Vicinity Motor : Unaudited Interim Condensed Consolidated Financial Statements - Form 6-K

Unaudited Interim Condensed Consolidated Financial Statements For the three and six months ended June 30, 2022 and 2021

Vicinity Motor Corp.

Interim Condensed Consolidated Statements of Financial Position

(Unaudited, In thousands of US Dollars)

		Note		June 30, 2022		December 31, 2021
				$		$
Current Assets
Cash and cash equivalents							9,357				4,402
Trade and other receivables							2,963				2,810
Inventory			4				8,206				9,416
Prepaids and deposits							4,398				4,178
							24,924				20,806
Long-term Assets
Intangible assets			5				20,375				22,353
Property, plant, and equipment			6				20,463				10,834
							65,762				53,993
Current Liabilities
Accounts payable and accrued liabilities							7,261				2,915
Credit facility			7				658				-
Deferred revenue							2,070				3,193
Current portion of provision for warranty cost			8				1,703				1,414
Current debt facilities							-				7,143
Deferred consideration							4,526				4,602
Current portion of other long-term liabilities			9				456				134
							16,674				19,401
Long-term Liabilities
Other long-term liabilities			9				8,137				92
Provision for warranty cost			8				212				255
							25,023				19,748
Shareholders' Equity
Share capital			10				69,858				58,055
Contributed surplus			10				7,071				6,035
Accumulated other comprehensive (loss) income							179				(151	)
Deficit							(36,369	)			(29,694	)
							40,739				34,245
							65,762				53,993

NATURE OF OPERATIONS (Note 1)

COMMITMENTS (Note 14)

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) Income

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

		Note		For the three months ended June 30, 2022		For the three months ended June 30, 2021		For the six months ended June 30, 2022		For the six months ended June 30, 2021
				$		$		$		$
						(Restated, Notes 3 and 16)				(Restated, Notes 3 and 16)
Revenue
Bus sales			13				10,117				14,409				11,819				34,869
Other			13				1,625				1,109				3,106				2,185
							11,742				15,518				14,925				37,054
Cost of sales			4				(10,718	)			(13,802	)			(13,691	)			(31,926	)
Gross profit							1,024				1,716				1,234				5,128
Expenses
Sales and administration							2,371				1,570				4,751				2,980
Stock-based compensation			10				166				259				463				384
Amortization							699				138				1,319				272
Interest and finance costs			7,9				599				51				1,186				177
Gain on modification of debt			9				(803	)			-				(803	)			-
Foreign exchange loss							1,572				42				784				58
							4,604				2,060				7,700				3,871
(Loss) income before taxes							(3,580	)			(344	)			(6,466	)			1,257
Current income tax expense							209				-				209				-
Net (loss) income							(3,789	)			(344	)			(6,675	)			1,257
Loss per share
Basic							(0.10	)			(0.01	)			(0.18	)			0.04
Diluted							(0.10	)			(0.01	)			(0.18	)			0.04
Weighted average number of common shares outstanding
Basic(1)							37,569,536				29,533,518				37,569,536				29,317,831
Diluted(1)							37,569,536				29,533,518				37,569,536				33,886,969

(1)	Basic and diluted earnings (loss) per share have been retrospectively adjusted to give effect to the 3 to 1 share consolidation effective March 29, 2021.

See accompanying notes to the consolidated financial statements

Vicinity Motor Corp.

Interim Condensed Consolidated Statements of Comprehensive (Loss) Income

(Unaudited, In thousands of US dollars)

		For the three months ended June 30, 2022		For the three months ended June 30, 2021		For the six months ended June 30, 2022		For the six months ended June 30, 2021
		$		$		$		$
				(Restated, Notes 3 and 16)				(Restated, Notes 3 and 16)
Net (loss) income			(3,789	)			(344	)			(6,675	)			1,257
Other comprehensive income items that may be reclassified subsequently to net (loss) income
Exchange differences on translation of foreign operations			598				248				330				457
Total other comprehensive income			598				248				330				457
Total comprehensive (loss) income			(3,191	)			(96	)			(6,345	)			1,714

