UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________

 

FORM 6-K

___________________________

 

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of: November 2023 

Commission File Number: 001-40412

___________________________

 

VICINITY MOTOR CORP.

(Translation of registrant’s name into English)

___________________________

 

3168, 262nd Street

Aldergrove, British Columbia, Canada V4W 2Z6

Telephone: (604) 607-4000

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

  

  Form 20-F Form 40-F

  

The information contained in Exhibits 99.1, 99.2, 99.3 and 99.4 of this Form 6-K shall be deemed to be incorporated by reference into the registrant’s Registration Statement on Form F-3 (File No. 333-272964)(including any prospectuses forming a part of such registration statement) and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.

 

1

 

DOCUMENTS INCLUDED AS PART OF THIS REPORT

  

Exhibit No.   Description
     
99.1   Unaudited Interim Condensed Consolidated Financial Statements of the Registrant for the three and nine months ended September 30, 2023.
     
99.2   Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Registrant for the three and nine months ended September 30, 2023.
     
99.3   Form 52-109F2 Certification of Interim Filings by CEO (pursuant to Canadian regulations).
     
99.4   Form 52-109F2 Certification of Interim Filings by CFO (pursuant to Canadian regulations).
     
99.5   Press Release dated November 13, 2023 - Vicinity Motor Corp. Reports Third Quarter 2023 Financial Results.

 

2

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Vicinity Motor Corp.
(Registrant)
   
Date: November 13, 2023 By: /s/ Danial Buckle
    Name: Danial Buckle
    Title: Chief Financial Officer

 

 

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EXHIBIT 99.1

 

 

 

 

VICINITY MOTOR CORP.

 

Unaudited Interim Condensed Consolidated Financial Statements

 

For the three and nine months ended September 30, 2023 and 2022

 

 

 

 

Vicinity Motor Corp.

Interim Condensed Consolidated Statements of Financial Position

(Unaudited, In thousands of US Dollars)

 

             
    Note   September 30, 2023   December 31, 2022
        $   $
             
Current Assets                        
Cash and cash equivalents             1,969       1,622  
Trade and other receivables             7,498       2,655  
Inventory     3       13,654       10,068  
Prepaids and deposits             11,812       3,801  
                         
              34,933       18,146  
Long-term Assets                        
Intangible assets             14,385       14,273  
Property, plant, and equipment     4       23,258       22,613  
                         
              72,576       55,032  
                         
Current Liabilities                        
Accounts payable and accrued liabilities             5,663       4,942  
Credit facility     5       9,462       628  
Current portion of deferred revenue     6       4,324       2,382  
Current portion of provision for warranty cost     7       563       1,585  
Current debt facilities     8       4,419       6,587  
Convertible debt     9       3,029        
Current portion of other long-term liabilities             448       449  
                         
              27,908       16,573  
                         
Long-term Liabilities                        
Other long-term liabilities     10       13,789       1,503  
Provision for warranty cost     7       129       124  
                         
              41,826       18,200  
                         
Shareholders’ Equity                        
Share capital     11       76,806       75,983  
Contributed surplus     11       7,787       7,088  
Accumulated other comprehensive (loss) income             1,324       1,403  
Deficit             (55,167 )     (47,642 )
                         
              30,750       36,832  
                         
              72,576       55,032  

 

NATURE OF OPERATIONS AND LIQUIDITY RISK (Note 1)

COMMITMENTS AND CONTINGENCIES (Note 15)

 

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.

Interim Condensed Consolidated Statements of Loss

(Unaudited, In thousands of US dollars, except for per share amounts)

  

                     
    Note   For the three months  
ended September 30, 2023
  For the three months
ended September 30, 2022
  For the nine months 
ended September 30, 2023
  For the nine months
 ended September 30, 2022
        $   $   $   $
                     
Revenue                                        
Vehicle sales     14       5,196       363       10,164       12,182  
Other     14       1,295       1,152       3,793       4,258  
              6,491       1,515       13,957       16,440  
                                         
Cost of sales     4       (5,980 )     (1,749 )     (11,379 )     (15,441 )
                                         
Gross profit (loss)             511       (234 )     2,578       999  
                                         
Expenses                                        
Sales and administration             2,596       2,527       6,551       7,278  
Stock-based compensation     11       70       250       459       712  
Amortization             205       656       623       1,975  
Interest and finance costs     8,9,10       1,520       589       3,160       1,775  
Change in fair value of embedded derivatives     9       129             (25 )      
Gain on modification of debt     8       (492 )           (492 )     (803 )
Foreign exchange (gain) loss             872       3,098       (182 )     3,882  
                                         
              4,900       7,120       10,094       14,819  
                                         
Loss before taxes             (4,389 )     (7,354 )     (7,516 )     (13,820 )
                                         
Current income tax expense                   91       9       300  
  Net loss             (4,389 )     (7,445 )     (7,525 )     (14,120 )
                                         
Loss per share                                        
Basic & diluted             (0.10 )     (0.19 )     (0.17 )     (0.37 )
                                         
Weighted average number of common shares outstanding                                        
Basic and diluted(1)             45,584,188       38,307,728       45,584,188       38,307,728  

 

See accompanying notes to the consolidated financial statements

 

 

 

Vicinity Motor Corp.

Interim Condensed Consolidated Statements of Comprehensive Loss

(Unaudited, In thousands of US dollars)

  

                 
    For the three months
ended September 30, 2023
  For the three months 
ended September 30, 2022
  For the nine months 
ended September 30, 2023
 

For the nine months

ended September 30, 2022

    $   $   $   $
Net loss     (4,389 )     (7,445 )     (7,525 )     (14,120 )
                                 
Other comprehensive loss items that may be reclassified subsequently to net (loss) income  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exchange differences on translation of foreign operations     678       1,553       (79 )     1,883  
Total other comprehensive (loss) income     678       1,553       (79 )     1,883  
Total comprehensive loss     (3,711 )     (5,892 )     (7,604 )     (12,237 )

  

See accompanying notes to the consolidated financial statements

 

 

  

Vicinity Motor Corp.

