Equity-settled stock-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted. These transactions are then measured at the date the entity obtains the goods or the counterparty renders the service.
Consideration received on the exercise of stock options is recorded in share capital and the related stock-based payment in contributed surplus is transferred to share capital. Charges for options that are forfeited before vesting are reversed from equity.
The Company uses the residual value approach in respect of unit offerings, whereby the amount assigned to the warrant is the excess of the unit price over the trading price of the Company’s shares at the date of issuance, if any.
The Company operates as a single segment, which is the production and sale of buses, trucks and spare parts in North America, consistent with the internal reporting provided to the chief executive officer.
| v) | Recent accounting pronouncements |
Certain new accounting standards and interpretations have been published that are not mandatory for December 31, 2022 reporting periods and have not been early adopted by the Company. These standards are not expected to have a material impact on the Company in the current or future reporting periods and on foreseeable future transactions.
| 4. | TRADE AND OTHER RECEIVABLES |
| Schedule of trade and other receivables | | | | | | | | |
| | | December 31, 2022 | | December 31, 2021 |
| | | $ | | $ |
| Trade receivable | | | 1,076 | | | | 1,268 | |
| Income tax receivable | | | 160 | | | | — | |
| Sales tax receivable | | | 21 | | | | 37 | |
| Duties receivable | | | 162 | | | | 649 | |
| Receivable from manufacturer | | | 1,236 | | | | 856 | |
| Total Trade and other receivables | | | 2,655 | | | | 2,810 | |
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
| Disclosure of inventory | | | | | | | | |
| | | December 31, 2022 | | December 31, 2021 |
| | | $ | | $ |
| Finished goods | | | 8,098 | | | | 6,472 | |
| Work in progress – vehicles | | | 42 | | | | 41 | |
| Parts for resale | | | 1,928 | | | | 2,903 | |
| Total Inventory | | | 10,068 | | | | 9,416 | |
As at December 31, 2022 and December 31, 2021, work in progress – vehicles consists of the cost of buses and trucks still being manufactured. Finished goods inventory consisted of the costs of assembled buses and trucks, as well as freight and other costs incurred directly by the Company in compiling inventory. All inventory is part of the general security agreement to secure the credit facility described in Note 8.
During the year ended December 31, 2022, the Company reduced inventory of parts for resale and finished goods by $1,227 to reflect the net realizable value for obsolete parts and aged used buses with a corresponding increase recorded to cost of goods sold.
During the year ended December 31, 2022, the Company recognized $14,408 as the cost of inventory included as an expense in cost of sales (December 31, 2021: $31,914).
| Schedule of intangible assets | | | | | | | | | | | | | | | | |
| | | Purchased Intellectual Property (a) | | Developed Intellectual Property (b) | | Software | | Total |
| | | $ | | $ | | $ | | $ |
| Cost | | | | | | | | | | | | | | | | |
| Balance at December, 2020 | | | 1,248 | | | | 441 | | | | 782 | | | | 2,471 | |
| Additions | | | 19,495 | | | | 1,720 | | | | 488 | | | | 21,703 | |
| Foreign exchange | | | (458 | ) | | | (5 | ) | | | (21 | ) | | | (484 | ) |
| At December, 2021 | | | 20,285 | | | | 2,156 | | | | 1,249 | | | | 23,690 | |
| Additions | | | — | | | | 203 | | | | — | | | | 203 | |
| Reduction of deferred consideration | | | (4,639 | ) | | | — | | | | — | | | | (4,639 | ) |
| Write-down of intangible asset | | | — | | | | — | | | | (345 | ) | | | (345 | ) |
| Foreign exchange | | | (1,593 | ) | | | 262 | | | | (86 | ) | | | (1,417 | ) |
| At December 31, 2022 | | | 14,053 | | | | 2,621 | | | | 818 | | | | 17,492 | |
| | | | | | | | | | | | | | | | | |
| Accumulated Amortization | | | | | | | | | | | | | | | | |
| Balance at December 31, 2020 | | | 506 | | | | — | | | | 257 | | | | 763 | |
| Depreciation | | | 473 | | | | — | | | | 97 | | | | 570 | |
| Foreign exchange | | | 4 | | | | — | | | | — | | | | 4 | |
| At December 31, 2021 | | | 983 | | | | — | | | | 354 | | | | 1,337 | |
| Depreciation | | | 1,954 | | | | 3 | | | | 94 | | | | 2,051 | |
| Foreign exchange | | | (142 | ) | | | — | | | | (27 | ) | | | (169 | ) |
| At December 31, 2022 | | | 2,795 | | | | 3 | | | | 421 | | | | 3,219 | |
| | | | | | | | | | | | | | | | | |
| Carrying Value | | | | | | | | | | | | | | | | |
| At December 31, 2021 | | | 19,302 | | | | 2,156 | | | | 895 | | | | 22,353 | |
| At December 31, 2022 | | | 11,258 | | | | 2,618 | | | | 397 | | | | 14,273 | |
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
| | 6. | INTANGIBLE ASSETS (continued) |
| a) | On June 10, 2015, the Company entered into a compensation for services agreement with a customer to formalize compensation for the services provided in the development of the Vicinity bus. On September 29, 2017, the Company entered into a new agreement and terminated the prior service agreement. Under the new agreement, the previously accrued royalty payable to the customer and all future royalty payments are removed in exchange for the delivery of up to 8 buses over the next 8 years without payment to the Company. The new agreement is an intangible asset as it represents the acquisition of the customer’s interest in the intellectual property of the Vicinity Bus represented by the royalty. The intangible asset is being amortized over an 8-year period representing the useful life of the intellectual property related to the Vicinity bus. |
On acquisition, the Company valued the above transaction at the fair value to be delivered in the future, discounted at an interest rate of 6.2%. The Company also recognizes deferred revenue related to these buses (Note 9).