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, 2021 (restated)			3, 16				28,650,754				37,175				2,618				145				(22,371	)			17,567
Issuance of shares - warrants exercised			10.2(c)				1,924,721				6,269				(141	)			-				-				6,128
Issuance of shares - options exercised			10.2(d)				234,996				568				(182	)			-				-				386
Issuance of options							-				-				1,333				-				-				1,333
Stock-based compensation			10.4-10.5				-				-				384				-				-				384
Other comprehensive income							-				-				-				457				-				457
Net income							-				-				-				-				1,257				1,257
Balance, June 30, 2021			3, 16				30,810,471				44,012				4,012				602				(21,114	)			27,512
Balance, January 1, 2022							34,946,379				58,055				6,035				(151	)			(29,694	)			34,245
Issuance of shares - private placement			10.2(a)				4,747,000				12,988				-				-				-				12,988
Issuance of shares - options exercised			10.2(b)				66,661				98				(23	)			-				-				75
Share issuance costs			10.2(a)				-				(1,131	)			-				-				-				(1,131	)
Share issuance costs - agent warrants			10.2(a)				-				(152	)			152												-
Warrants			10.3				-				-				444				-				-				444
Stock-based compensation			10.4-10.5				-				-				463				-				-				463
Other comprehensive loss							-				-				-				330				-				330
Net loss							-				-				-				-				(6,675	)			(6,675	)
Balance, June 30, 2022							39,760,040				69,858				7,071				179				(36,369	)			40,739

See accompanying notes to the consolidated financial statements

Vicinity Motor Corp.

Interim Condensed Consolidated Statements of Cash Flows

(Unaudited, In thousands of US dollars)

				Six months ended		Six months ended
		Note		June 30, 2022		June 30, 2021
						(Restated, Note 3)
OPERATING ACTIVITIES				$		$
Net (loss) income for the year							(6,675	)			1,257
Items not involving cash:
Loss on disposal of property and equipment							18				-
Gain on modification of debt			9				(803	)			-
Amortization							1,482				398
Foreign exchange (gain) loss							(78	)			60
Interest and finance costs			7,9				1,186				177
Stock-based compensation			10				463				384
							(4,407	)			2,276
Changes in non-cash items:
Trade and other receivables							660				1,191
Inventory			4				1,036				15,821
Prepaids and deposits							(298	)			(753	)
Accounts payable and accrued liabilities							4,607				(7,147	)
Deferred consideration							(76	)			-
Deferred revenue							(1,054	)			(498	)
Warranty provision			8				255				1,209
Taxes paid							(209	)			-
Interest paid							(339	)			(139	)
Cash provided in operating activities							175				11,960
INVESTING ACTIVITIES
Purchase of intangible assets			5				(328	)			(1,518	)
Proceeds from government subsidy			5				817				-
Purchase of property and equipment			6				(8,225	)			(2,981	)
Proceeds on disposal of property and equipment			6				247				-
Cash used in investing activities							(7,489	)			(4,499	)
FINANCING ACTIVITIES
Proceeds from issuance of common shares			10				13,063				6,495
Share issuance costs			10				(1,131	)			-
(Repayments) proceeds of credit facility			7				659				(4,624	)
Repayment of short-term loans			9				-				(2,038	)
Repayment of long-term loans			9				(186	)			(100	)
Cash provided by financing activities							12,405				(267	)
Effect of foreign exchange rate on cash							(136	)			35
Increase in cash and cash equivalents							4,955				7,229
Cash and cash equivalents, beginning							4,402				1,008
Cash and cash equivalents, ending							9,357				8,237

See accompanying notes to the consolidated financial statements

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and six months ended June 30, 2022 and June 30, 2021

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

1.	NATURE OF OPERATIONS

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, the VMC 1200 electric truck and a VMC Optimal-EV shuttle bus. 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 262^nd Street, Aldergrove, British Columbia.