Interim Condensed Consolidated Statements of Changes in Equity

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

 

                             
    Note   Number of Shares   Share Capital   Contributed Surplus   Accumulated Other Comprehensive Income   Deficit   Total Shareholders’ Equity
            $   $   $   $   $
Balance, January 1, 2022             34,946,379       58,055       6,035       (151 )     (29,694 )     34,245  
Issuance of shares – private placement     11.2 (b)     4,747,000       12,988                         12,988  
Issuance of shares – options exercised     11.2 (c)     66,661       98       (23 )                 75  
Share issuance costs                   (1,162 )                       (1,162 )
Share issuance costs – agent warrants                   (152 )     152                        
Warrants                         444                   444  
Stock-based compensation     11.4-11.5                   712                   712  
Other comprehensive loss                               1,883             1,883  
Net loss                                     (14,120 )     (14,120 )
Balance, September 30, 2022             39,760,040       69,827       7,320       1,732       (43,814 )     35,065  
                                                         
Balance, January 1, 2023             44,742,039       75,983       7,088       1,403       (47,642 )     36,832  
Issuance of shares – private placement     11.2 (a)     925,667       867                         867  
Share issuance costs     11.2 (a)           (44 )                       (44 )
Warrants     11.3                   240                   240  
Stock-based compensation     11.4-11.5                   459                   459  
Other comprehensive loss                               (79 )           (79 )
Net loss                                     (7,525 )     (7,525 )
Balance, September 30, 2023             45,667,706       76,806       7,787       1,324       (55,167 )     30,750  

 

See accompanying notes to the consolidated financial statements

 

 

 

Vicinity Motor Corp.

Interim Condensed Consolidated Statements of Cash Flows

(Unaudited, In thousands of US dollars)

 

             
        Nine months ended   Nine months ended
    Note   September 30, 2023   September 30, 2022
OPERATING ACTIVITIES               $       $  
                         
Net loss for the year             (7,525 )     (14,120 )
Items not involving cash:                        
Loss on disposal of property and equipment                   27  
Gain on modification of debt             (492 )     (803 )
Amortization             909       2,212  
Foreign exchange loss             1,194       4,065  
Interest and finance costs     8,9       3,160       1,775  
Change in fair value of embedded derivatives             (25 )      
Stock-based compensation     11       459       712  
              (2,320 )     (6,132 )
Changes in non-cash items:                        
Trade and other receivables             (4,834 )     (659 )
Inventory     3       (3,760 )     989  
Prepaids and deposits             (8,127 )     (1,615 )
Accounts payable and accrued liabilities             793       3,609  
Deferred consideration                   (38 )
Deferred revenue     6       1,960       (637 )
Warranty provision     7       (1,016 )     85  
Taxes paid             (9 )     (300 )
Interest paid             (1,695 )     (524 )
Cash used in operating activities             (19,008 )     (5,222 )
                         
INVESTING ACTIVITIES                          
Purchase of intangible assets             (341 )     (553 )
Proceeds from government subsidy                   817  
Purchase of property and equipment             (1,285 )     (10,471 )
Proceeds on disposal of property and equipment                   252  
Cash used in investing activities             (1,626 )     (9,955 )
                         
FINANCING ACTIVITIES                          
Proceeds from issuance of common shares     11       867       13,063  
Share issuance costs     11       (44 )     (1,162 )
Proceeds of credit facility     5       8,753       659  
Proceeds from convertible debt     9       2,939        
Convertible debt financing fees     9       (159 )      
Proceeds from long-term loans     10       8,868        
Repayment of long-term loans             (206 )     (317 )
Cash provided in financing activities             21,018       12,243  
Effect of foreign exchange rate on cash             (37 )     (353 )
Increase (decrease) in cash and cash equivalents             347       (3,287 )
Cash and cash equivalents, beginning             1,622       4,402  
Cash and cash equivalents, ending             1,969       1,115  

  

See accompanying notes to the consolidated financial statements

 

 

 

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and nine months ended September 30, 2023 and September 30, 2022

(Unaudited, In thousands of US dollars, except for per share amounts)

  

1. NATURE OF OPERATIONS AND LIQUIDITY RISK

 

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 class 3 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.

 

As at September 30, 2023, the Company had working capital (current assets less current liabilities) of $7,025 compared to working capital of $1,573 as at December 31, 2022. For the nine months ended September 30, 2023, the Company incurred a net loss of $7,525 (September 30, 2022: $14,120) and used cash in operations of $19,008 (September 30, 2022: $5,222) of which $8,127 was used for prepaids and deposits and $3,760 related to build up of inventory. Revenues for the nine months ended September 30, 2023, totalled $13,957 (September 30, 2022: $16,440).

 

In February 2023, the Company obtained $30 million 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 facility will expire in February 2024 and may be renewed on a yearly basis at the discretion of the lenders. As at September 30, 2023, $9,597 has been drawn on this facility (note 5). The Company also has an asset-based lending facility from Royal Bank of Canada for C$10 million that expires in February 2024 (note 5). The Company also has convertible debt of C$4 million plus interest that matures September 27, 2024 (note 9) and unsecured debentures of C$11,948 (note 8) at September 30, 2023 that is repayable with C$2,987 principal payments due in both April and July of 2024, with the remainder and interest payable due on October 4, 2024.

 

Based on the Company’s cash on hand and working capital; its forecasted sales and resulting cash flows for the next twelve months; the expected renewal of the $30 million credit commitments and C$10 million asset-based lending facility in February 2024, as well as the repayments of the convertible debentures and the unsecured debentures, the Company estimates that it will have sufficient liquidity to meet its working capital requirements for at least the next twelve months from September 30, 2023.

 

2. BASIS OF PRESENTATION

 

The following companies are consolidated with Vicinity Motor Corp. as at September 30, 2023:

Company Name   Registered   Holding   Functional Currency
Vicinity Motor Corp.   British Columbia     Parent Company     United States Dollar
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

                      

These unaudited interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. Accordingly, certain information and footnote disclosure normally included in annual financial statements prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board, have been omitted or condensed. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2022.

  

The interim condensed consolidated financial statements were authorized for issue by the Board of Directors on November 10, 2023.

 

7

 

 

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and nine months ended September 30, 2023 and September 30, 2022

(Unaudited, In thousands of US dollars, except for per share amounts)

 

2.BASIS OF PRESENTATION (continued)

 

b)Basis of measurement

                                 

The interim condensed consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments carried at fair value.

 

c)Use of estimates and judgments

                  

The preparation of the consolidated financial statements 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. For significant estimates and judgements refer to Note 7 and Note 9 of these interim consolidated financial statements as well as the audited consolidated financial statements for the year ended December 31, 2022.

 

Fair value of embedded derivatives

 

During the current period the Company entered into the convertible debt arrangement and accordingly the following are new estimates and judgements. The Company is required to determine the fair value of embedded derivatives. Fair value of embedded derivatives are determined using valuation techniques and require estimates of as at the reporting period date as the financial instruments are not traded in an active market as disclosed in Note 9.