On October 5th, 2021, the Company entered into the Sales and Marketing Agreement with Optimal EV to purchase the exclusive sales and marketing rights for VMC Optimal products for 10 years. The Company paid $15,000 in cash and will pay $5,000 contingent on the sale of 250 units sold by the Company. The Company has initially accounted for the contingent deferred consideration at fair value and subsequently measured the contingent deferred consideration at fair value at each period with changes in fair value being recorded in the statement of (loss) income. As a result, the Company recorded an intangible asset for the licensing fee in the amount of $19,484 and $78 in interest and finance costs for the year ended December 31, 2021.
During the year ended December 31, 2022, the Company terminated the Sales and Marketing Agreement with Optimal EV due to material breaches. Subsequent to year end, the Company initiated arbitration proceedings regarding ongoing disputes with Optimal EV. As a result of the termination, the Company reduced the intangible asset and the deferred consideration by the remaining amount of deferred consideration, $4,640 (Note 16). As a result of the ongoing arbitration, management concluded that there was an impairment indicator with regards to the intangible asset. As a result, management performed an evaluation to determine whether the carrying amount of the intangible asset was in excess of its recoverable amount. Management determined the recoverable amount by performing a scenario weighted discounted cash flow model. The Company is pursuing amounts greater than $12,000 through arbitration proceedings. Based on the results of management’s impairment assessment it determined that no impairment was required.
Developed intellectual property is development costs for Vicinity products, such as electric trucks and buses. During the year ended December 31, 2022, the Company received $817 as a grant from Sustainable Development Technology Canada for the development of the Company’s electric vehicles. The amount was recorded as a reduction in intangible assets. The Company has the right to receive an additional C$1,549 dollars in further grants as milestones are achieved for this project.
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
All property and equipment, with the exception of land and plant and equipment of $14,543 are pledged as part of a general security agreement to secure the credit facility described in Note 8. Additionally, the vehicles are pledged to secure vehicle loans described in Note 12.
| a) | As at December 31, 2022, $573 of buses available for lease had been returned to the Company and are no longer under a lease contract with a customer (December 31, 2021: $920). |
During the year ended December 31, 2022, one bus available for lease was sold to a customer with a loss of $27 being recognized in cost of sales (December 31, 2021: $542).
During the year ended December 31, 2022, the Company recognized $85 in net realizable value write down for buses available for lease to reflect the net realizable value with a corresponding increase in cost of goods sold.
| b) | During 2021, the Company purchased land and began construction of a new manufacturing facility in Ferndale, Washington, USA. |
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
During the year ended December 31, 2017, the Company entered into a revolving credit facility agreement with a financial institution for a maximum amount of C$20 million based on the value of certain Company assets. The terms of the agreement were amended on October 23, 2020, renewing the credit facility for a three-year term. The credit facility bears interest at a rate of 0.75% - 1% plus Canadian prime rate for loans denominated in Canadian dollars and 0.75% - 1% plus US prime rate for loans denominated in US dollars. The facility is secured by way of a general security agreement over all assets of the Company.
As at December 31, 2022, the Company had drawn $628 on this facility (December 31, 2021: $nil 0 ), comprised of $850 in Canadian funds.
Per the terms of the credit facility, the Company must maintain a consolidated 12-month rolling fixed charge coverage ratio if the Company borrows over 75% of the available facility. As at December 31, 2022, the Company has not borrowed over 75% of its availability.
Subsequent to December 31, 2022, the Company announced it obtained $30M in credit commitments from Royal Bank of Canada and Export Development Canada to fund production of the Company’s VMC 1200 class 3 electric trucks. The credit facility can be used for 100% of eligible production costs on the trucks, excluding labor and overhead from the Company’s assembly plants. The credit facility has an interest rate of prime plus 2% and will be secured by existing assets of the Company. Royal Bank of Canada will also continue to provide the Company with C$10M in an asset-based lending (ABL) agreement for use with its existing bus orders and a US$3M letter of credit facility.
| Schedule of deferred revenue | | | | | | | | | | | | |
| | | | | December 31, 2022 | | December 31, 2021 |
| | | | | $ | | $ |
| Sales deposits – future delivery of buses | | | | | | | 453 | | | | — | |
| Future delivery of buses | | | (a) | | | | — | | | | 1,003 | |
| Future delivery of buses | | | (b) | | | | 1,929 | | | | 2,190 | |
| Deferred revenue | | | | | | | 2,382 | | | | 3,193 | |
| Less: current portion | | | | | | | 2,382 | | | | 3,193 | |
| Long-term portion of deferred revenue | | | | | | | — | | | | — | |
| a) | The Company has recognized deferred revenue and an intangible asset in relation to an agreement with a customer to provide buses in the future (Note 6). In 2017 the contract was modified to provide for one diesel powered bus to be delivered each year for 8 years. No buses have been delivered under this agreement. In late 2020 the Company concluded that it no longer had the obligation or intent to deliver three out of the eight buses. During the three months ended June 30, 2021 the Company came to an agreement with the customer to deliver three future buses. Subsequent to the agreement the Company concluded that it no longer had the obligation or intent to deliver the remaining two buses. As a result, the Company recorded $444 as revenue during the three months ended June 30, 2021. During the year ended December 31, 2022, the Company delivered the three remaining buses completing its obligation to the customer. |
During the year ended December 31, 2022, the Company recognized $nil 0 in interest expense related to the deferred revenue (December 31, 2021: $4).
| b) | During the year ended December 31, 2022, the Company recognized deferred revenue in relation to a non-cash agreement with a customer in which the customer provided the Company with 8 used buses in exchange for 8 leased buses to be leased until the delivery of the 8 new buses are provided in 2023. As a result, the Company has recognized $127 as lease revenue (December 31, 2021: $14) and has a deferred revenue balance of $1,929 as at December 31, 2022. |
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
| | 10. | PROVISION FOR WARRANTY COST |
The Company provides bumper to bumper warranty coverage for the first two years on specified components, with the exception of normal wear and tear.
