Exhibit 99.2

The Lion Electric Company

Condensed Interim Consolidated

Financial Statements

As at and for the three and six months ended

June 30, 2021 and 2020

 

Unaudited Condensed Interim Consolidated Financial Statements
Consolidated Statements of Financial Position			2
Consolidated Statements of Loss and Comprehensive Loss			3
Consolidated Statements of Changes in Equity			4
Consolidated Statements of Cash Flows			5
Notes to Condensed Interim Consolidated Financial Statements			6 - 20

The Lion Electric Company

Consolidated Statements of Financial Position

As at June 30, 2021 and December 31, 2020

(Unaudited, In US dollars)

 

 

 

		Notes				June 30, 2021				December 31, 2020
						$				$
ASSETS
Current
Cash							364,304,209				—
Inventories							59,516,565				38,073,303
Accounts receivable							26,220,690				18,505,072
Prepaid expenses							6,044,395				1,078,148
Current assets							456,085,859				57,656,523
Non-current
Property, plant and equipment							9,338,550				5,446,807
Right-of-use assets			7				10,730,563				7,498,724
Intangible assets							60,982,970				42,090,843
Contract asset			9				14,436,062				14,327,709
Non-current assets							95,488,145				69,364,083
Total assets							551,574,004				127,020,606
LIABILITIES
Current
Bank indebtedness and other indebtedness							10,890,591				28,733,983
Trade and other payables							27,337,222				12,404,614
Current portion of share-based compensation liability			10				—				35,573,558
Current portion of long-term debt							2,825,984				26,699,276
Current portion of lease liabilities			7				2,436,053				1,814,635
Current liabilities							43,489,850				105,226,066
Non-current
Share-based compensation liability			10				—				35,126,025
Long-term debt							79,001				118,539
Convertible debt instruments			11				—				18,866,890
Lease liabilities			7				8,459,429				5,904,473
Share warrant obligations			9				297,439,350				31,549,033
Common shares, retractable			5				—				25,855,509
Non-current liabilities							305,977,780				117,420,469
Total liabilities							349,467,630				222,646,535
SHAREHOLDERS’ EQUITY (DEFICIENCY)
Share capital							397,559,231				32,562,541
Conversion options on convertible debt instruments, net of tax			11				—				1,472,520
Contributed surplus							133,258,720				—
Deficit							(321,034,410	)			(126,430,406	)
Cumulative translation adjustment							(7,677,167	)			(3,230,584	)
Total equity (deficiency)							202,106,374				(95,625,929	)
Total equity (deficiency) and liabilities							551,574,004				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 Loss and Comprehensive Loss

For the three and six months ended June 30, 2021 and 2020

(Unaudited, In US dollars)

 

 

 

		Notes		Three months ended								Six months ended
				June 30, 2021				June 30, 2020				June 30, 2021				June 30, 2020
				$				$				$				$
Revenue					16,688,939				6,077,475				22,914,417				7,305,914
Cost of sales					15,789,144				5,028,540				23,821,445				7,313,216
Gross profit					899,795				1,048,935				(907,028	)			(7,302	)
Administrative expenses		10			50,002,162				1,145,563				56,272,131				1,906,316
Selling expenses		10			13,338,268				858,987				17,721,847				2,465,850
Transaction costs					13,654,851				—				13,654,851				—
Operating loss					(76,095,486	)			(955,615	)			(88,555,857	)			(4,379,468	)
Finance costs		12			3,001,634				1,885,023				6,909,024				3,764,523
Foreign exchange loss (gain)					102,562				(1,517,003	)			(76,091	)			(1,151,077	)
Change in fair value of share warrant obligations		9			99,290,459				—				99,215,214				—
Net loss for the period					(178,490,141	)			(1,323,635	)			(194,604,004	)			(6,992,914	)
Other comprehensive loss
Item that will be subsequently reclassified to net loss
Foreign currency translation adjustment					(3,144,116	)			(40,899	)			(4,446,583	)			(153,139	)
Comprehensive loss for the period					(181,634,257	)			(1,364,534	)			(199,050,587	)			(7,146,053	)
Loss per share
Basic loss per share		13			(1.13	)			(0.01	)			(1.45	)			(0.06	)
Diluted loss per share		13			(1.13	)			(0.01	)			(1.45	)			(0.06	)

 

 

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

 