 

Going concern

 

Judgement is required in determining if disclosure of a materiality uncertainty related to events or conditions which might cast significant doubt on the Company’s ability to continue as a going concern is required in the notes to the consolidated financial statements. In management’s judgement, such a disclosure is not required. The judgement is depending on management’s expectations of revenue, future net cash flows for the year ending December 31, 2024, renewing existing debt facilities and financial obligations due within the next 12 months.

 

3. INVENTORY

 

         
    September 30, 2023   December 31, 2022
    $   $
Finished goods     4,538       3,355  
Work in progress - vehicles     7,312       4,785  
Parts for resale     1,804       1,928  
Total Inventory     13,654       10,068  

  

As at September 30, 2023 and December 31, 2022, 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 5.

 

During the nine months ended September 30, 2023, the Company recognized $9,106 as the cost of inventory included as an expense in cost of sales (September 30, 2022: $12,438).

 

8

 

 

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and nine months ended September 30, 2023 and September 30, 2022

(Unaudited, In thousands of US dollars, except for per share amounts)

 

4. PROPERTY AND EQUIPMENT

         

During the nine months ended September 30, 2023, the Company completed construction and received its certificate of occupancy for its US manufacturing campus in Ferndale, Washington. The building started being amortised during the three months ended September 30, 2023 as the building was capable of operating in the manner intended by management and the expense is recorded in cost of goods sold.

 

5. CREDIT FACILITY

 

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 asset-based lending (ABL) 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.

 

During the nine months ended September 30, 2023, the terms of the agreement were amended to reduce the ABL facility to C$10M for use with its existing bus orders. The facility will expire in February 2024 and may be renewed on a yearly basis at the discretion of the lender.

 

As at September 30, 2023, the Company had drawn $nil on this facility (December 31, 2022: $628). Per the terms of the ABL 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 September 30, 2023, the Company has not borrowed over 75% of its availability.

 

During the nine months ended September 30, 2023, the Company 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 facility will expire in February 2024 and may be renewed on a yearly basis at the discretion of the lender and has an interest rate of prime plus 2% and will be secured by existing assets of the Company.

 

As at September 30, 2023, the Company had drawn $9,597 on this facility (December 31, 2022: $nil). The Company also recorded $135 in deferred financing fees against the carrying value of the debt for a net balance at September 30, 2023 of $9,462. Per the terms of the credit facility, the Company must maintain minimum earnings before interest, taxes, depreciation, and amortization (EBITDA) target and certain production targets. The facility is repaid as units are sold.

 

As at September 30, 2023, the Company is in compliance with all covenants.

 

9

 

 

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and nine months ended September 30, 2023 and September 30, 2022

(Unaudited, In thousands of US dollars, except for per share amounts)

 

6. DEFERRED REVENUE

 

          September 30, 2023     December 31, 2022
        $   $
Sales deposits – future delivery of buses             2,512       453  
Future delivery of buses     (a)       1,812       1,929  
Deferred revenue             4,324       2,382  
Less: current portion             4,324       2,382  
Long-term portion of deferred revenue                    

  

a)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 Company provided the customer with 8 leased buses to be leased until the delivery of the 8 new buses which is expected within the next 12 months. As a result, the Company has recognized $122 as lease revenue (September 30, 2022: $127) and has a deferred revenue balance of $1,812 as at September 30, 2023.

 

7. PROVISION FOR WARRANTY COST

 

The Company provides a two year bumper to bumper warranty coverage for vehicles on specified components, with the exception of normal wear and tear.

 

During the nine months ended September 30, 2023, the Company recorded warranty expense of $287 (September 30, 2022 - $458) as part of its cost of sales in connection with sales completed during the nine months. During the nine months ended September 30, 2023, $394 of warranty costs (September 30, 2022 - $676) 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.

  

    $
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  
Additions     287  
Warranty claims applied     (394 )
Change in estimate of warranty provision     (922 )
Change in foreign exchange     12  
Balance at September 30, 2023     692  
Less: Current portion     563  
Long-term portion of warranty provision     129  

 

10

 

 

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and nine months ended September 30, 2023 and September 30, 2022

(Unaudited, In thousands of US dollars, except for per share amounts)

 

8. CURRENT DEBT FACILITIES

 

        September 30, 2023   December 31, 2022
        $   $
Unsecured debentures - 2021     (a)       4,419       6,587  
              4,419       6,587  

  

a)On October 5, 2021, the Company issued C$10.3 million 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. As a result, a gain of $803 on modification of debt was recorded during the six 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. On September 25, 2023, the maturity date of the debentures was extended with C$1,648 of accrued interest being added to the principal with the new principal amount being C$11,948. The facility is repayable with 25% (C$2,987) principal payments due in April and July of 2024, with the remainder and interest payable due on October 4, 2024. As a result, a gain of $492 on modification of debt was recorded during the nine months ended September 30, 2023. In connection with the extension, the Company cancelled 1,000,000 warrants from the previous agreement. On extension the Company issued 1,500,000 warrants to purchase common shares at an exercise price of C$1.33 per share. The value of these warrants was incorporated in the $492 gain on modification of debt. The warrants expire on October 4, 2024.

 

As a result of the extension on September 25, 2023, the interest rate increased from 8% to 13% annual interest paid at maturity. Borrowing costs of $449 were recorded on June 15, 2022, and an additional $240 in borrowing costs on extension on September 25, 2023; the debt has an effective interest rate of 24%.

 

During the nine months ended September 30, 2023, the Company incurred $1,465 in interest expense (September 30, 2022 - $1,316) on this loan, $nil (December 31, 2022: $765) is included in accounts payable and accrued liabilities as at September 30, 2023.

 

9. CONVERTIBLE DEBT

 

On March 27, 2023, the Corporation completed a private placement of unsecured convertible debentures for gross proceeds of C$4 million. The convertible debentures are issued in denominations of C$1 thousand, bear interest at 15% per annum, and mature 18 months from the closing date. Interest payments on the convertible debentures are due on the twelve-month anniversary and/or the maturity date of September 27, 2024.

 

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. The convertible debenture is redeemable at the Company’s option at any time after 12 months, with 30 days notice, at a redemption price of 105% of the principal, payable in cash, plus any accrued interest up to the maturity date.

 

The unsecured convertible debentures represent financial instruments that include host debentures accounted for at amortized cost and embedded derivatives related to the conversion feature and redemption option, which are separated from the convertible debentures and accounted for at fair value with changes in fair value recorded in the statement of loss.