During the year ended December 31, 2022, the Company recorded warranty expense of $499
(December 31, 2021 - $1,598) as part of its cost of sales in connection with sales completed during the year. During the year ended December 31, 2022, $841 of warranty costs (December 31, 2021 - $1,073) have been incurred against the provision. Change in estimate of the warranty provision relates to re-assessment of the warranty provision compared to the actual warranty claims applied.
| Schedule of provision for warranty cost | | | | |
| | | $ |
| Balance at December 31, 2020 | | | 800 | |
| | | | | |
| Additions | | | 1,598 | |
| Warranty claims applied | | | (1,073 | ) |
| Change in estimate of warranty provision | | | 344 | |
| Change in foreign exchange | | | — | |
| Balance at December 31, 2021 | | | 1,669 | |
| Additions | | | 499 | |
| Warranty claims applied | | | (841 | ) |
| Change in estimate of warranty provision | | | 421 | |
| Change in foreign exchange | | | (39 | ) |
| Balance at December 31, 2022 | | | 1,709 | |
| Less: Current portion | | | 1,585 | |
| Long-term portion of warranty provision | | | 124 | |
| | 11. | CURRENT DEBT FACILITIES |
| Schedule of current debt facilities | | | | | | | | | | | | |
| | | | | December 31, 2022 | | December 31, 2021 |
| | | | | $ | | $ |
| Unsecured debentures - 2021 | | | (a) | | | | 6,587 | | | | 7,143 | |
| Unsecured debentures - 2020 | | | (b) | | | | — | | | | — | |
| Private loan | | | (c) | | | | — | | | | — | |
| | | | | | | | 6,587 | | | | 7,143 | |
| a) | On October 5, 2021, the Company issued C$10,300 in unsecured debentures with a maturity 12 months from the date of issue. On June 15, 2022, the maturity date of the debentures was extended to October 4, 2023, with the extension being treated as a modification of the original debt with the classification changing from current to long-term liabilities. As a result, a gain of $803 on modification of debt was recorded during the three months ended June 30, 2022. In connection with the extension, the Company cancelled 412,000 warrants from the previous agreement. On extension the Company issued 1,000,000 warrants to purchase common shares at an exercise price of C$2.25 per share. The value of these warrants was incorporated in the $803 gain on modification of debt. The warrants expire on the debt maturity date of October 4, 2023. |
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
| | 11. | CURRENT DEBT FACILITIES (Continued) |
The unsecured debentures include 8% annual interest paid at maturity with $449 being recorded as borrowing costs on June 15, 2022, and an effective interest rate of 24%.
During the year ended December 31, 2022, the Company incurred $1,748 in interest expense (December 31, 2021 - $411) on this loan, of which $765 is included in accounts payable and accrued liabilities at December 31, 2022.
| b) | On March 20, 2020, the Company issued C$1,750 in unsecured debentures with a maturity 12 months from the date of issue. The debentures were issued at a discount of 2% and include 10% annual interest paid at maturity; the Company incurred borrowing costs of $82 and the debt has an effective interest rate of 16%. |
During the year ended December 31, 2021, the Company incurred $52 in interest expense on this loan, of which $nil is included in accounts payable and accrued liabilities at December 31, 2021. During the year ended December 31, 2021, the Company repaid the debenture.
In connection with the issuance, the Company also issued 350,000 warrants to purchase common shares at an exercise price of C$1.14 per share, the value of these warrants was incorporated in the transaction costs of $82 referenced above. The warrants expire 12 months from the date of issue. All warrants were exercised during the year ended December 31, 2021.
| c) | The loan bears annual interest at a rate of 10%. During the year ended December 31, 2021, the Company incurred $14 in interest expense on this loan, of which $nil is included in accounts payable and accrued liabilities at December 31, 2021. During the year ended December 31, 2021, the Company repaid the $636 balance of this debt. |
| | 12. | OTHER LONG-TERM LIABILITIES |
| Schedule of lease obligation | | | | | | | | | | | | |
| | | | | December 31, 2022 | | December 31, 2021 |
| | | | | $ | | $ |
| Lease obligation | | | (a) | | | | 1,883 | | | | 116 | |
| Vehicles | | | | | | | 69 | | | | 110 | |
| Less: Current portion | | | | | | | (449 | ) | | | (134 | ) |
| | | | | | | | 1,503 | | | | 92 | |
Minimum lease payments in respect of lease liabilities for the right-of-use assets included in property, plant and equipment (Note 7) and the effect of discounting are as follows:
| Schedule of long term lease liabilities | | | | |
| | | December 31, 2022 |
| | | $ |
| Undiscounted minimum lease payments: | | | | |
| Less than one year | | | 485 | |
| One to two years | | | 467 | |
| Two to three years | | | 476 | |
| Three to six years | | | 622 | |
| | | | 2,050 | |
| Effect of discounting | | | (167 | ) |
| Present value of minimum lease payments – total lease liability | | | 1,883 | |
| Less: Current portion | | | (418 | ) |
| Long-term lease liabilities | | | 1,465 | |
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
| 12. | OTHER LONG-TERM LIABILITIES (continued) |
The Company has lease agreements for office and warehouse facilities expiring October 31, 2023, March 31, 2027 and May 31, 2027. and October 31, 2023. The Company also has a lease agreement for a vehicle expiring on November 30, 2025.