3

The Lion Electric Company

Consolidated Statements of Changes in Equity

For the six months ended June 30, 2021 and 2020

(Unaudited, In US dollars, except for number of shares)

 

 

 

		Notes				Number of shares				Share capital				Contributed surplus				Conversion options				Deficit				Cumulative translation adjustment				Total equity (deficiency)
										$				$				$				$				$				$
Balance at January 1, 2021							110,551,314				32,562,541				—				1,472,520				(126,430,406	)			(3,230,584	)			(95,625,929	)
Transfer from share-based compensation liability			10				—				—				130,276,188				—				—				—				130,276,188
Transfer of retractable common shares from liability			5				17,994,857				29,072,804				—				—				—				—				29,072,804
Share-based compensation			10				—				—				4,075,968				—				—				—				4,075,968
Shares issued pursuant to exercise of stock options			10				70,000				1,147,830				(1,093,436	)			—				—				—				54,394
Issuance of shares through private placement			5				20,040,200				197,651,681				—				—				—				—				197,651,681
Redemption of conversion option on convertible debt instruments			5,11				—				—				—				(1,472,520	)			—				—				(1,472,520	)
Issuance of shares upon business combination transaction			5				39,911,231				137,124,375				—				—				—				—				137,124,375
Net loss for the period							—				—				—				—				(194,604,004	)			—				(194,604,004	)
Other comprehensive loss
Foreign currency translation adjustment							—				—				—				—				—				(4,446,583	)			(4,446,583	)
Balance at June 30, 2021							188,567,602				397,559,231				133,258,720				—				(321,034,410	)			(7,677,167	)			202,106,374
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			11				—				—				—				422,940				—				—				422,940
Net loss for the period							—				—				—				—				(6,992,914	)			—				(6,992,914	)
Other comprehensive loss
Foreign currency translation adjustment							—				—				—				—				—				(153,139	)			(153,139	)
Balance at June 30, 2020							110,551,314				32,562,541				—				422,940				(36,071,653	)			1,247,150				(1,839,022	)

 

 

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

 

4

The Lion Electric Company

Consolidated Statements of Cash Flows

For the three and six months ended June 30, 2021 and 2020

(Unaudited, In US Dollars)

 

 

 

		Three months ended								Six months ended
		June 30, 2021				June 30, 2020				June 30, 2021				June 30, 2020
		$				$				$				$
OPERATING ACTIVITIES
Net loss for the period			(178,490,141	)			(1,323,635	)			(194,604,004	)			(6,992,914	)
Non-cash items:
Amortization – property, plant and equipment			382,875				143,565				674,267				253,682
Amortization – right-of-use assets (note 7)			631,532				349,338				1,089,101				689,809
Amortization – intangible assets			249,540				60,022				484,389				94,975
Amortization – contract asset (note 9)			284,625				—				284,625				—
Stock-based compensation (note 10)			54,799,496				285,041				60,004,848				536,084
Accretion expense on common shares, retractable (note 12)			415,850				1,182,254				2,031,863				2,378,675
Accretion expense on balance of purchase price payable related to the acquisition of the dealership rights (note 12)			133,724				200,979				286,844				409,697
Accretion expense on convertible debt instruments (note 12)			1,705,883				76,893				2,503,097				101,781
Change in fair value of share warrant obligation (note 9)			99,290,459				—				99,215,214				—
Unrealized foreign exchange loss (gain)			(398,443	)			(144,703	)			(434,369	)			182,986
Net change in non-cash working capital items (note 14)			(19,658,089	)			(3,739,952	)			(22,252,943	)			(6,055,590	)
Cash flows used in operating activities			(40,652,689	)			(2,910,198	)			(50,717,068	)			(8,400,815	)
INVESTING ACTIVITIES
Acquisition of property, plant and equipment			(3,284,824	)			(428,793	)			(4,396,723	)			(1,297,581	)
Acquisition of intangible assets			(10,716,772	)			(2,497,201	)			(17,166,957	)			(5,277,815	)
Government assistance related to intangible assets			1,321,125				—				1,777,315				1,222,987
Cash flows used in investing activities			(12,680,471	)			(2,925,994	)			(19,786,365	)			(5,352,409	)
FINANCING ACTIVITIES
Net change in credit facilities			(21,239,925	)			(347,431	)			(16,262,610	)			5,123,848
Repayment of loans on research and development tax credits and subsidies receivable			—				—				(2,745,712	)			—
Increase in long-term debt			—				7,185,361				15,775,473				7,185,361
Repayment of long-term debt			(41,035,572	)			(652,719	)			(41,405,598	)			(1,338,707	)
Repayment of convertible debt instruments			(23,903,068	)			—				(23,903,068	)			—
Payment of lease liabilities			(582,250	)			(308,851	)			(1,029,975	)			(524,484	)
Proceeds from issuance of convertible debt instruments, net of issuance costs			—				—				—				3,671,299
Proceeds from issuance of shares through private placement, net of issuance costs			197,651,681				—				197,651,681				—
Proceeds from the issuance of shares through exercise of stock options			54,394				—				54,394				—
Proceeds from issuance of shares through business combination transaction			308,232,870				—				308,232,870				—
Cash flows from financing activities			419,178,130				5,876,360				436,367,455				14,117,317
Effect of exchange rate changes on cash held in foreign currency			(1,406,691	)			(178,942	)			(1,468,737	)			(200,643	)
Net increase (decrease) in cash			364,438,279				(138,774	)			364,395,285				163,450
Cash (bank overdraft), beginning of period			(134,070	)			134,116				(91,076	)			(168,108	)
Cash (bank overdraft), end of period			364,304,209				(4,658	)			364,304,209				(4,658	)
Other information on cash flows related to operating activities:
Income taxes paid			—				—				—				—
Interest paid			2,950,374				400,907				4,000,843				790,948
Interest paid under lease liabilities			107,732				64,928				189,605				130,952