 

11

 

 

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and nine months ended September 30, 2023 and September 30, 2022

(Unaudited, In thousands of US dollars, except for per share amounts)

 

9.CONVERTIBLE DEBT (continued)

 

    Host debentures   Embedded derivatives   Total
    $   $   $
As at January 1, 2023                  
Convertible debt principal     2,208       747       2,955  
Transactions costs     (159 )           (159 )
As at March 24, 2023     2,049       747       2,796  
Change in fair value     N/A       (25 )     (25 )
Interest accretion     240             240  
Foreign exchange     1       17       18  
As at September 30, 2023     2,290       739       3,029  

 

The fair value of the embedded derivatives were estimated using a binomial tree method with the following assumptions as at September 30, 2023:

  

    Assumptions
     
Risk-free interest rate     5.15.5%  
Credit spread     28.1 %
Expected life of options     1.02.5 years  
Annual dividend rate     0 %
Annualized volatility     47.851.1%  

  

For the nine months ended September 30, 2023, the change in fair value resulted in a gain of $25 recognized in the statement of loss. The Company incurred $469 in interest expense on the convertible debentures, $229 is included in accounts payable and accrued liabilities as at September 30, 2023.

 

10. OTHER LONG-TERM LIABILITIES

 

        September 30, 2023   December 31, 2022
        $   $
Unsecured debentures - 2021     (a)       8,081       6,587  
Term loan     (b)       8,876        
Lease obligation     (c)       1,653       1,883  
Vehicles             45       69  
Less: Current portion             (4,866 )     (7,036 )
              13,789       1,503  

  

a)Unsecured debentures

 

On September 25, 2023, the maturity date of the debentures was extended to October 4, 2024, with the extension being treated as a modification of debt. (Note 8)

 

12

 

 

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and nine months ended September 30, 2023 and September 30, 2022

(Unaudited, In thousands of US dollars, except for per share amounts)

 

10.OTHER LONG-TERM LIABILITIES (continued)

 

b)Term loan

 

During the six months ended June 30, 2023, the Company secured a financing with a lender for proceeds up to $9,000 to fund working capital and capital expenditures as the Company begins production of the VMC 1200 class 3 electric truck at its facility in Ferndale, Washington. The loan is secured by the assets of the Company and bears interest at a rate of prime plus a per annum margin between 3.75% and 5% depending on the Company’s full year EBITDA as defined in the contract. For the first year of the loan only interest is payable; principal is repaid over the remaining six years until maturity on May 20, 2030. The Company incurred transaction costs of $131. Per the terms of the credit facility, the Company must maintain minimum EBITDA targets and certain production targets. As at September 30, 2023, the Company is in compliance with all covenants.

 

During the nine months ended September 30, 2023, the Company incurred $664 of interest expense on this loan. As at September 30, 2023, the Company had borrowed $9,000 of this loan. The Company also recorded $124 in deferred financing fees against the carrying value of the loan for a net balance at September 30, 2023 of $8,876.

 

c)Lease Obligation

 

Minimum lease payments in respect of lease liabilities for the right-of-use assets included in property, plant and equipment (Note 4) and the effect of discounting are as follows:

  

    September 30, 2023
    $
 Undiscounted minimum lease payments:        
Less than one year     490  
One to two years     495  
Two to three years     491  
Three to six years     301  
      1,777  
 Effect of discounting     (124 )
 Present value of minimum lease payments – total lease liability     1,653  
 Less: Current portion     (433 )
 Long-term lease liabilities     1,220  

  

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 agreements for vehicles expiring on November 30, 2025 and March 15, 2029.

 

11. SHARE CAPITAL

 

11.1  Authorized: Unlimited number of common shares without par value

  

11.2  Issued and Outstanding Common Shares:

 

The details for the common share issuances during the nine months ended September 30, 2023 are as follows:

 

a.During the nine months ended September 30, 2023, the Company issued 925,667 shares at prices ranging from $0.87 to $1.01 per share. The Company incurred share issuance costs of $44 for net proceeds of $823 through its At-the-Market equity program.

 

13

 

 

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and nine months ended September 30, 2023 and September 30, 2022

(Unaudited, In thousands of US dollars, except for per share amounts)

 

11.

SHARE CAPITAL (continued)

 

The details for the common share issuances during the nine months ended September 30, 2022 were as follows:

 

b.During the nine months ended September 30, 2022, 4,444,445 units, each unit consisting of one common share and one warrant, were issued on settlement of 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 nine months ended September 30, 2022, the Company also issued 302,555 shares at prices ranging from $2.96 to $3.65 for gross proceeds of $988 through its At-the-Market equity program.

 

c.During the nine months ended September 30, 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.

 

11.3  Share Purchase Warrants

 

A summary of the Company’s share purchase warrants are as follows:

  

    Number of Warrants   Weighted Average Exercise Price
        C$
Outstanding, December 31, 2021       2,407,304       6.64  
Issued       5,577,778       3.84  
Cancelled       (412,000 )      
Outstanding, December 31, 2022       7,573,082       4.53  
Cancelled       (1,000,000 )      
Issued       1,500,000       1.33  
Outstanding, September 30, 2023       8,073,082       4.22  

  

During the nine months ended September 30, 2023, the Company issued 1,500,000 warrants as part of a debt extension agreement (Note 8) with an exercise price of C$1.33. The warrants expire on October 4, 2024. 1,000,000 warrants from the previous extension on June 15, 2022, were cancelled.

 

During the nine months ended September 30, 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 nine months ended September 30, 2022, the Company issued 1,000,000 warrants as part of a debt extension agreement (Note 8) with an exercise price of C$2.25. The warrants expire on October 4, 2023.

 

11.4  Directors, Consultants, and Employee stock options

 

The Company has adopted a share option plan for which options to acquire up to a total of 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.

 

During the nine months ended September 30, 2022, the Company granted 290,000 stock options to executives and directors to purchase common shares of the Company with an exercise price ranging from C$1.50 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 nine months ended September 30, 2023, the Company recognized $39 (September 30, 2022 - $56) on the grant and vesting of options to directors, consultants and employees.

 

14

 

 

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and nine months ended September 30, 2023 and September 30, 2022

(Unaudited, In thousands of US dollars, except for per share amounts)

 

11.SHARE CAPITAL (Continued)

 

The following tables summarize information about the Company’s stock options outstanding at September 30, 2023:

  

    Options Outstanding   Options Exercisable   Exercise
Price
  Remaining Contractual Life (Years)   Expiry Date
            C$        
                     
January 17, 2019       166,666       166,666       2.40       0.30     January 17, 2024
November 15, 2019       233,333       233,333       1.50       1.13     November 15, 2024
November 28, 2019       16,666       16,666       1.56       1.16     November 28, 2024
May 4, 2020       24,999       24,999       1.20       1.59     May 4, 2025
November 23, 2020       66,664       66,664       6.15       2.15     November 23, 2025
January 12, 2021       333,333       333,333       6.51       2.28     January 11, 2026
February 1, 2021       41,666       41,666       9.36       2.34     January 31, 2026
April 27, 2021       60,000       40,000       7.24       2.57     April 26, 2026
March 31, 2022       40,000       20,000       2.98       3.50     March 30, 2027
November 25, 2022       92,500       15,417       1.30       4.15     November 24, 2027
                                       
Total       1,075,827       958,744                      

  

During the nine months ended September 30, 2023, 504,999 stock options were forfeited or expired.

