What changed in this filing

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Item 9A. Controls and Procedures

2022-03-01 compared with 2021-03-31 · 289 added, 1834 removed, 56 unchanged (97% of the section changed)

Controls and Procedures.

(a) Evaluation of

Disclosure Controls and Procedures

We maintain disclosure

controls and procedures (as defined in paragraph (e) of Rules 13a-15 and 15d-15 under the Exchange Act) designed to ensure that

the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized

and reported within the time periods specified under the rules and forms of the SEC.

Disclosure controls and procedures include,

without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management,

including our Chief Executive Officer (our principal executive officer and principal financial officer), as appropriate to allow

timely decisions regarding required disclosures.

As required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act,

our Chief Executive Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls

Conclusions Regarding the Effectiveness of Disclosure Controls

and Procedures

We maintain disclosure controls and procedures

(as defined in paragraph (e) of Rules 13a-15 and 15d-15 under the Exchange Act) designed to ensure that the information we are required

to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods

specified under the rules and forms of the SEC.

Disclosure controls and procedures include, without limitation, controls and procedures

designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer (our

principal executive officer) and our Chief Financial Officer (our principal financial officer), as appropriate to allow timely decisions

regarding required disclosures.

As required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer

and our Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls

and procedures as of December 31, 2021.

Based on this evaluation, including the

presence of material weaknesses as discussed below, our Chief Executive Officer concluded that our disclosure controls and procedures

Management excluded its wholly-owned subsidiary, World Energy Efficiency Services, LLC from its

assessment of internal control over financial reporting as of December 31, 2021 because this entity was acquired by the Company in purchase

business combination during 2021.

Based on this evaluation, including the presence of material weaknesses

as discussed below, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures

were not effective at the reasonable assurance level as of December 31, 2021.

(b) Management’s

Report on Internal Controls over Financial Reporting

Our management is responsible

for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules

13a-15(f) and 15d-15(f).

Internal control over financial reporting refers to the process designed by, or under the supervision

of, our principal executive officer and principal financial officer, and effected by our board of directors, management and other

personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements

for external purposes in accordance with generally accepted accounting principles.

Internal control over financial reporting

cannot provide absolute assurance of achieving their objectives.

Internal control over financial reporting is a process that

involves human diligence and compliance and is subject to lapses in judgement and breakdowns resulting from human failures.

their inherent limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by

internal control over financial reporting.

It is possible to design safeguards to reduce, but not eliminate, this risk.

is responsible for establishing and maintaining adequate internal control over financial reporting for our company.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all

misstatements or fraud.

Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide

only reasonable, not absolute, assurance that its objectives will be met.

Management has used

the framework set forth in the report entitled Internal Control—Integrated Framework published by the Committee of Sponsoring

Organizations of the Treadway Commission (2013 framework), known as COSO, to evaluate the effectiveness of our internal control

over financial reporting.

As a private company,

we had not been required to document and test our internal controls over financial reporting nor had management been required to

certify the effectiveness of our internal controls and our auditors had not been required to opine on the effectiveness of our

internal control over financial reporting.

Similarly, we had not been subject to the SEC’s internal control reporting requirements.

Following the Business Combination, we became subject to these requirements.

In the course of

preparing the Company’s financial statements, we have identified material

weaknesses in internal control over financial reporting, which relate to insufficient technical accounting resources and lack of

segregation of duties.

A material weakness

is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility

that a material misstatement of its financial statements would not be prevented or detected on a timely basis.

These deficiencies

could result in misstatements to our financial statements that would be material and would not be prevented or detected on a timely

Our management has concluded that these

material weaknesses in our internal control over financial reporting are due to the fact that, prior to this Annual Report on Form

10-K, we were a private company with limited resources.

We did not have the necessary business processes and related internal

controls, or the appropriate resources or level of experience and technical expertise, that would be required to oversee financial

reporting processes or to address the accounting and financial reporting requirements.

Our management has prepared a remediation

plan instituted in 2021 that involves hiring additional qualified personnel, further documentation and implementation of control

procedures and the implementation of control monitoring.