2.	BASIS OF PRESENTATION

The following companies had been consolidated with Vicinity Motor Corp. as at June 30, 2022:

Company Name	Registered	Holding	Functional Currency
Vicinity Motor Corp.	British Columbia	Parent Company	United States Dollar (Canadian Dollar up to October 5, 2021)
Vicinity Motor (Bus) Corp.	British Columbia	100%	Canadian Dollar
Vicinity Motor (Bus) USA Corp.	United States	100%	United States Dollar

i)

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 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 consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2021.

The interim consolidated financial statements were authorized for issue by the Board of Directors on August 15, 2022.

b) Basis of measurement

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

c) Use of estimates and judgments

The preparation of the consolidated financial statements in conformity with IFRS and IAS 34 requires the use of judgments and 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 8 of these interim consolidated financial statements as well as the audited consolidated financial statements for the year ended December 31, 2021.

7

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and six months ended June 30, 2022 and June 30, 2021

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

3.	CHANGE OF PRESENTATION CURRENCY

Effective October 6, 2021, the functional currency of Vicinity Motor Corp. has changed from Canadian dollars to United States dollars as financing for operations is now raised in US dollars.

The Company retroactively changed its presentation currency from Canadian dollars to United States dollars. The change in the financial statement presentation currency is considered an accounting policy change and has been accounted for retrospectively. The balance sheets for each period presented have been translated from the related subsidiary's functional currency to the new US dollar presentation currency at the rate of exchange prevailing at the respective balance sheet date except for equity items, which have been translated at accumulated historical rates from the related subsidiary's date of incorporation. The statements of income and comprehensive income were translated at the average exchange rates for the reporting period, or at the exchange rate prevailing at the date of transactions. Exchange differences arising in 2019 on translation from the related subsidiary's functional currency to the United States dollar presentation currency have been recognized in other comprehensive income and accumulated as a separate component of equity.

In prior reporting periods, the translation of the Company's subsidiaries that had a United States dollar functional currency into the Company's presentation currency of the Canadian dollar gave rise to a translation adjustment which was recorded as an adjustment to accumulated other comprehensive income ("AOCI"), a separate component of shareholder's equity. With the retrospective application of the change in presentation currency from the Canadian dollar to the US dollar, the AOCI related to the translation of US dollar functional currency subsidiaries was eliminated. However, with the retrospective application of the change in presentation currency to the US dollar, the Company's Canadian operating company, which has a Canadian dollar functional currency, resulted in an AOCI balance.

Adjustment to previously reported financial information due to change in presentation currency

For comparative purposes, the consolidated statement of loss and comprehensive loss for the three and six months ended June 30, 2021 includes adjustments to reflect the change in the presentation currency to the US dollar, which is a change in accounting policy. The exchange rates used to translate the amounts previously reported into US dollars for the three and six months ended June 30, 2021 were the monthly average rates for the period.

4.

INVENTORY

		June 30, 2022		December 31, 2021
		$		$
Finished goods			5,623				6,472
Work in progress - buses			42				41
Parts for resale			2,541				2,903
Total Inventory			8,206				9,416

As at June 30, 2022 and December 31, 2021, work in progress - buses consists of the cost of buses still being manufactured. Finished goods inventory consisted of the costs of assembled buses, 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 6.

During the six months ended June 30, 2022, the Company recognized $11,551 as the cost of inventory included as an expense in cost of sales (June 30, 2021: $28,120).

5.	Intangible Assets

During the six months ended June 30, 2022, the Company received $817 as a grant from Sustainable Development Technology Canada for the development of the Company's electric vehicles. The amount was recorded as a reduction in intangible assets. The Company is still expecting to receive C$1,549 dollars in further grants as milestones are achieved.