 

11.5  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.

 

A summary of the Company’s DSUs are as follows:

 

    Number of DSUs
     
Outstanding, December 31, 2021       170,791  
Issued       452,910  
Outstanding, December 31, 2022       623,701  
Issued       492,757  
Outstanding, September 30, 2023       1,116,458  

  

During the nine months ended September 30, 2023, the Company issued 492,757 DSUs (September 30, 2022 – 304,473) to board members of the Company that vest upon the board members separation date from the Board of Directors.

 

During the nine months ended September 30, 2023, the Company recorded $420 (September 30, 2022 - $426) as stock-based compensation for the fair value of the DSUs issued.

 

15

 

 

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and nine months ended September 30, 2023 and September 30, 2022

(Unaudited, In thousands of US dollars, except for per share amounts)

 

12. RELATED PARTY BALANCES AND TRANSACTIONS

 

Key management consists of personnel having the authority and responsibility for planning, directing and controlling the activities of the Company, which are the directors and executive officers of the Company.

 

Compensation to key management:

  Schedule of related party transactions

    Nine months ended   Nine months ended
    September 30, 2023   September 30, 2022
    $   $
Salaries and benefits     678       925  
Stock-based compensation     425       687  
      1,103       1,612  

  

During the nine months ended September 30, 2023 the Company paid $184 in lease payments to a company owned by a director. $190 was recognized as depreciation and interest expense on the right of use asset and lease liability.

 

During the nine months ended September 30, 2022 the Company paid $158 in lease payments to a company owned by a director. $155 was recognized as depreciation and interest expense on the right of use asset and lease liability.

 

Balances with key management and other related parties are:

 

As at September 30, 2023, included in accounts payable are balances owing to key management or companies controlled by officers of the Company in the amount of $3 (September 30, 2022 - $1).

 

All related party balances are non-interest bearing, unsecured and have no fixed terms of repayment and have been classified as current.

 

13. FINANCIAL INSTRUMENTS

 

Fair values

 

The Company’s financial instruments include cash and cash equivalents, trade and other receivables, accounts payable, the credit facility, short-term loans and convertible debt. The carrying amounts of cash and cash equivalents, trade and other receivables, accounts payable, the credit facility, and short-term loans approximate fair value due to their short term nature. The embedded derivatives related to the convertible debt are the only instruments measured at fair value through profit and loss in accordance with IFRS 9 – Financial Instruments. The fair value of the host debenture as at September 30, 2023 is $2,290 if it was a standalone instrument.

 

The following table summarizes the carrying values and fair values of the Company’s financial instruments:

  

    September 30, 2023   December 31, 2022
    $   $
Assets:                
Measured at amortized cost (i)     9,467       4,277  
Liabilities:                
Amortized cost (ii)     36,071       14,109  
Fair value through P&L (iii)     739        

 

(i)       Cash and cash equivalents, and trade and other receivables

(ii)      Accounts payable and accrued liabilities, current loans, and lease obligations. 

(iii)     Embedded derivatives related to convertible debt (only financial instrument carried at fair value)

 

16

 

 

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and nine months ended September 30, 2023 and September 30, 2022

(Unaudited, In thousands of US dollars, except for per share amounts)

 

13.FINANCIAL INSTRUMENTS (continued)

 

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

 

The Company valued the derivatives associated with the convertible debt (iii) as a level 3 instrument. The Company used the binomial tree method to determine the fair value of the embedded derivatives attributed to the convertible debt (Note 9).

 

14. SEGMENT INFORMATION

 

Allocation of revenue to geographic areas for the single segment is as follows:

  Schedule of geographic distribution

   

Nine months ended

September 30, 2023

 

Nine months ended

September 30, 2022

    Canada   USA   Total   Canada   USA   Total
    $   $   $   $   $   $
Bus Sales     2,109       1,352       3,461       7,912       4,270       12,182  
Truck Sales     6,703             6,703                    
Vehicle Sales     8,812       1,352       10,164       7,912       4,270       12,182  
                                                 
Spare part sales     3,062       597       3,659       3,599       532       4,131  
Operating lease revenue     25       109       134             127       127  
Other revenue     3,087       706       3,793       3,599       659       4,258  
                                                 
Total Revenue     11,899       2,058       13,957       11,511       4,929       16,440  

  

During the nine months ended September 30, 2023, the Company had sales of $4,163 and $2,510 to two end customers, representing 30% and 18% of total sales, respectively. During the nine months ended September 30, 2022, the Company had sales of $5,962, $4,653, and $1,581 to three end customers representing 36%, 28% and 10% of total sales, respectively.

 

15. COMMITMENTS AND CONTINGENCIES

 

The Company entered into a production agreement with its manufacturers whereby the parties have agreed to a specified production volume. Future payments as at September 30, 2023 are $35,408 with the majority expected to be paid within the next 12 months.

 

17 

 

 

 

 

 

EXHIBIT 99.2

 

VICINITY MOTOR CORP.

 

Management Discussion and Analysis

 

For the three and nine months ended September 30, 2023

 

Introduction

 

This Management Discussion and Analysis (“MD&A”) relates to the financial condition and results of the operations of Vicinity Motor Corp. (“Vicinity”, “VMC” or the “Company”) together with its subsidiaries and is supplemental to, and should be read in conjunction with, Vicinity’s unaudited interim consolidated financial statements for the three and nine months ended September 30, 2023, (including notes) (the “financial statements”) which are prepared in condensed format in accordance with International Financial Reporting Standards (“IFRS”) as applicable to the preparation of interim statements, including International Accounting Standard 34, Interim Financial Reporting. The unaudited condensed interim financial statements should also be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2022, which have been prepared in accordance with IFRS. Readers are cautioned that this MD&A contains forward-looking statements and actual events may vary from management’s expectations. Vicinity’s public disclosure statements are available on SEDAR PLUS at www.sedarplus.ca. This MD&A has been prepared as of November 10, 2023. All amounts are in thousands of US dollars, except share and per share information or where otherwise noted.