The material weaknesses will not be considered fully remediated until these

additional controls and procedures have operated effectively for a sufficient period of time and management has concluded, through

testing, that these controls are effective.

Our management will monitor the effectiveness of our remediation plans and will make

changes management determines to be appropriate.

If not remediated, these

material weaknesses could result in material misstatements to our annual or interim financial statements that would not be prevented

or detected on a timely basis, or in delayed filing of required periodic reports.

If we are unable to assert that our internal control

over financial reporting is effective, or when required in the future, if our independent registered public accounting firm is unable

to express an unqualified opinion as to the effectiveness of the internal control over financial reporting, investors may lose confidence

in the accuracy and completeness of our financial reports, the market price of our Common Stock could be adversely affected and we could

become subject to litigation or investigations by the NYSE, the SEC or other regulatory authorities, which could require additional financial

and management resources.

Notwithstanding the identified

material weaknesses, management believes that the consolidated financial statements included in this Annual Report on Form 10-K present

fairly, in all material respects, our financial position, results of operations, and cash flows as of and for the periods present in accordance

This Annual Report

on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial

Management’s report was not subject to attestation by our registered public accounting firm pursuant to the Dodd-Frank

Wall Street Reform and Consumer Protection Act, which permits us to provide only management’s report in this Annual Report

on Form 10-K.

Control over Financial Reporting

As discussed above,

we are implementing certain measures to remediate the material weaknesses identified in the design and operation of our internal

Notwithstanding the identified material weaknesses,

management believes that the consolidated financial statements included in this Annual Report on Form 10-K present fairly, in all material

respects, our financial position, results of operations, and cash flows as of and for the periods present in accordance with U.S.

In designing and evaluating our disclosure controls and procedures,

management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable

assurance of achieving the desired control objectives.

In addition, the design of disclosure controls and procedures must reflect the

fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible

controls and procedures relative to their costs.

Material Weaknesses in Internal Control over Financial Reporting

A material weakness is a deficiency or combination of deficiencies

in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of its financial

statements would not be prevented or detected on a timely basis.

These deficiencies could result in misstatements to our financial statements

that would be material and would not be prevented or detected on a timely basis.

In the course of preparing the financial statements for the year ended

December 31, 2021, we identified separate material weaknesses in internal control over financial reporting, which relates to the ineffective

design and implementation of Information Technology General Controls (“ITGC”) combined with the lack of properly designed

management review controls to compensate for these deficiencies.

The Company’s ITGC deficiencies included improperly designed controls

pertaining to user access rights and segregation of duties over systems that are critical to the Company’s system of financial reporting.

The Company’s management review controls include the review and approval of journal entries, account reconciliations, accounting

estimates, and other technical accounting matters.

The Company did not maintain sufficient evidence of certain of these review control

The ITGC deficiencies, combined with a lack of properly designed and implemented management review controls to compensate

for these deficiencies, represent material weaknesses in the Company’s internal control over financial reporting as there is a reasonable

possibility that a material misstatement with respect to the Company’s significant accounts and disclosures will not be prevented

or detected on a timely basis.

Remediation Plan

Our management is in the process of developing

a remediation plan.

As of December 31, 2020, we had identified material weaknesses in internal control over financial reporting that related

to the accounting for equity instruments, insufficient technical accounting resources and lack of segregation of duties.

we took steps to remediate these weaknesses through, among other things, (1) the hiring of a Chief Financial Officer;

(2) the hiring of

a Certified Public Accountant as the controller who had experience with public company reporting and technical accounting;

(3) the hiring

of a Senior Director of SOX Compliance with experience in internal control environments and design;

(4) hiring third party professionals

to perform a comprehensive assessment of the Company’s internal controls, including design and gap assessments;

and (5) the hiring

of additional finance personnel to enable processes with appropriate segregation of duties.

The material weaknesses will not be considered remediated until management designs and implements effective controls

that operate for a sufficient period of time and management has concluded, through testing, that these controls are effective.

Our management

will monitor the effectiveness of our remediation plans and will make changes management determines to be appropriate.

While we believe that these efforts will improve our internal controls

over financial reporting, the implementation of these measures is ongoing and will require validation and testing of the design and operating

effectiveness of internal controls over a sustained period of financial reporting cycles.