8

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and six months ended June 30, 2022 and June 30, 2021

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

6.	PROPERTY, PLANT & EQUIPMENT

		Buses Available for Lease		Office Equipment		Right-of-Use Asset		Vehicles		Land		Plant and Equipment		Total
		$		$		$		$		$		$		$
Cost
At December 31, 2020			2,924				794				591				350				-				70				4,729
Additions			3,522				1,109				27				-				1,760				3,922				10,340
Disposals			(2,350	)			-				-				-				-				-				(2,350	)
Foreign exchange			19				3				2				1				-				-				25
At December 31, 2021			4,115				1,906				620				351				1,760				3,992				12,744
Additions			188				1,176				2,196				-				-				6,784				10,344
Disposals			(285	)			-				-				-				-				-				(285	)
Foreign exchange			(74	)			23				(25	)			(5	)			-				-				(81	)
At June 30, 2022			3,944				3,105				2,791				346				1,760				10,776				22,722
Accumulated Amortization
At December 31, 2020			791				267				312				192				-				-				1,562
Disposals			(319	)			-				-				-				-				-				(319	)
Depreciation			369				66				193				42				-				-				670
Foreign exchange			(2	)			-				(1	)			-				-				-				(3	)
At December 31, 2021			839				333				504				234				-				-				1,910
Disposals			(22	)			-				-				-				-				-				(22	)
Depreciation			163				49				180				16				-				-				408
Foreign exchange			(17	)			(7	)			(10	)			(3	)			-				-				(37	)
At June 30, 2022			963				375				674				247				-				-				2,259
Carrying Value
December 31, 2021			3,276				1,573				116				117				1,760				3,992				10,834
June 30, 2022			2,981				2,730				2,117				99				1,760				10,776				20,463

All property and equipment are pledged as part of a general security agreement to secure the credit facility described in Note 7.

7.	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 credit facility for a three-year term. The credit facility bears interest at a rate of 0.75% - 1% plus Canadian prime rate for loans denominated in Canadian dollars and 0.75% - 1% plus US prime rate for loans denominated in US dollars. The facility is secured by way of a general security agreement over all assets of the Company.

As at June 30, 2022, the Company had drawn $658 on this facility, comprised of $850 in Canadian funds.

Per the terms of the credit facility, the Company must maintain a consolidated 12-month rolling fixed charge coverage ratio if the Company borrows over 75% of the available facility. As at June 30, 2022, the Company has not borrowed over 75% of its availability.

9

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and six months ended June 30, 2022 and June 30, 2021

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

8.	PROVISION FOR WARRANTY COST

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

During the six months ended June 30, 2022, the Company recorded warranty expense of $451 (June 30, 2021 - $1,524) as part of its cost of sales in connection with sales completed during the three months. During the six months ended June 30, 2022, $498 of warranty costs (June 31, 2021 - $581) 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, 2020			800
Additions			1,598
Warranty claims applied			(1,073	)
Change in estimate of warranty provision			344
Change in foreign exchange			-
Balance at December 31, 2021			1,669
Additions			451
Warranty claims applied			(498	)
Change in estimate of warranty provision			303
Change in foreign exchange			(10	)
Balance at June 30, 2022			1,915
Less: Current portion			1,703
Long-term portion of warranty provision			212

9.	OTHER LONG-TERM LIABILITIES

				June 30, 2022		December 31, 2021
				$		$
Unsecured debentures - 2021			(a)				6,360				-
Lease Obligation			(b)				1,722				19
Other							55				73
							8,137				92

a)

On October 5, 2021, the Company issued C$10,300 in unsecured debentures with a maturity 12 months from the date of issue. On June 15, 2022, the maturity date of the debentures was extended to October 4, 2023, with the extension being treated as a modification of the original debt with the classification changing from current to long-term liabilities. As a result, a gain of $803 on modification of debt was recorded during the three months ended June 30, 2022. In connection with the extension, the Company cancelled 412,000 warrants from the previous agreement. On extension the Company issued 1,000,000 warrants to purchase common shares at an exercise price of C$2.25 per share. The value of these warrants was incorporated in the $803 gain on modification of debt. The warrants expire on the debt maturity date of October 4, 2023.

The unsecured debentures include 8% annual interest paid at maturity with $449 being recorded as borrowing costs on June 15, 2022, and an effective interest rate of 24%.

During the six months ended June 30, 2022, the Company incurred $889 in interest expense (June 30, 2021 - $nil) on this loan, of which $469 is included in accounts payable and accrued liabilities at June 30, 2022.