On March 24, 2021, the Company performed a 3 for 1 share consolidation of the Company’s common shares, stock options, warrants and DSUs. The quantities and per unit prices presented in this note are shown on post consolidation basis.
13.1 Authorized: Unlimited number of common shares without par value
13.2 Issued and Outstanding Common Shares:
The details for the common share issuances during the year ended December 31, 2022 are as follows:
| | a. | During the year ended December 31, 2022, 4,444,445 units, each unit consisting of one common share and one warrant, were issued for a private placement at a price of $2.70 for gross proceeds of $12,000. The value allocated to the warrants based on the residual value method was $nil. The Company also incurred share issuance costs of $1,283 in relation to this private placement. |
During the year ended December 31, 2022, the Company also issued 5,118,554 shares at prices ranging from $0.79 to $3.65, the Company incurred share issuance costs of $205 for net proceeds of $6,244 through its At-the-Market equity program.
| | b. | During the year ended December 31, 2022, 166,000 RSU’s were vested for gross cash proceeds of $nil0. |
| | c. | During the year ended December 31, 2022, 66,661 stock options were exercised by employees of the Company at an average exercise price of $1.13 for gross proceeds of $75. |
The details for the common share issuances during the year ended December 31, 2021 were as follows:
| | d. | During the year ended December 31, 2021, 4,114,242 shares were issued on settlement of a private placement at a price of $4.27 for gross proceeds of $17,563. The Company also incurred share issuance costs of $3,567 in relation to this private placement. |
| | e. | During the year ended December 31, 2021, 1,924,721 warrants were exercised at an average price of $3.18 per share for gross proceeds of $6,128. |
| | f. | During the year ended December 31, 2021, 256,662 stock options were exercised by employees of the Company at an average exercise price of $1.62 for gross proceeds of $416. |
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
| 13. | SHARE CAPITAL (continued) |
13.3 Share Purchase Warrants
A summary of the Company’s share purchase warrants are as follows:
| Schedule of share purchase warrants | | | | | | | | | |
| | | Number of Warrants | | Weighted Average Exercise Price |
| | | | | | | | | C$ | |
| Outstanding, December 31, 2020 | | | | 1,934,100 | | | | 3.89 | |
| Issued | | | | 2,407,304 | | | | 6.64 | |
| Forfeited | | | | (9,379 | ) | | | 4.50 | |
| Exercised | | | | (1,924,721 | ) | | | 3.89 | |
| Outstanding, December 31, 2021 | | | | 2,407,304 | | | | 6.64 | |
| | | | | | | | | | |
| Issued | | | | 5,577,778 | | | | 3.84 | |
| Forfeited | | | | (412,000 | ) | | | 4.50 | |
| Outstanding, December 31, 2022 | | | | 7,573,082 | | | | 4.53 | |
During the year ended December 31, 2022, the Company issued 4,444,445 warrants and 133,333 agent warrants, as part of a private placement agreement with exercise prices of $2.97 and $3.36, respectively. The warrants expire 3 years and 2 years, respectively, from the date of closing of the placement.
During the year ended December 31, 2022, the Company issued 1,000,000 warrants as part of a debt extension agreement (Note 11) with an exercise price of C$2.25. The warrants expire on October 4, 2023.
During the year ended December 31, 2021, the Company issued 1,995,304 warrants as part of a private placement agreement with an exercise price of $5.10. The warrants expire 3 years from the date of closing of the placement.
During the year ended December 31, 2021, the Company issued 412,000 warrants as part of a debt agreement (Note 11) with an exercise price of C$7.50. The warrants expire 12 months from the date of issue.
13.4 Directors, Consultants, and Employee stock options
The Company has adopted a share option plan for which options to acquire up to 10% of the issued share capital, at the award date, may be granted to eligible optionees from time to time. Generally, share options granted have a maximum term of five years, and a vesting period and exercise price determined by the directors.
A summary of the Company’s directors, consultants, and employee stock options are as follows:
| Summary of share option activity | | | | | | | | | |
| | | Number of Options | | Weighted Average Exercise Price |
| | | | | C$ |
| Outstanding, December 31, 2020 | | | | 1,173,320 | | | | 2.70 | |
| Issued | | | | 684,999 | | | | 6.71 | |
| Exercised | | | | (256,662 | ) | | | 2.06 | |
| Outstanding, December 31, 2021 | | | | 1,601,657 | | | | 4.52 | |
| | | | | | | | | | |
| Issued | | | | 387,500 | | | | 1.60 | |
| Forfeited | | | | (341,670 | ) | | | 5.21 | |
| Exercised | | | | (66,661 | ) | | | 1.40 | |
| Outstanding, December 31, 2022 | | | | 1,580,826 | | | | 3.79 | |
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
| 13. | SHARE CAPITAL (continued) |
During the year ended December 31, 2022, the Company granted 387,500 stock options to executives and directors to purchase common shares of the Company with exercise prices ranging from C$1.30 to C$2.98 per common share and expiring in three to five years. These stock options vest over one to three years.
During the year ended December 31, 2021, the Company granted 524,999 stock options to consulting firms to purchase common shares of the Company with exercise prices ranging from C$5.86 to C$9.36 per common share expiring in one to five years.