We believe we are making progress toward achieving the effectiveness

of our internal controls and disclosure controls.

The actions that we are taking are subject to ongoing management review, as well as

audit committee oversight.

We will not be able to conclude whether the steps we are taking will fully remediate these material weaknesses

in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness.

We will continue to assess the effectiveness of our internal control over financial reporting and take steps to remediate the known material

weaknesses expeditiously.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Shareholders and Board of Directors of

XL Fleet Corp.

and Subsidiaries

Adverse Opinion on Internal Control over

Financial Reporting

We have audited XL Fleet Corp.

and Subsidiaries’

(the "Company") internal control over financial reporting as of December 31, 2021, based on criteria established in Internal

Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion,

because of the effect of the material weaknesses described in the following paragraph on the achievement of the objectives of the control

criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2021, based on criteria

established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway

A material weakness is a control deficiency, or combination

of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement

of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weaknesses

have been identified and included in “Management's Annual Report on Internal Control Over Financial Reporting”:

Company has not established an effective control environment due to the ineffective design and implementation of Information Technology

General Controls (“ITGC”) and management review controls.

The Company’s ITGC deficiencies included improperly designed

controls pertaining to user access rights and segregation of duties over systems that are critical to the Company’s system of financial

The Company’s management review controls include the review and approval of journal entries, account reconciliations,

accounting estimates, and other technical accounting matters.

The Company did not maintain sufficient evidence of these review control

The ITGC deficiencies, combined with a lack of properly designed management review controls to compensate for these deficiencies,

represent a material weakness in the Company’s internal control over financial reporting as there is a reasonable possibility that

a material misstatement with respect to the Company’s significant accounts and disclosures will not be prevented or detected on

a timely basis.

These material weaknesses were considered in determining

the nature, timing and extent of audit tests applied in our audit of the fiscal 2021 consolidated financial statements, and this report

does not affect our report dated March 1, 2022 on those financial statements.

We have also audited, in accordance with the

standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets as of

December 31, 2021 and 2020and the related consolidated statements of operations, shareholders’ equity (deficit), and cash flows

for each of the three years in the period ended December 31, 2022 of the Company and our report dated March 1, 2022 expressed an unqualified

opinion on those financial statements.

Explanatory Paragraph – Excluded Subsidiary

As described in “Management Annual Report

on Internal Control Over Financial Reporting,” management has excluded its wholly owned subsidiary, World Energy Efficiency Services,

LLC, from its assessment of internal control over financial reporting as of December 31, 2021 because this entity was acquired by the

Company in purchase business combinations during 2021.

We have also excluded World Energy Efficiency Services, LLC from our audit of internal

control over financial reporting.

Other than those measures, there have been no changes in our internal control over financial

reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31,

2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

This subsidiary’s total assets and total revenues represent approximately 1% and 82%, respectively,

of the related consolidated financial statement amounts as of and for the year ended December 31, 2021.

Basis for Opinion

The Company's management is responsible for

maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over

financial reporting, included in the accompanying "Management Annual Report on Internal Control Over Financial Reporting." Our

responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We are a public

accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards

of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal

control over financial reporting was maintained in all material respects.

Our audit of internal control over financial reporting included

obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing

and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing

such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control

over Financial Reporting

A company's internal control over financial reporting

is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial

statements for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial

reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately

and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions

are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and

that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition

of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations, internal

control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future

periods are subject to the risk that controls may become inadequate because of changes in conditions, or that degree of compliance with

the policies or procedures may deteriorate.

March 1, 2022

Changes in Internal Control over Financial Reporting

As discussed above, we are implementing certain measures to remediate

the material weakness identified in the design and operation of our internal control over financial reporting.

Other than those measures,

there have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)

under the Exchange Act) during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially

affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Internal control over financial reporting cannot provide absolute

assurance of achieving their objectives.

Internal control over financial reporting is a process that involves human diligence and compliance

and is subject to lapses in judgement and breakdowns resulting from human failures.

Due to their inherent limitations, there is a risk

that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.

It is possible

to design safeguards to reduce, but not eliminate, this risk.