10

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and six months ended June 30, 2022 and June 30, 2021

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

9.	OTHER LONG-TERM LIABILITIES (Continued)

b)	Minimum lease payments in respect of lease liabilities and the effect of discounting are as follows:

		June 30, 2022
		$
Undiscounted minimum lease payments:
Less than one year			496
One to two years			481
Two to three years			1,376
			2,353
Effect of discounting			(210	)
Present value of minimum lease payments - total lease liability			2,143
Less: Current portion			(421	)
Long-term lease liabilities			1,722

During the three months ended June 30, 2022 the Company entered into new lease agreements for office and warehouse facilities expiring March 31, 2027 and May 31, 2027.

10.	SHARE CAPITAL

On March 24, 2021, the Company performed a 3 for 1 share consolidation of the Company's common shares, stock options, warrants and DSUs. The quantities and per unit prices presented in this note are shown on post consolidation basis.

10.1 Authorized: Unlimited number of common shares without par value

10.2 Issued and Outstanding Common Shares:

The details for the common share issuances during the six months ended June 30, 2022 are as follows:

a.

During the six months ended June 30, 2022, 4,444,445 units, each unit consisting of one common share and one warrant, were issued for a private placement at a price of $2.70 for gross proceeds of $12,000. The value allocated to the warrants based on the residual value method was $nil. The Company also incurred share issuance costs of $1,283 in relation to this private placement.

During the six months ended June 30, 2022, the Company also issued 302,555 shares at prices ranging from $2.96 to $3.65 for gross proceeds of $988.

b.	During the six months ended June 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.

The details for the common share issuances during the six months ended June 30, 2021 were as follows:

c.	During the six months ended June 30, 2021, 1,924,721 warrants were exercised at an average exercise price of $3.18 per share for gross proceeds of $6,128.

d.	During the six months ended June 30, 2021, 234,996 stock options were exercised by employees of the Company at an average price of $1.64 per share for gross proceeds of $386.

11

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and six months ended June 30, 2022 and June 30, 2021

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

10.	SHARE CAPITAL (Continued)

10.3 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, 2020			1,934,100				3.89
Issued			2,407,304				6.64
Forfeited			(9,379	)			4.50
Exercised			(1,924,721	)			3.89
Outstanding, December 31, 2021			2,407,304				6.64
Cancelled			(412,000	)			-
Issued			5,577,778				3.84
Outstanding, June 30, 2022			7,573,082				4.23

During the six months ended June 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 six months ended June 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.

10.4 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.

A summary of the Company's directors, consultants, and employee stock options are as follows:

		Number of Options		Weighted Average Exercise Price
				C$
Outstanding, December 31, 2020			1,173,320				2.70
Issued			684,999				6.71
Exercised			(256,662	)			2.06
Outstanding, December 31, 2021			1,601,657				4.52
Issued			40,000				2.98
Forfeited			(125,004	)			-
Exercised			(66,661	)			1.40
Outstanding, June 30, 2022			1,449,992				4.46

During the six months ended June 30, 2022, the Company granted 40,000 stock options to executives and directors to purchase common shares of the Company with an exercise price of C$2.98 per common share and expiring in five years. These stock options vest over three years.

During the six months ended June 30, 2021, the Company granted 374,999 stock options to consulting firms to purchase common shares of the Company with exercise prices ranging from C$6.51 to C$9.36 per common share expiring in one to five years.

During the six months ended June 30, 2021, the Company granted 160,000 stock options to executives and directors to purchase common shares of the Company with exercise prices ranging from C$7.20 to C$7.24 per common and expiring in five years. These stock options vest over three years.