 

 

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

 

5

The Lion Electric Company

Notes to Condensed Interim Consolidated Financial Statements

As at and for the three and six months ended June 30, 2021 and 2020

(Unaudited, in US dollars, except number of shares)

 

 

1 - REPORTING ENTITY AND NATURE OF OPERATIONS

The principal activities of The Lion Electric Company (“Lion” or the “Company”) and its subsidiaries (together referred to as the “Group”) include design, development, manufacturing and distribution of purpose-built all-electric medium and heavy-duty urban vehicles including battery systems, chassis, bus bodies and truck cabins. The Group also distributes truck and bus parts and accessories.

The Company is incorporated under the Business Corporations Act (Quebec) and is the Group’s ultimate parent company. Its registered office and principal place of business is 921, chemin da la Riviere-du-Nord, Saint-Jerome, Quebec, Canada. These unaudited condensed interim consolidated financial statements (“financial statements”) are as at and for the three and six months ended June 30, 2021, and 2020, and include the accounts of the Company and its subsidiaries. The Company is a publicly listed entity, and its shares are traded on the Toronto Stock Exchange and New York Stock Exchange under the symbol LEV.

2 - BASIS OF PRESENTATION AND STATEMENT OF COMPLIANCE WITH IFRS

These financial statements present the Group’s consolidated financial position as at June 30, 2021 and December 31, 2020 as well as its consolidated loss and comprehensive loss for the three and six months ended June 30, 2021 and 2020, the Group’s cash flows for the three and six months ended June 30, 2021 and 2020, and changes in equity for the six months ended June 30, 2021 and 2020. These financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34 - Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”) and are expressed in United States (“US”) dollars for reporting purposes and should be read in conjunction with the Company’s fiscal 2020 audited consolidated financial statements. The functional currency of the Company and its subsidiaries is the Canadian dollar, except for NGA (defined further below in note 5) whose functional currency is the US 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 IASB, have been omitted or condensed and therefore these financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2020. These financial statements reflect all adjustments which are, in the opinion of management, necessary to present a fair statement of the results for these interim periods. These adjustments are of a normal recurring nature.

The Company applied the same accounting policies in the preparation of these financial statements as those disclosed in note 3 of its most recent annual consolidated financial statements for the year ended December 31, 2020. These financial statements have been approved for issue by the Board of Directors on August 12, 2021.