During the year ended December 31, 2021, the Company granted 160,000 stock options to executives and directors to purchase common shares of the Company with exercise prices ranging from C$7.20 to C$7.24 per common share and expiring in five years. These stock options vest over three years.
During the year ended December 31, 2022, the Company recognized $116 (2021 - $814) on the grant and vesting of options to directors, consultants and employees. The grant date fair value per option was calculated using the Black-Scholes model with the following weighted average assumptions:
| Schedule of weighted average assumptions | | | | | | | | |
| | | December 31, 2022 | | December 31, 2021 |
| | | | | |
| Fair value at grant date (C$) | | $ | 0.75 | | | $ | 4.20 | |
| Fair value at grant date (US$) | | $ | 0.56 | | | $ | 3.27 | |
| Risk-free interest rate | | | 3.47 | % | | | 0.42 | % |
| Expected life of options | | | 5 years | | | | 4 years | |
| Expected dividend rate | | | 0 | % | | | 0 | % |
| Annualized volatility | | | 97 | % | | | 90 | % |
| Forfeiture rate | | | 14 | % | | | 3 | % |
The following tables summarize information about the Company’s stock options outstanding at December 31, 2022:
| Schedule of stock options outstanding | | | | | | | | | | | | | | | | | | | |
| | | Options Outstanding | | Options Exercisable | | Exercise
Price | | Remaining Contractual Life (Years) | | Expiry Date |
| | | | | | | | | | | | | C$ | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| April 4, 2018 | | | | 83,333 | | | | 83,333 | | | | 5.25 | | | | 0.26 | | | April 4, 2023 |
| April 26, 2018 | | | | 83,333 | | | | 83,333 | | | | 4.35 | | | | 0.32 | | | April 26, 2023 |
| May 29, 2018 | | | | 83,333 | | | | 83,333 | | | | 4.35 | | | | 0.41 | | | May 29, 2023 |
| January 17, 2019 | | | | 166,666 | | | | 166,666 | | | | 2.40 | | | | 1.05 | | | January 17, 2024 |
| November 15, 2019 | | | | 233,333 | | | | 233,333 | | | | 1.50 | | | | 1.88 | | | November 15, 2024 |
| November 28, 2019 | | | | 16,666 | | | | 16,666 | | | | 1.56 | | | | 1.91 | | | November 28, 2024 |
| May 4, 2020 | | | | 24,999 | | | | 24,999 | | | | 1.20 | | | | 2.34 | | | May 4, 2025 |
| November 23, 2020 | | | | 66,664 | | | | 66,664 | | | | 6.15 | | | | 2.90 | | | November 23, 2025 |
| January 12, 2021 | | | | 333,333 | | | | 333,333 | | | | 6.51 | | | | 3.03 | | | January 11, 2026 |
| February 1, 2021 | | | | 41,666 | | | | 34,722 | | | | 9.36 | | | | 3.09 | | | January 31, 2026 |
| April 27, 2021 | | | | 60,000 | | | | 30,000 | | | | 7.24 | | | | 3.32 | | | April 26, 2026 |
| March 31, 2022 | | | | 40,000 | | | | 6,666 | | | | 2.98 | | | | 4.25 | | | March 30, 2027 |
| September 22, 2022 | | | | 250,000 | | | | — | | | | 1.50 | | | | 2.73 | | | September 21, 2025 |
| November 25, 2022 | | | | 97,500 | | | | — | | | | 1.30 | | | | 4.90 | | | November 24, 2027 |
| | | | | | | | | | | | | | | | | | | | |
| Total | | | | 1,580,826 | | | | 1,163,048 | | | | | | | | | | | |
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
| | 13. | SHARE CAPITAL (continued) |
13.5 Restricted Share Units
Pursuant to the Company’s Restricted Share Unit (“RSU”) Incentive Plan approved by the board of directors of the Company on June 8, 2015, restricted stock units to acquire common shares of the Company may be granted to specified service providers of the Company in accordance with the terms and conditions of the plan.
Upon vesting, each RSU entitles the participant to receive one common share, provided that the participant is continuously employed with or providing services to the Company. RSUs track the value of the underlying common shares, but do not entitle the recipient to the underlying common shares until such RSUs vest, nor do they entitle a holder to exercise voting rights or any other rights attached to ownership or control of the common shares, until the RSU vests and the RSU participant receives common shares.
A summary of the Company’s RSU’s are as follows:
| Schedule of restricted share units | | | | |
| | | Number of RSUs |
| | | |
| Outstanding, December 31, 2020 | | | — | |
| Issued | | | 166,000 | |
| Outstanding, December 31, 2021 | | | 166,000 | |
| Vested | | | (166,000 | ) |
| Outstanding, December 31, 2022 | | | — | |
On April 27, 2021 the Company issued 166,000 RSU’s to directors and officers of the Company that vested on November 17, 2022. At December 31, 2022, there were nil 0 RSUs outstanding
(December 31, 2021 – 166,000). During the year ended December 31, 2022, the Company recorded $696 (December 31, 2021 - $216) as stock-based compensation for the fair value of the RSUs issued.
13.6 Deferred Share Units
Pursuant to the Company’s Deferred Share Unit (“DSU”) Incentive Plan approved by the board of directors of the Company on July 8, 2018, deferred stock units to acquire common shares of the Company may be granted to specified board members of the Company in accordance with the terms and conditions of the plan.