12

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and six months ended June 30, 2022 and June 30, 2021

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

10.	SHARE CAPITAL (Continued)

During the six months ended June 30, 2022, the Company recognized $24 (June 30, 2021 - $287) as stock-based compensation on the grant and vesting of options to directors, consultants and employees. The grant date fair value per option was calculated using the Black-Scholes model with the following weighted average assumptions:

		June 30, 2022		December 31, 2021
Fair value at grant date (C$)		$	1.58			$	4.20
Risk-free interest rate			2.36	%			0.42	%
Expected life of options			5 years				4 years
Annual dividend rate			0	%			0	%
Annualized volatility			96	%			90	%
Forfeiture rate			14	%			3	%

The following tables summarize information about the Company's stock options outstanding at

June 30, 2022:

		Options Outstanding		Options Exercisable		Exercise Price		Remaining Contractual Life (Years)		Expiry Date
						C$
April 4, 2018				83,333				83,333				5.25				0.76			April 4, 2023
April 26, 2018				83,333				83,333				4.35				0.82			April 26, 2023
May 29, 2018				83,333				83,333				4.35				0.91			May 29, 2023
January 17, 2019				166,666				166,666				2.40				1.55			January 17, 2024
November 15, 2019				233,333				194,445				1.50				2.38			November 15, 2024
November 28, 2019				16,666				16,666				1.56				2.42			November 28, 2024
May 4, 2020				24,999				24,999				1.20				2.84			May 4, 2025
September 18, 2020				66,666				66,666				1.43				0.22			September 18, 2022
November 23, 2020				66,664				66,664				6.15				3.40			November 23, 2025
January 12, 2021				333,333				333,333				6.51				3.54			January 11, 2026
February 1, 2021				41,666				27,775				9.36				3.59			January 31, 2026
April 27, 2021				60,000				20,000				7.24				3.82			April 26, 2026
September 24, 2021				150,000				150,000				5.86				0.24			September 23, 2022
March 31, 2022				40,000				-				5.86				4.75			March 30, 2027
Total				1,449,992				1,317,213

10.5 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.

13

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and six months ended June 30, 2022 and June 30, 2021

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

10.	SHARE CAPITAL (Continued)

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

		Number of DSUs
Outstanding, December 31, 2020			95,141
Issued			75,650
Outstanding, December 31, 2021			170,791
Issued			163,387
Outstanding, June 30, 2022			334,178

During the six months ended June 30, 2022, the Company issued 163,387 DSUs (June 30, 2021 - 6,266) to board members of the Company that vest upon the board members separation date from the Board of Directors.

During the six months ended June 30, 2022, the Company recorded $282 (June 30, 2021 - $40) as stock-based compensation for the fair value of the DSUs issued.

11.	RELATED PARTY BALANCES AND TRANSACTIONS

Key management includes 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:

		Six months ended		Six months ended
		June 30, 2022		June 30, 2021
		$		$
Salaries and benefits			664				614
Directors' fees			-				25
Stock-based compensation			442				248
			1,106				887

During the six months ended June 30, 2022 the Company paid $97 in lease payments to a company owned by a director. $88 was recognized as depreciation and interest expense on the right of use asset and lease liability respectively.

During the three months ended June 30, 2021 the Company paid $99 in lease payments to a company owned by a director. $83 was recognized as depreciation and interest expense on the right of use asset and lease liability respectively.

Balances with key management and other related parties are:

As at June 30, 2022, included in accounts payable are balances owing to key management or companies controlled by officers of the Company in the amount of $5 (June 30, 2021 - $14).

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

14

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and six months ended June 30, 2022 and June 30, 2021

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

12.	FINANCIAL INSTRUMENTS

Fair values

The Company's financial instruments include cash and cash equivalents, restricted cash, trade and other receivables, accounts payable, the credit facility, short-term loans, deferred consideration, and lease obligations. The carrying amounts of these financial instruments are a reasonable estimate of their fair values based on their current nature and current market rates for similar financial instruments. Lease obligations are classified as level 2 within the hierarchy. Deferred consideration is the only instrument measured at fair value through profit and loss in accordance with IFRS 9 - Financial Instruments.