 

 

6

The Lion Electric Company

Notes to Condensed Interim Consolidated Financial Statements

As at and for the three and six months ended June 30, 2021 and 2020

(Unaudited, in US dollars, except number of shares)

 

 

 

3 - NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET APPLIED

Amendments to IAS 1, Presentation of Financial Statements

On January 23, 2020, the IASB issued narrow-scope amendments to IAS 1, Presentation of Financial Statements, to clarify how to classify debt and other liabilities as current or non-current. The amendments (which affect only the presentation of liabilities in the statement of financial position) clarify that the classification of liabilities as current or non-current should be based on rights that are in existence at the end of the reporting period to defer settlement by at least twelve months and make explicit that only rights in place at the end of the reporting period should affect the classification of a liability; clarify that classification is unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability; and make clear that settlement refers to the transfer to the counterparty of cash, equity instruments, other assets, or services. The amendments are effective for annual reporting periods beginning on or after January 1, 2023 and are to be applied retrospectively. Earlier application is permitted. The Company is currently evaluating the impact of the amendment on its 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 - BUSINESS COMBINATION, PLAN OF REORGANIZATION AND REGISTRATION STATEMENT

On May 6, 2021, the Company successfully completed its business combination and plan of reorganization (the “Transaction”) with Northern Genesis Acquisition Corp. (“NGA”), which was announced on November 30, 2020.

The Company treated 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 did 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, upon consummation of the Transaction, each outstanding share of NGA’s common stock held by an NGA stockholder was exchanged into one newly issued common share of the Company and each outstanding warrant to purchase shares of NGA’s common stock was converted into a warrant to acquire one common share of the Company, at a price of $11.50 per share. A total of 39,911,231 common shares were issued in exchange for the NGA common stock outstanding and 27,111,741 NGA warrants were converted into 27,111,741 warrants of the Company. Such warrants are classified as a liability and are measured at fair value. As a result, the Company consolidated the following as at the Transaction date:

 

7

The Lion Electric Company

Notes to Condensed Interim Consolidated Financial Statements

As at and for the three and six months ended June 30, 2021 and 2020

(Unaudited, in US dollars, except number of shares)

 

 

 

5 - BUSINESS COMBINATION, PLAN OF REORGANIZATION AND REGISTRATION STATEMENT (Continued)

 

•

Cash of $308,232,870

 

•

Trade and other payables of $1,655,636

 

•

Issued warrant liabilities with a fair value of $169,452,859

 

•

Issued share capital of $137,124,375

As part of the closing of the Transaction, 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 a stock split of 1:4.1289 becoming effective on May 6, 2021. Accordingly, all shares, stock options, warrants and per share information presented in the 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 private placement for the issuance of 20,040,200 common shares (post share split) also closed for gross proceeds of $200,402,000 (or $10.00 per share), for net proceeds of $197,651,681 after the deduction of share issue costs. 17,994,857 retractable common shares having a carrying amount of $29,072,804 as at May 6, 2021 related to a repurchase (put) right in favor of shareholders were reclassified from non-current liabilities to equity at the closing of the Transaction, as the Company’s unanimous shareholders’ agreement was terminated in accordance with its terms effective as of closing of the Transaction and such repurchase rights did not become exercisable at or before the closing of the Transaction.

In connection with the Transaction, the Company also repaid its non-revolving term loans and revolving credit facility advances owed to the National Bank of Canada, and its convertible debt instruments with Investissement Québec.

In conjunction with the Transaction, 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.

 

8

The Lion Electric Company

Notes to Condensed Interim Consolidated Financial Statements

As at and for the three and six months ended June 30, 2021 and 2020

(Unaudited, in US dollars, except number of shares)

 

 

 

6 - ENTITY-WIDE DISCLOSURES

The Group has one reportable operating segment, the manufacturing and sales of electric vehicles in Canada and in the United States.

The Group’s revenue from external customers are divided into the following geographical areas:

 

		Three months ended								Six months ended
		June 30, 2021				June 30, 2020				June 30, 2021				June 30, 2020
		$				$				$				$
Canada			11,013,255				2,672,238				16,591,012				3,213,693
United States			5,675,684				3,405,237				6,323,405				4,092,221
		16,688,939				6,077,475				22,914,417				7,305,914

During the three months ended June 30, 2021, 50.8% (June 30, 2020: 73.7%) of the Group’s revenue depended on three customers, 20.4%, 15.7%, and 14.7% respectively (June 30, 2020: five customers, 21.6%, 15.9%, 13.3%, 12.6%, and 10.3% respectively).

During the six months ended June 30, 2021, 51.2% (June 30, 2020: 57.1%) of the Group’s revenue depended on four customers, 15.0%, 13.9%, 11.5%, and 10.8% respectively (June 30, 2020: four customers, 19.4%, 14.3%, 12.0%, and 11.4% respectively).