 

Cautionary Statement on Forward-Looking Information

 

This document includes certain “forward-looking information” and “forward-looking statements” (collectively “forward-looking statements”) within the meaning of applicable securities laws. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding anticipated vehicle deliveries, future sales, vehicle market acceptance, warranty claims and strategic partnerships, are forward-looking statements. Forward-looking statements are frequently, but not always, identified by words such as “expects”, “anticipates”, “believes”, “intends”, “estimates”, “potential”, “possible”, and similar expressions, or statements that events, conditions, or results “will”, “may”, “could”, or “should” occur or be achieved. Forward-looking statements involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements.

 

These forward-looking statements may include statements regarding the perceived merit of the product offered by Vicinity; sales estimates; manufacturing capabilities; capital expenditures; timelines; strategic plans; market prices and supply for parts and material; or other statements that are not statements of fact. Forward-looking statements involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements.

  

Important factors that could cause actual results to differ materially from Vicinity’s expectations include uncertainties relating to the economic conditions in the markets in which Vicinity operates, vehicle sales volume, anticipated future sales growth, market prices and supply for parts and materials, the success of Vicinity’s operational strategies, the vehicle assembly facility in the State of Washington being capable of operating in the manner intended by management, the effect of the COVID-19 pandemic and other macro economic factors on supply chain recovery to pre-pandemic levels, related government-imposed restrictions on operations, the success of Vicinity’s strategic partnerships; and other risk and uncertainties disclosed in Vicinity’s reports and documents filed with applicable securities regulatory authorities from time to time. Vicinity’s forward-looking statements reflect the beliefs, opinions and projections on the date the statements are made. Vicinity assumes no obligation to update the forward-looking statements or beliefs, opinions, projections, or other factors, should they change, except as required by law.

 

1

 

 

About Vicinity

 

Vicinity Motor Corp. 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 close relationships with manufacturing partners to supply its flagship electric, compressed natural gas (“CNG”) and clean-diesel Vicinity buses and the VMC 1200 electric truck.

 

The Company’s common shares are publicly traded on the TSX Venture Exchange (“TSXV”) under the symbol “VMC”, on the Nasdaq Capital Market (“Nasdaq”) under the symbol “VEV” and on the Frankfurt Stock Exchange (the “FSE”) under the symbol “6LGA”.

 

Third Quarter and Subsequent Highlights

  

  Order backlog as of September 30, 2023 exceeded $150 million, of which electric vehicles accounted for over 75%.
     
  Securing new VMC 1200 distribution agreements to establish new dealerships in strategic markets across Canada, including one new dealership in Quebec, with several additional currently in the LOI stage with agreements currently being finalized.
     
  Partnered with automated driving software platform provider ADASTEC to create an SAE Level-4 automated Vicinity Lighting EV transit bus (the Vicinity Autonomous Lightning EV) for the North American market, signing agreements to deploy a vehicle at both Michigan State University and the Buffalo Niagara Medical Campus in mid-2024.
     
  Secured new orders for four (4) Vicinity™ Classic Clean Diesel Buses from the Village of New Square, New York and four (4) Vicinity™ Classic Clean Diesel Buses from Simcoe County, Ontario, marking Simcoe’s 7th re-order from Vicinity.
     
  Extended the maturity of a CAD$10.3 million debt due October 2023 by one year with final payment due October 2024.
     
  Revenue for the three months ended September 30, 2023 of $6,491 compared to $1,515 for the three months ended September 30, 2022.
     
  Deliveries of twenty-six (26) Vicinity trucks and eight (8) Vicinity buses for the three months ended September 30, 2023 compared to deliveries of two (2) Vicinity buses for the three months ended September 30, 2022.
     
  Net loss for the three months ended September 30, 2023 of $4,389 compared to net loss of $7,354 for the three months ended September 30, 2022.
     
  Adjusted EBITDA loss for the three months ended September 30, 2023 of $1,943 compared to an adjusted EBITDA loss of $2,677 for the three months ended September 30, 2022 (see “Non-GAAP and Other Financial Measures”).
     
  Revenue for the nine months ended September 30, 2023 of $13,957 compared to $16,440 for the nine months ended September 30, 2022.
     
  Deliveries of sixty-five (65) Vicinity trucks and eleven (11) Vicinity buses for the nine months ended September 30, 2023 compared to deliveries of forty-two (42) Vicinity buses, and one (1) bus from the lease pool for the nine months ended September 30, 2022.
     
  Net loss for the nine months ended September 30, 2023 of $7,525 compared to net loss of $14,120 for the nine months ended September 30, 2022.
     
  Adjusted EBITDA loss for the nine months ended September 30, 2023 of $3,687 compared to an adjusted EBITDA loss of $6,014 for the nine months ended September 30, 2022 (see “Non-GAAP and Other Financial Measures”).

 

2

 

 

The Company reports results for the three months ended September 30, 2023 including deliveries of twenty-six (26) Vicinity trucks and eight (8) Vicinity buses, revenue of $6,491, net loss of $4,389 and gross profit of $511 which was 8% of revenue (see “Non-GAAP and Other Financial Measures”). Results for the three months ended September 30, 2022 included deliveries of two Vicinity buses, revenue of $1,515, net loss of $7,445 and gross margin loss of $234 which was (15%) of revenue (see “Non-GAAP and Other Financial Measures”). The gross margin for the three months ended September 30, 2022 was negatively affected by product mix and the low volume of buses delivered. Consistent with the rest of the automotive industry, shipping difficulties and global supply chain disruptions in the availability of certain bus components delayed a large portion of 2022 and 2023 expected deliveries.

 

Business Overview

 

Corporate Update

 

“The third quarter was highlighted by the successful delivery of twenty-six (26) VMC 1200 electric trucks to our customer base and the continued diversification of our distribution network across North America,” said William Trainer, Founder and Chief Executive Officer of Vicinity Motor Corp. “Currently, in addition to our recently announced new dealerships in Quebec, we have several additional LOIs in place to formalize new EV-specific dealerships, expanding the VMC 1200 sales and service coverage in strategic markets across Canada. Our new partners have strong fleet services know-how that supports local business and government customers - making them well suited to drive the future electrification of their client’s commercial fleets. Our new dealerships will target an underserved market with a compelling product at an extremely attractive price point, which is further reduced through Canadian federal and provincial rebates.

 

“During the quarter we partnered with automated driving software platform provider ADASTEC to create an SAE Level-4 automated Vicinity Lighting EV transit bus, the Vicinity Autonomous Lightning EV, for the North American market. The collaboration marks a substantial leap in the realm of transportation, with a strong emphasis on automated, connected, and shared solutions – driving innovation, accessibility, and sustainability. The partnership brings together our expertise in medium-duty, accessible, fully electrified low-floor transit vehicles with ADASTEC’s SAE Level-4 automated driving software platform. Together, we aim to revolutionize the mobility sector and make a lasting impact on communities and passengers. To this end, we signed agreements with Michigan State University and the Buffalo Niagara Medical Campus to deploy initial Vicinity Autonomous Lightning Electric transit buses.