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

		June 30, 2022		December 31, 2021
		$		$
Assets:
Measured at amortized cost (i)			12,320				7,212
Liabilities:
Amortized cost (ii)			16,512				10,284
Fair value through P&L (iii)			4,526				4,602

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

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

(iii) Deferred consideration (only financial instrument carried at fair value)

The Company classifies its fair value measurements in accordance with the three-level fair value hierarchy. The measurement is classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices), and

Level 3 - Inputs that are not based on observable market data

The carrying value amount of the Company's financial instruments that are measured at amortized cost approximates fair value due to their short-term nature and market conditions. The Company valued deferred consideration (iii) as a level 3 instrument. The Company used a probability weighted discount model to determine the fair value of the deferred consideration. Key assumptions included a discount rate of 10% and an expected maturity date of June 30, 2023 after which the Company expects the consideration milestone to have been achieved.

13.

REVENUE

The Company's revenue is summarized as follows:

		Six months ended		Six months ended
		June 30, 2022		June 30, 2021
		$		$
Bus Sales			11,819				34,869
Other revenue:
Spare part sales			3,021				1,605
Operating lease revenue			85				580
Total Revenue			14,925				37,054

15

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and six months ended June 30, 2022 and June 30, 2021

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

14.	COMMITMENTS AND CONTINGENCIES

The Company entered into a production agreement with one of its manufacturers whereby the parties have agreed to a specified production volume. The Company also has outstanding purchase order commitments related to the construction of its new manufacturing facility. Future minimum payments as at June 30, 2022 are $17,588 due no later than one year.

15.	SEGMENT INFORMATION

Allocation of revenue to geographic areas is as follows:

		Six months ended June 30, 2022		Six months ended June 30, 2021
		$		$
Canada
Bus sales			7,549				7,926
Spare part sales			2,738				1,486
Operating lease revenue			-				-
United States
Bus sales			4,270				26,943
Spare part sales			283				119
Operating lease revenue			85				580
Total			14,925				37,054

During the six months ended June 30, 2022, the Company had sales of $5,599, $4,474, and $1,581 to three end customers representing 38%, 30% and 11% of total sales, respectively. During the six months ended June 30, 2021, the Company had sales of $26,580 to one customer representing 72%of total sales.

16

Vicinity Motor Corp.

Notes to the Interim Condensed Consolidated Financial Statements

Three and six months ended June 30, 2022 and June 30, 2021

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

16.	EFFECT OF THE CHANGE IN PRESENTATION CURRENCY

The effects of the change in presentation currency discussed in Note 3 above were as follows.

a) Effect on the consolidated statement of (loss) income and comprehensive (loss) income for the three and six months ended June 30, 2021.

		For the three months		For the six months
		ended June 30, 2021		ended June 30, 2021
		USD		CAD		USD		CAD
Revenue
Bus sales			14,409				17,728				34,869				43,662
Other			1,109				1,371				2,185				2,733
			15,518				19,099				37,054				46,395
Cost of sales			(13,802	)			(16,957	)			(31,926	)			(39,925	)
Gross profit			1,716				2,142				5,128				6,470
Expenses
Sales and administration			1,570				1,925				2,980				3,707
Stock-based compensation			259				321				384				479
Amortization			138				169				272				339
Interest and finance costs			51				62				177				222
Foreign exchange loss			42				53				58				73
			2,060				2,530				3,871				4,820
Net (loss) income			(344	)			(388	)			1,257				1,650
Loss per share
Basic			(0.01	)			(0.01	)			0.04				0.06
Diluted			(0.01	)			(0.01	)			0.04				0.05
Weighted average number of common shares outstanding
Basic			29,533,518				29,533,518				29,317,831				29,317,831
Diluted			29,533,518				29,533,518				33,886,969				33,886,969

		For the three months		For the six months
		ended June 30, 2021		ended June 30,2021
		USD		CAD		USD		CAD
Net (loss) income			(344	)			(388	)			1,257				1,650
Other comprehensive income items that may be reclassified subsequently to net (loss) income
Exchange differences on translation of foreign operations			248				(8	)			457				(47	)
Total other comprehensive (loss) income			248				(8	)			457				(47	)
Total comprehensive (loss) income			(96	)			(396	)			1,714				1,603

17