Each DSU entitles the participant to receive one common share upon vesting. DSUs vest into common shares on the board members’ separation date from the board of directors. DSUs track the value of the underlying common shares, but do not entitle the recipient to the underlying common shares until such DSUs vest, nor do they entitle a holder to exercise voting rights or any other rights attached to ownership or control of the common shares, until the DSU vests and the DSU participant receives common shares.
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
| | 13. | SHARE CAPITAL (continued) |
A summary of the Company’s DSUs are as follows:
| Schedule of deferred share units | | | | |
| | | Number of DSUs |
| | | |
| Outstanding, December 31, 2020 | | | 95,141 | |
| Issued | | | 75,650 | |
| Outstanding, December 31, 2021 | | | 170,791 | |
| Issued | | | 452,910 | |
| Outstanding, December 31, 2022 | | | 623,701 | |
During the year ended December 31, 2022, the Company issued 452,910 DSUs
(December 31, 2021 – 75,650) to board members of the Company that vest upon the board member’s separation date from the Board of Directors.
During the year ended December 31, 2022, the Company recorded $569
(December 31, 2021 - $323) as stock-based compensation for the fair value of the DSUs issued.
| | 14. | RELATED PARTY BALANCES AND TRANSACTIONS |
Key management includes personnel having the authority and responsibility for planning, directing and controlling the activities of the Company and comprised the Company’s directors and executive officers.
Expenses incurred to key management are:
| Schedule of related party transactions | | | | | | | | |
| | | Year ended | | Year ended |
| | | December 31, 2022 | | December 31, 2021 |
| | | | $ | | | | $ | |
| Salaries and Benefits | | | 1,187 | | | | 1,572 | |
| Stock-based compensation | | | 1,345 | | | | 869 | |
| Total | | | 2,532 | | | | 2,441 | |
During the year ended December 31, 2022 the Company paid $215 in lease payments to a company owned by a director. $231 was recognized as depreciation and interest expense on the right of use asset and lease liability respectively.
During the year ended December 31, 2021 the Company paid $191 in lease payments to a company owned by a director. $179 was recognized as depreciation and interest expense on the right of use asset and lease liability respectively.
As at December 31, 2022, included in accounts payable are balances owing to key management or companies controlled by officers of the Company in the amount of $1 (December 31, 2021 - $1).
All related party balances are non-interest bearing, unsecured and have no fixed terms of repayment and have been classified as current.
The following table reconciles the amount of income tax expense on the application of the combined statutory Canadian federal and provincial income tax rates:
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
| 15. | INCOME TAX (Continued) |
| Schedule of income tax expenses | | | | | | | | |
| | | December 31, 2022 | | December 31, 2021 |
| | | $.. | | $.. |
| Loss before tax | | | (17,746 | ) | | | (6,859 | ) |
| Combined statutory tax rates | | | 27 | % | | | 27 | % |
| | | | | | | | | |
| Expected tax recovery | | | (4,791 | ) | | | (1,852 | ) |
| Non-deductible items | | | (60 | ) | | | 369 | |
| Share issuance costs | | | — | | | | (1,198 | ) |
| Other | | | (41 | ) | | | 94 | |
| Differences in foreign tax rates | | | 9 | | | | (13 | ) |
| Change in unrecognized deferred tax assets | | | 5,085 | | | | 3,064 | |
| | | | | | | | | |
| Current income tax expense | | | 202 | | | | 464 | |
Deferred taxes arise from temporary differences in the recognition of income and expenses for financial reporting and tax purposes. The tax effects of deductible temporary differences for which no deferred tax asset has been recognized are as follows:
| Schedule of deferred tax asset | | | | | | | | |
| | | December 31, 2022. | | December 31, 2021. |
| | | $.. | | $.. |
| Deferred tax assets (liabilities): | | | | | | | | |
| Tax loss carry-forwards | | | 11,747 | | | | 7,480 | |
| Property and equipment | | | (54 | ) | | | (5 | ) |
| Intangible asset | | | (529 | ) | | | (838 | ) |
| Warranty provision | | | 440 | | | | 432 | |
| Financing costs | | | 1,213 | | | | 1,161 | |
| Other provisions | | | (28 | ) | | | 220 | |
| | | | | | | | | |
| Deferred tax assets | | | 12,789 | | | | 8,450 | |
| Unrecognized deferred tax assets | | | (12,789 | ) | | | (8,450 | ) |
| Recognized net deferred tax assets | | | — | | | | — | |
As at December 31, 2022, the Company had non-capital loss carry forwards available to reduce taxable income for future years. The non-capital losses expire as follows:
| Schedule of non-capital loss carry forwards | | | | |
| | | $ |
| 2031 | | | 404 | |
| 2032 | | | 835 | |
| 2033 | | | 498 | |
| 2034 | | | 2,094 | |
| 2035 | | | 2,944 | |
| 2036 | | | 4,235 | |
| 2037 | | | 1,092 | |
| 2038 | | | 1,511 | |
| 2039 | | | 1,457 | |
| 2040 | | | 3,159 | |
| 2041 | | | 7,657 | |
| 2042 | | | 15,026 | |
| | | | | |
| Non Capital Losses | | | 40,912 | |
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
Fair values
The Company’s financial instruments include cash and cash equivalents, restricted cash, trade and other receivables, accounts payable, the credit facility, short-term loans, deferred consideration, and lease obligations. The carrying amounts of these financial instruments are a reasonable estimate of their fair values based on their current nature and current market rates for similar financial instruments. Deferred consideration is the only instrument measured at fair value through profit and loss in accordance with IFRS 9 – Financial Instruments.