 

“Turning to the transit bus business, this side of the business continues to help grow our backlog and serve as a foundational building block of our revenue mix. Our seventh order with Simcoe County, Ontario illustrated our commitment to building long-term, multi-order relationships and why we continue to serve as the dominant Canadian supplier in the mid-sized heavy-duty bus market. A new purchase with the Village of New Square, New York demonstrates our ability to serve both large public transportation systems and small communities, fulfilling immediate needs and positioning us to address an incredibly wide variety of customer needs.

 

“To support demand, our new U.S. manufacturing campus in Ferndale, Washington began production during the quarter to tackle the fulfillment of our growing order backlog which, as of September 30th, exceeded US$150 million. We celebrated its opening with a grand opening ceremony attended by Washington Governor Jay Inslee. The facility is designed to meet our current and future production needs for both buses and Class 3 VMC 1200 electric trucks. With a recently added $9.0 million credit facility for Ferndale with EDC, complementing a previous $30 million credit facility, we now have greater financial flexibility to invest in Vicinity’s next phase of growth.

 

“Looking ahead, we are aggressively building out our VMC 1200 dealer network continent-wide and ramping up production in our Ferndale facility to address the significant demand for this exciting new product. With improving margins, a growing sales funnel and strong backlog, we are positioning Vicinity for future success. We continue to see strong macro-economic tailwinds, with commercial EV adoption continuing to accelerate, supported by generous incentives throughout Canada. To seize this opportunity, we will remain laser-focused on scaling production in Ferndale in the fourth quarter and beyond, executing against our robust US$150+ million order backlog. I look forward to continued operational execution in the quarters to come as we strive to create sustainable, long-term value for my fellow shareholders,” concluded Trainer.

 

3

 

 

Recent Developments

 

In February 2023, VMC announced the closing of a new $30 million credit facility to be used for up to 100% of eligible production costs for the VMC 1200 truck. VMC also announced the renewal of an asset based lending facility for $10 million for use with bus orders.

 

In February 2023, VMC announced the signing of a dealer network development services agreement with Dealer Solutions Mergers and Acquisitions (“DSMA”) to enhance North American market penetration for its VMC 1200 electric trucks.

 

During the three months ended March 31, 2023, VMC issued 925,667 common shares at prices ranging from $0.87 to $1.01 per share for net proceeds of $824 through its “at-the-market” equity distribution program approved in 2021.

 

In May 2023, VMC announced the closing of a new $9 million credit facility with EDC to be used for operating costs and equipment purchases in the recently completed manufacturing facility in Ferndale, Washington.

 

In May 2023, VMC announced an order of forty-two (42) buses from Transdev for delivery in 2024 to be used in the greater Montreal, Quebec area.

 

In September 2023, VMC announced an order from Simcoe County, Ontario, Canada for four Vicinity™ Classic buses marking the County’s 7th re-order from Vicinity.

 

In September 2023, VMC announced the amendment and extension of a CAD$ 10.3 million debenture with principal being repaid in quarterly tranches starting in April of 2024 and ending in October of 2024. Along with the amendment, VMC cancelled 1 million warrants issued to the lender and issued 1.5 million new warrants.

 

In September 2023, VMC announced an order from the Village of New Square, New York for four (4) Vicinity™ Classic buses.

 

In September 2023, VMC announced the signing of a distribution agreement for VMC 1200 EV trucks with Quebec based owners of Lussier Chevrolet Buick GMC Ltd with an initial order of 25 trucks and a first year sales target of 100 trucks.

 

In October 2023, VMC announce a partnership with ADASTEC for automated transit buses to create an SAE Level-4 automated Vicinity Lighting EV transit bus, the Vicinity Autonomous Lightning EV, for the North American market. VMC also announced orders from Michigan State University and the Buffalo Niagara Medical Campus to deploy initial Vicinity Autonomous Lightning Electric transit buses.

 

Supply Chain Update

 

Consistent with other manufacturing and automotive companies, VMC continues to experience delays from some suppliers and shipping companies due to ongoing supply chain shortages related to bus production, which has affected deliveries originally scheduled for delivery in 2021 and into 2022 and 2023. Sales activity, for both the pipeline and order book, has strengthened significantly during 2021 and 2022 for future deliveries. The Company’s manufacturing partners are operating and currently producing to meet the Company’s needs. Although deliveries may be delayed, purchase orders are firm and will be delivered when product is made available and once the Company can work its way through delayed production backlog. We continue to work with our customers to communicate ongoing supply chain issues to manage expected delivery timelines.

 

4

 

 

Our supply chain is currently working to provide us with the necessary components, although delayed in certain circumstances, for production and aftermarket part sales. Even though supply chains have improved from prior years, the Company continues to experience longer lead times of key components resulting in production related inefficiencies.

 

The Company is working through supply chain concerns and remains well-positioned to serve its customers. We continue to monitor the industry and supply chain issues closely and we are responding swiftly and effectively to protect the interests of our stakeholders. We are confident that our skilled and loyal workforce, the diversification and strength of our business model, and our strong partner relationships position us well to navigate the current environment.

  

Outlook

 

Management expects to maintain its strong market segment leadership position for mid-size heavy duty buses in Canada and continue to make progress in the U.S. with private operators and public transit agencies. The external pressures to “right size” vehicles for their applications and ridership levels along with the availability of funding in Canada and the U.S. create an ideal environment for Vicinity to prosper. Even with the challenges remaining from ongoing supply chain disruptions for bus manufacturing, the outlook for Vicinity, including significant growth in the U.S., remains very positive. The supply chain for the VMC 1200 truck has been more insulated from global disruptions than the problems VMC has experienced with the availability of bus components.

 

Order activity for deliveries in 2023 and beyond remains strong across Vicinity product lines, including the Vicinity Lightning™ EV and the newly announced VMC 1200 trucks. The demand for the VMC 1200 electric truck has exceeded expectations with a solid pipeline of further orders expected to be finalized and announced in the near future. The addition of a partnership with DSMA will enhance VMC 1200 market penetration in North America through DSMA’s existing dealer relationships and automotive industry knowledge.

 

Our newly constructed U.S. manufacturing facility in Ferndale, Washington, has now been completed and the facility is operational. The Company received its certificate of occupancy in March 2023 with the installation of electrical components that were delayed through supply chain issues. VMC has finalized the certification of the new facility as a Foreign Trade Zone to manage any potential duties during the manufacturing process. The facility will be used for the manufacturing of both buses and EV trucks for sale in North America.