The Group’s non-current assets are allocated to geographic areas as follows:

 

 

		June 30, 2021
		Canada				United States				Total
		$				$				$
Property, plant and equipment			8,185,643				1,152,907				9,338,550
Right-of-use assets			8,045,715				2,684,848				10,730,563
Intangible assets			55,361,008				5,621,962				60,982,970
Contract asset			14,436,062				—				14,436,062
		86,028,428				9,459,717				95,488,145

 

		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

 

9

The Lion Electric Company

Notes to Condensed Interim Consolidated Financial Statements

As at and for the three and six months ended June 30, 2021 and 2020

(Unaudited, in US dollars, except number of shares)

 

 

 

7 - LEASE OBLIGATIONS

Right-of-use assets

 

		Premises				Rolling stock				Total
		$				$				$
Balance at January 1, 2021			7,353,957				144,767				7,498,724
Additions			3,953,671				143,512				4,097,183
Amortization			(1,054,797	)			(34,304	)			(1,089,101	)
Foreign currency translation adjustment			219,136				4,621				223,757
Balance at June 30, 2021			10,471,967				258,596				10,730,563
Balance at January 1, 2020			6,371,563				202,401				6,573,964
Additions			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
Additions							4,097,183
Lease payments							(1,029,975	)
Foreign exchange gain							(121,225	)
Foreign currency translation adjustment							230,391
Balance at June 30, 2021							10,895,482
Current portion							2,436,053
Non-current portion							8,459,429
Balance at January 1, 2020							6,669,787
Additions							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 Condensed Interim Consolidated Financial Statements

As at and for the three and six months ended June 30, 2021 and 2020

(Unaudited, in US dollars, except number of shares)

 

 

 

8 - FINANCIAL ASSETS AND LIABILITIES

 

8.1	Categories of financial assets and financial liabilities

The classification of financial instruments is summarized as follows:

 

		Classifications				June 30, 2021				December 31, 2020
						$				$
FINANCIAL ASSETS Cash			Amortized cost				364,304,209				—
Trade and other receivables			Amortized cost				19,341,398				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				6,010,660				5,216,118
Other government assistance receivable			Amortized cost				868,632				724,367
FINANCIAL LIABILITIES
Bank overdraft			Amortized cost				—				91,076
Credit facilities			Amortized cost				—				18,209,335
Loans on research and development tax credits and subsidies receivable			Amortized cost				10,890,591				10,433,572
Trade and other payables			Amortized cost				23,835,366				9,413,387
Long-term debt			Amortized cost				2,904,987				26,817,815
Convertible debt instruments			Amortized cost				—				18,866,890
Share warrant obligations			FVTPL				297,439,350				31,549,033
Common shares, retractable			Amortized cost				—				25,855,509

 

8.2	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 June 30, 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 obligations was determined as described in Note 9.

 

11

The Lion Electric Company

Notes to Condensed Interim Consolidated Financial Statements

As at and for the three and six months ended June 30, 2021 and 2020

(Unaudited, in US dollars, except number of shares)

 

 

 

9 - SHARE WARRANT OBLIGATIONS

 

9.1	Warrants issued to a customer

On July 1, 2020, in connection with the entering into of a master purchase agreement and a work order (collectively, the “MPA”) with Amazon Logistics, Inc., the Company issued a warrant to purchase common shares of the Company (the “Warrant”) to Amazon.com NV Investment Holdings LLC (the “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:

 

		June 30, 2021				December 31, 2020
Exercise price ($)			5.66				5.66
Share price ($)			19.44				10.00
Volatility (%)			40	%			40	%
Risk-free interest rate (%)			1.15	%			0.69	%
Expected warrant life (years)			7.00				7.50

The Group has recognized the following contract asset and share warrant obligation:

 

		June 30, 2021				December 31, 2020
		$				$
Contract asset
Beginning balance			14,327,709				13,427,493
Amortization			(284,625	)			—
Foreign currency translation adjustment			392,978				900,216
Total contract asset			14,436,062				14,327,709
Share warrant obligation
Beginning balance			31,549,033				13,227,703
Fair value adjustment			46,113,917				16,847,470
Foreign currency translation adjustment			378,874				1,473,860
Total share warrant obligation			78,041,824				31,549,033

 