The following table summarizes the carrying values and fair values of the Company’s financial instruments:
| Disclosure of financial assets | | | | | | | | |
| | | December 31, 2022 | | December 31, 2021 |
| | | $ | | $ |
| Assets: | | | | | | | | |
| Measured at amortized cost (i) | | | 4,277 | | | | 7,212 | |
| Liabilities: | | | | | | | | |
| Amortized cost (ii) | | | 14,108 | | | | 10,284 | |
| Fair value through P&L (iii) | | | — | | | | 4,602 | |
(i) Cash, restricted cash and trade and other receivables
(ii) Accounts payable and accrued liabilities, current loans, and lease obligations.
(iii) Deferred consideration (only financial instrument carried at fair value)
The Company classifies its fair value measurements in accordance with the three-level fair value hierarchy. The measurement is classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices), and
Level 3 – Inputs that are not based on observable market data
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
| 16. | FINANCIAL INSTRUMENTS (Continued) |
The carrying value amount of the Company’s financial instruments that are measured at amortized cost approximates fair value due to their short-term nature. The Company valued deferred consideration (iii) as a level 3 instrument. For the year ended December 31, 2021, the Company used a probability weighted discount model to determine the fair value of the deferred consideration. Key assumptions included a discount rate of 10% and an original expected maturity date of June 30, 2023 for the deferred consideration milestone to be met. During the year ended December 31, 2022, the Company terminated the agreement which resulted in the deferred consideration being reduced to a fair value of nil (Note 6).
Interest Rate and Credit Risk
The Company is exposed to interest rate risk on its bank loans to the extent that its credit facilities are based on Canadian and US prime rates of interest.
Financial instruments that potentially subject the Company to concentrations of credit risks consist principally of cash and cash equivalents, restricted cash, and trade and other receivables.
To minimize the credit risk related to cash and cash equivalents, the Company places these instruments with a top tier Canadian bank with an AA credit rating and their subsidiary bank in the United States.
Currency Risk
The Company is exposed to foreign currency risk because the Company’s parent and US operations incur a portion of their operating expenses in Canadian dollars. Therefore, an increase in the value of the CAD relative to the USD increases the value of expenses in USD terms incurred by the Company’s parent and US operations, which reduces operating margin and the cash flow available to fund operations. Conversely, the Company’s Canadian operation has a functional currency of Canadian dollars and incurs a portion of its operating expenses in US dollars.
At December 31, 2022, the Company had cash of $322, accounts receivable of $1,446 and accounts payable of $2,449, which were denominated in US dollars for its entity with CAD functional currency.
At December 31, 2022, the Company had cash of C$41, accounts receivable of C$nil 0 , short term loans of C$8,922 and accounts payable of C$150, which were denominated in Canadian dollars for its entities with USD functional currency.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s objective when managing liquidity risk is to ensure that it has sufficient liquidity available to meet its liabilities when due. The Company uses cash to settle its financial obligations as they fall due. The ability to do this relies on the Company collecting its trade receivables in a timely manner and maintaining sufficient cash on hand through credit facility financing.
As at December 31, 2022, the Company had working capital (current assets less current liabilities) of $1,573. For the year ended December 31, 2022, the Company used cash for operating activities of $9,082 and cash for investing activities of $10,698. As at December 31, 2022, the Company had $19.4 million undrawn on its C$20 million credit facility (note 8). Subsequent to year end, the Company obtained an additional $30 million in debt financing to fund production of the Company’s VMC 1200 class 3 electric trucks.
Based on the Company’s forecasted cash flows, the current cash on hand and the headroom available under debt facilities, the Company estimates that it will have sufficient liquidity to meet its working capital requirements for at least the next twelve months.
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
| | 16. | FINANCIAL INSTRUMENTS (Continued) |
The following are the contractual maturities of financial liabilities:
| Disclosure of financial liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Carrying Amount | | Contractual Cash Flows | | Within 1 year | | 1 to 2 years | | 2 to 3 years | | 3 to 6 years |
| | | $ | | $ | | $ | | $ | | $ | | $ |
| At December 31, 2022 | | | | | | | | | | | | | | | | | | | | | | | | |
| Accounts payable | | | 4,942 | | | | (4,942 | ) | | | (4,942 | ) | | | — | | | | — | | | | — | |
| Current debt facilities | | | 6,587 | | | | (8,822 | ) | | | (8,822 | ) | | | — | | | | — | | | | — | |
| Credit facility | | | 628 | | | | (628 | ) | | | (628 | ) | | | | | | | | | | | | |
| Other long-term liabilities | | | 1,952 | | | | (2,120 | ) | | | (513 | ) | | | (480 | ) | | | (486 | ) | | | (641 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | | 14,109 | | | | (16,512 | ) | | | (14,905 | ) | | | (480 | ) | | | (486 | ) | | | (641 | ) |
Sensitivity analysis
The Company’s borrowing under the existing credit facility are at variable rates of interest and expose the Company to interest rate risk. The Company has completed a sensitivity analysis to estimate the impact on comprehensive income which a change in interest rates at and during the year ended December 31, 2022 would have had on the Company. The result of this sensitivity analysis indicates that a 0.5% increase (decrease) in the prime interest rates would not have a material impact.
The Company has completed a sensitivity analysis to estimate the impact on comprehensive earnings which a change in foreign exchange rates as at and during the year ended December 31, 2022 would have had on the Company.
The sensitivity analysis includes the assumption that changes in individual foreign exchange rates do not cause foreign exchange rates in other countries to alter.