 

Funding announcements in both the U.S. and Canada have shown a commitment to improving transit through investing heavily in transit and zero emission transit solutions. In the U.S. the Infrastructure Investment and Jobs Act (“IIJA”), the successor to the Fixing America’s Surface Transportation Act (“FAST Act”), is a $1.2 trillion infrastructure bill that includes increased funding for transit, specifically for the purchase of low or zero emission vehicles and investments to modernize existing transit systems. Orders for EV buses are anticipated to strengthen through to 2025 with the expected funding from this program. The IIJA provides $86.9 billion in funding for the Federal Transit Administration (“FTA”) over five years. The FTA funds up to 80% of the cost of qualifying “Buy America” buses.

 

The Canadian government has committed CAD$17.6 billion in new spending through 2027 that will go towards a “green recovery” for Canadian public transit and announced aggressive emissions reductions targets with a goal to be net-zero by 2050.

 

The VMC 1200 is eligible for both Canadian federal and provincial rebates currently being offered for commercial electric vehicles. The federal rebate is currently CAD$40 thousand per vehicle with the provincial rebates varying across the country. Currently, the provincial rebates for commercial electric vehicles in British Columbia and Quebec are the highest with rebates of up to 33% of MSRP, or CAD$51 thousand, in BC, and CAD$60 thousand to CAD$85 thousand per vehicle, depending on the battery size, in Quebec.

 

5

 

 

Although the proposed legislations and funding announcements from the Canadian and U.S. governments are encouraging for the transit industry, the Company does not yet know how or when all proposed funds will materialize and the expected impact on financial performance of the Company.

 

Our Company has shifted the majority of its business to zero emission vehicles through the expansion of our product lines with the addition of the 100% zero emission electric Vicinity Lightning™ bus and the introduction of the 100% electric trucks to our product lineup to reduce the Company’s exposure to periods of inconsistent quarterly revenues from the bus industry. The Vicinity heavy duty “Classic” bus is planned for electrification in 2024, with potential deliveries in late 2024 or early 2025, which will place Vicinity in an excellent position to capture market share as the demand for zero emissions buses grows. Municipalities of all sizes across Canada and the U.S. along with private operators in multiple sectors are looking for a robust low floor accessible bus to replace their cutaways and internal combustion engine propelled heavy duty buses. Our first Vicinity Lightning™ EV buses are currently in production for initial customers. Our Vicinity 1200 trucks are in production and available to fill high volume demands for the electric truck markets. The first Vicinity 1200 trucks were delivered in November of 2022.

 

As with the entire global manufacturing industry, VMC is exposed to increased inflation with respect to parts and raw materials purchased by the Company. VMC has already ordered the majority of components for current builds or has fixed pricing in place to reduce the short term exposure. Future impacts for higher input costs will be mitigated through higher pricing for new bids or purchase price index (“PPI”) provisions in multiyear contracts.

 

Aftermarket parts sales are expected to continue to increase as Vicinity’s bus fleets get older and new vehicles are placed into service.

 

Tariffs, Invasion of Ukraine, Conflict in the Middle East, and COVID-19

 

Management continues to closely monitor negotiations and ongoing global trade discussions which may influence the Company. We are implementing purchasing, shipping and assembly modifications to best adapt to the current trade environment and strengthen our U.S.-based operations and component sourcing.

 

There have been no significant direct impacts to date on supply chains related to the Russian invasion of Ukraine and the conflict in the Middle East. VMC does not have direct suppliers based in either Russia, Ukraine, or the Middle East, but additional supply delays may arise as the conflict progresses if component supplies of our suppliers are affected.

 

Lingering disruptions from COVID-19 continue to have ongoing effects on the supply chain for certain critical components. The medium and long-term recovery of the Company’s end markets from the COVID-19 pandemic are currently unknown but are expected to be dependent on manufacturing and supply chain capabilities, and economic activity.

 

Non-GAAP and Other Financial Measures

 

The non-GAAP and other financial measures presented do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be directly comparable to similar measures presented by other issuers. The data presented is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These non-GAAP and other financial measures should be read in conjunction with our consolidated financial statements.

 

Non-GAAP financial measure – Adjusted EBITDA

 

Adjusted EBITDA does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers. The Company defines adjusted EBITDA as earnings before interest, income taxes, depreciation and amortization, foreign exchange gains or losses, certain non-recurring and/or non-operating income and expenses and share based compensation. Adjusted EBITDA should not be construed as an alternative for revenue or net loss determined in accordance with IFRS. The Company believes that adjusted EBITDA is a meaningful metric in assessing the Company’s financial performance and operational efficiency.

 

6

 

 

The following table reconciles net earnings or losses to Adjusted EBITDA based on the consolidated financial statements of the Company for the periods indicated.

 

    3 months ended September 30, 2023   3 months ended September 30, 2022   9 months ended September 30, 2023   9 months ended September 30, 2022
(US dollars in thousands – unaudited)   $   $   $   $
Net loss     (4,389 )     (7,445 )     (7,525 )     (14,120 )
Add back                                
Stock based compensation     70       250       459       712  
Interest     1,520       589       3,160       1,775  
Gain on modification of debt     (492 )           (492 )     (803 )
Change in fair value of embedded derivatives     129             (25 )      
Foreign exchange (gain) loss     872       3,098       (182 )     3,882  
Amortization     347       731       909       2,213  
Income tax           91       9       300  
Loss on disposal of property and equipment           9             27  
Adjusted EBITDA     (1,943 )     (2,677 )     (3,687 )     (6,014 )

  

Non-GAAP financial measure – working capital

 

Working capital is a non-GAAP measure calculated as current assets less current liabilities. Working capital does not have any standardized meaning prescribed by IFRS and is therefore unlikely to be comparable to similar measures presented by other companies.

  

    Three months ended September 30, 2023   Three months ended December 31, 2022
(US dollars in thousands – unaudited)   $   $
Current Assets     34,933       18,146  
Current Liabilities     27,908       16,573  
                 
Working Capital     7,025       1,573  

  

Supplementary financial measure – gross margin as a percentage of revenue

 

Gross margin as a percentage of revenue is a supplementary financial measure calculated as gross profit divided by revenue, expressed as a percentage.

 

7

 

 

Summary of Quarterly Results

 

The following selected financial information is derived from unaudited quarterly financial statements of the Company. The information is stated in US dollars.

  

(US dollars in thousands, except earning per share -unaudited)   Q3 2023
$
  Q2 2023
$
  Q1 2023 
$
  Q4 2022
$
  Q3 2022 
$
  Q2 2022
$
  Q1 2022
$
  Q4 2021 
$