12

The Lion Electric Company

Notes to Condensed Interim Consolidated Financial Statements

As at and for the three and six months ended June 30, 2021 and 2020

(Unaudited, in US dollars, except number of shares)

 

 

 

9 - SHARE WARRANT OBLIGATIONS (CONTINUED)

 

9.2	Warrants issued as part of the business combination transaction

Upon completion of the Transaction on May 6, 2021, each outstanding warrant to purchase shares of NGA’s common stock was converted into a warrant to acquire one common share of the Company, at a price of $11.50 per share. A total of 27,111,741 NGA warrants were converted into 27,111,741 warrants of the Company, 15,972,672 of which are publicly traded and 11,139,069 of which are private.

The Group determined that the warrants are derivative instruments and should be classified as a liability in accordance with IAS 32 - Financial Instruments: Presentation and IFRS 9 - Financial Instruments. The warrants are initially recorded at fair value and then revalued at each reporting date.

Each public warrant entitles the holder to purchase one common share for a price $11.50 per share. The public warrants become exercisable upon the later of (i) 30 days after the completion of a business combination transaction and (ii) 12 months following the NGA IPO date (August 20, 2020) and will expire five years after the completion of the business combination transaction, or earlier upon redemption or liquidation. The Company may redeem the outstanding public warrants after they become exercisable, in whole at a price of $0.01 per public warrant, provided that the last reported sales price of the Company’s common shares equals or exceeds $18.00 per share for any 20 trading days within a 30 trading-day period commencing once the public warrants become exercisable and ending on the third trading day prior to the date on which the Company gives proper notice of such redemption.

The fair value of the public warrants were determined using their market trading price as follows:

 

		June 30, 2021				May 6, 2021
Warrant price ($)			6.51				6.00

Each private warrant entitles the holder to purchase one common share for a price of $11.50 per share and become exercisable 30 days following the completion of the business combination transaction and will expire five years after the completion of the business combination transaction. The private warrants are not redeemable by the Company so long as they are held by the NGA Sponsor or its permitted transferees. The fair value of the private warrants was determined using the Black-Scholes option pricing model taking into account the following assumptions:

 

		June 30, 2021				May 6, 2021
Exercise price ($)			11.50				11.50
Share price ($)			19.44				16.17
Volatility (%)			40	%			29	%
Risk-free interest rate (%)			0.98	%			0.91	%
Expected warrant life (years)			4.83				5.00

 

13

The Lion Electric Company

Notes to Condensed Interim Consolidated Financial Statements

As at and for the three and six months ended June 30, 2021 and 2020

(Unaudited, in US dollars, except number of shares)

 

 

 

9 - SHARE WARRANT OBLIGATIONS (CONTINUED)

 

9.2	Warrants issued as part of the business combination transaction (continued)

The Group has recognized the following warrant obligations:

 

		Public warrants				Private warrants				Total
		$				$				$
Beginning balance at May 6, 2021			95,836,032				73,616,827				169,452,859
Fair value adjustment			9,741,984				43,359,313				53,101,297
Foreign currency translation adjustment			(1,595,921	)			(1,560,709	)			(3,156,630	)
Balance at June 30, 2021			103,982,095				115,415,431				219,397,526

10 - SHARE-BASED COMPENSATION

The following table summarizes share-based compensation costs recorded and included in administrative and selling expenses during the three and six months ended June 30, 2021 and 2020:

 

		Three months ended								Six months ended
		June 30, 2021				June 30, 2020				June 30, 2021				June 30, 2020
		$				$				$				$
Administrative expenses			44,761,756				224,493				47,820,351				415,697
Selling expenses			10,037,740				55,072				12,184,497				114,911
		54,799,496				279,565				60,004,848				530,608

The following table summarizes share-based compensation liabilities recorded in the condensed interim statements of financial position:

 

		June 30, 2021				December 31, 2020
		$				$
Share-based compensation liability, current			—				35,573,558
Share-based compensation liability, non-current			—				35,126,025
			—				70,699,583

 

14

The Lion Electric Company

Notes to Condensed Interim Consolidated Financial Statements

As at and for the three and six months ended June 30, 2021 and 2020

(Unaudited, in US dollars, except number of shares)

 

 

 

10 - SHARE-BASED COMPENSATION (CONTINUED)