The following tables summarizes quantitative data about our exposure to currency risk as a result of monetary assets (liabilities) in currencies different from each entity’s functional currency:
| Disclosure of CAD dollar foreign currency balance sheet exposure | | | | | | |
| | | | | 2022 |
| | | | | $ |
| Net Canadian dollar monetary asset (liability) | | CAD thousands | | | (9,031 | ) |
| Net US dollar monetary asset (liability) | | USD thousands | | | (749 | ) |
The result of this sensitivity analysis indicates that a 10% increase (decrease) in the average value of the Canadian dollar relative to the US dollar during the period would have resulted in an increase (decrease) in net income of approximately $735.
The Company’s objectives when managing capital are:
| ● | to safeguard the Company’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, and |
| ● | to provide an adequate return to shareholders through expansion correspondingly to the level of risk. |
The Company considers its share capital, other shareholders’ equity, credit facility, and short-term loans to be its capital. As a part of its loan commitments, the Company is required to obtain authorization from the credit facility lender (Note 8) prior to obtaining further loans. The Company’s capital is currently not subject to any other external restrictions except those described in Note 8.
The Company sets the amount of capital in proportion to risk. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may issue new shares, sell assets, reduce debt or increase its debt.
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
The Company’s revenue for the single segment is summarized as follows:
| | | Year ended | | Year ended |
| | | December 31, 2022 | | December 31, 2021 |
| | | $ | | $ |
| Vehicle Sales: | | | | | | | | |
| Bus Sales | | | 11,699 | | | | 38,197 | |
| Truck Sales | | | 982 | | | | — | |
| Shuttle Sales | | | 484 | | | | — | |
| Other revenue: | | | | | | | | |
| Spare part sales | | | 5,183 | | | | 2,701 | |
| Operating lease revenue | | | 127 | | | | 810 | |
| | | | | | | | | |
| Total Revenue | | | 18,475 | | | | 41,708 | |
Basic loss per share is calculated by dividing the net loss from continuing operations attributable to equity holders of the Company by the weighted average number of common shares outstanding during the year. Diluted loss per share is calculated by adjusting the weighted average number of common shares outstanding to assume conversion of all dilutive potential common shares. The number of average basic and diluted shares outstanding for all the periods presented in the consolidated statements of loss have been adjusted in order to reflect the effect of the share consolidation that took place on March 29, 2021. The Company has four categories of dilutive potential common shares: convertible debt, stock options, RSUs and DSUs. The convertible debt is assumed to have been converted into common shares, and the net loss is adjusted to eliminate the interest expense less the tax effect. For the stock options, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding stock options. The number of shares calculated reduces the number of shares that would have been issued assuming the exercise of the share options. DSUs are assumed to be converted as of the grant date. A total of 1,143,120 (2021: 2,441,349) instruments before share consolidation, which include convertible debt, stock options, restricted share units and deferred share units have not been included in the calculation for diluted loss per share as they are antidilutive. These could potentially dilute basic income per share in the future.
| | 20. | COMMITMENTS AND CONTINGENCIES |
The Company entered into a production agreement with one of its manufacturers whereby the parties have agreed to a specified production volume. The Company also has outstanding purchase order commitments related to the construction of its new manufacturing facility. Future payments as at December 31, 2022 are $12,275. The Company has an outstanding letter of credit of $1,375 with a vendor related to the future purchase of trucks expected to be delivered in 2023.
Vicinity Motor Corp.
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(In thousands of US dollars, except for per share amounts)
Allocation of revenue to geographic areas for the single segment is as follows:
| Schedule of geographic distribution | | | | | | | | |
| | | Year ended December 31, 2022 | | Year ended December 31, 2021 |
| | | $ | | $ |
| Canada | | | | | | | | |
| Bus sales | | | 7,429 | | | | 10,925 | |
| Spare part sales | | | 4,516 | | | | 2,504 | |
| Truck sales | | | 982 | | | | — | |
| Shuttle sales | | | 484 | | | | — | |
| United States | | | | | | | | |
| Bus sales | | | 4,270 | | | | 27,272 | |
| Spare part sales | | | 667 | | | | 197 | |
| Operating lease revenue | | | 127 | | | | 810 | |
| Total | | | 18,475 | | | | 41,708 | |
During the year ended December 31, 2022, the Company had sales of $6,261 and $4,792 to two end customers representing 34% and 26% of total sales, respectively. During the year ended December 31, 2021, the Company had sales of $26,795 and $4,423 to two end customers representing 64% and 11% of total sales, respectively.
On February 21, 2023, the Company announced it obtained $30M in credit commitments from Royal Bank of Canada and Export Development Canada to fund production of the Company’s VMC 1200 class 3 electric trucks. The credit facility can be used for 100% of eligible production costs on the trucks, excluding labor and overhead from the Company’s assembly plants. The credit facility has an interest rate of prime plus 2% and will be secured by existing assets of the Company. Royal Bank of Canada will also continue to provide the Company with C$10M in an asset-based lending (ABL) agreement for use with its existing bus orders and a US$3M letter of credit facility.
On March 24, 2023, the Corporation announced that it had completed a private placement of unsecured convertible debentures for gross proceeds of C$4,000. The convertible debentures are issued in denominations of C$1,000, bear interest at 15% per annum, and mature 18 months from the closing date. Interest payments on the convertible debentures have been deferred to the twelve-month anniversary and/or maturity.
Each convertible debenture is convertible at the holder’s option into Units at any time prior to maturity at a conversion price of C$1.45 per Unit. Upon conversion, each Unit will consist of one Common Share and 0.2 of a Warrant. Each Warrant is exercisable into a Warrant Share at an exercise price of C$1.45 for a period of thirty-six months following the initial debenture closing date.
F-32