Stock Options

As of May 6, 2021, the cash settlement option in the Company’s stock option plan was removed. As a result, the liability for share-based compensation was re-measured to fair value at May 6, 2021, with changes in fair value recognized in net earnings, and the resulting fair value of $130,276,188 was transferred to contributed surplus within shareholders’ equity (deficiency). The following principal weighted assumptions were used in the Black-Scholes option pricing model to remeasure the share-based compensation liability relating to stock options as at May 6, 2021:

 

		May 6, 2021
Exercise price (CA $)			1.17
Share price (CA $)			19.73
Volatility (%)			40	%
Risk-free interest rate (%)			1.40	%
Expected option life (years)			7.58

The following table summarizes the average values for the assumptions used in the Black-Scholes option pricing model for the stock option grants during the three and six months ended June 30, 2021:

 

		June 30, 2021
Exercise price (CA$)			23.02
Share price (CA$)			23.02
Volatility (%)			40	%
Risk-free interest rate (%)			1.17	%
Expected option life (years)			7.50

The following table summarizes the information relating to stock options outstanding:

 

		As at June 30, 2021
		Number of stock options				Remaining contractual life (years)				Number of stock options exercisable
Exercise price
CA$0.93 (issued in 2018)			5,867,398				6.45				4,244,239
CA$0.93 (issued in 2019)			4,024,907				8.27				1,271,883
CA$6.90 (issued in 2020)			412,890				9.21				—
CA$23.02 (issued in 2021)			253,865				10.0				—
		10,559,060								5,516,122

 

15

The Lion Electric Company

Notes to Condensed Interim Consolidated Financial Statements

As at and for the three and six months ended June 30, 2021 and 2020

(Unaudited, in US dollars, except number of shares)

 

 

 

10 - SHARE-BASED COMPENSATION (CONTINUED)

Stock Options (continued)

 

		As at December 31, 2020
		Number of stock options				Remaining contractual life (years)				Number of stock options exercisable
Exercise price
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
CA$6.90 (issued in 2020)			412,890				9.71				—
			10,375,195								5,220,437

During the three and six months ended June 30, 2021, 253,865 stock options were issued at a weighted average exercise price of CA$23.02, and 70,000 stock options were exercised at a weighted average exercise price of CA$0.93.

Restricted Share Units

During the three months ended June 30, 2021, the Company approved a restricted share unit (“RSU”) plan for officers and other key employees of the Group. A RSU represents the right of an individual to receive one common share of the Company on the vesting date without any monetary consideration being paid to the Company. All RSUs vest within a maximum three-year vesting period and they can be settled in cash based on the Company’s share price on the vesting date, or through the delivery of common shares issued from treasury or purchased on the open market, at the Company’s option. RSUs are expected to be settled in common shares purchased on the open market. As at June 30, 2021, none of the outstanding RSUs were vested. Compensation cost for RSUs is measured at the fair value of the underlying common share at the grant date and is expensed over the award’s vesting period. Compensation expense is recognized in net earnings with a corresponding increase in contributed surplus.

During the three months ended June 30, 2021, 17,145 RSUs were granted at the weighted average exercise price of CA$23.02 and remained outstanding with a remaining contractual life of 3 years as at June 30, 2021.

11 - CONVERTIBLE DEBT INSTRUMENTS

 

		March 2020 Convertible Loan				September 2020 Convertible Debenture				Total Convertible Debt Instruments				Conversion Option
		$				$				$				$
Balance at January 1, 2021			3,676,252				15,190,638				18,866,890				1,472,520
Accretion expense			483,050				2,020,047				2,503,097				—
Foreign currency translation adjustment			216,480				844,081				1,060,561				—
Repayment			(4,375,782	)			(18,054,766	)			(22,430,548	)			(1,472,520	)
Balance at June 30, 2021			—				—				—				—

 

16

The Lion Electric Company

Notes to Condensed Interim Consolidated Financial Statements

As at and for the three and six months ended June 30, 2021 and 2020

(Unaudited, in US dollars, except number of shares)

 

 

 

11 - CONVERTIBLE DEBT INSTRUMENTS (CONTINUED)

 

		March 2020 Convertible Loan				September 2020 Convertible Debenture				Total Convertible Debt Instruments				Conversion Option
		$				$				$				$
Beginning balance			—				—				—				—
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				—
Ending balance			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. 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 was 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. On May 6, 2021 the Company repaid the March 2020 Convertible Loan in full (including accreted interest).

 

17