Management is responsible for establishing and maintaining adequate internal

control over financial reporting for our company.

Because of its inherent limitations, internal control over financial reporting may

not prevent or detect all misstatements or fraud.

Any control system, no matter how well designed and operated, is based upon certain

assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met.

Other Information.

Directors, Executive Officers,

and Corporate Governance.

The information required

by this Item and not set forth below will be set forth in the section headed “—

Election of Directors ”

Information Regarding the Board of Directors and Corporate Governance ”

in our definitive Proxy Statement

for our 2021 Annual Meeting of Stockholders to be filed with the SEC on or before April 29, 2021 (our “Proxy Statement”)

and is incorporated in this report by reference.

We have adopted a code

of ethics for directors, officers (including our principal executive officer) and employees, known as Our Corporate Code of Conduct

and Ethics and Whistleblower Policy.

A copy of Our Corporate Code of Conduct and Ethics and Whistleblower Policy is available on

our website at www.xlfleet.com under the Governance, Documents and Charters section of our Investors page.

Directors, Executive Officers, and Corporate Governance.

The information required by this Item will be

set forth in the section headed “Directors, Executive Officers and Corporate Governance” in our Proxy Statement and is incorporated

in this report by reference.

have adopted a code of ethics for directors, officers (including our principal executive officer) and employees, known as Our Corporate

Code of Conduct and Ethics and Whistleblower Policy.

A copy of Our Corporate Code of Conduct and Ethics and Whistleblower Policy is available

on our website at www.xlfleet.com under the Governance, Documents and Charters section of our Investors page.

We will promptly disclose

on our website (i) the nature of any amendment to the policy that applies to our principal executive officer or persons performing

similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted

to one of these specified individuals, the name of such person who is granted the waiver and the date of the waiver.

on our website (i) the nature of any amendment to the policy that applies to our principal executive officer or persons performing similar

functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted to one of these

specified individuals, the name of such person who is granted the waiver and the date of the waiver.

Executive Compensation.

The information required

by this Item will be set forth in the section headed “

Executive Compensation ”

in our Proxy Statement and is

incorporated in this report by reference.

Security Ownership of Certain

Beneficial Owners and Management and Related Shareholder Matters.

The information required

by this Item will be set forth in the section headed “

Security Ownership of Certain Beneficial Owners and Management ”

in our Proxy Statement and is incorporated in this report by reference.

Information regarding

our equity compensation plans will be set forth in the section headed “

Executive Compensation ”

Statement and is incorporated in this report by reference.

Certain Relationships and Related

Transactions, and Director Independence.

The information required

by this Item will be set forth in the section headed “

Certain Relationships and Related Person Transactions ”

in our Proxy Statement and is incorporated in this report by reference.

Principal Accounting Fees and

The information required

by this Item will be set forth in the section headed “—

Ratification of Selection of Independent Registered Public

Accounting Firm ”

The information required by this Item will be

set forth in the section headed “ Executive Compensation ” in our Proxy Statement and is incorporated in this report

by reference.

Security Ownership of Certain Beneficial Owners and Management

and Related Shareholder Matters.

The information required by this Item will be

set forth in the section headed “ Security Ownership of Certain Beneficial Owners and Management ” in our Proxy Statement

and is incorporated in this report by reference.

Information regarding our equity compensation

plans will be set forth in the section headed “ Executive Compensation ” in our Proxy Statement and is incorporated

in this report by reference.

Certain Relationships and Related Transactions, and Director

Independence.

The information required by this Item will be

set forth in the section headed “ Certain Relationships and Related Person Transactions ” in our Proxy Statement and

is incorporated in this report by reference.

Principal Accounting Fees and Services.

The information required by this Item will be

set forth in the section headed “— Ratification of Selection of Independent Registered Public Accounting Firm ”

in our Proxy Statement and is incorporated in this report by reference.

Exhibits, Financial Statement

(a) Documents

filed as part of this report.

The following financial

statements of XL Fleet Corp.

Exhibits, Financial Statement Schedules.

(a) Documents filed as part of this report.

The following financial statements of XL Fleet

and Report of Marcum LLP, Independent Registered Public Accounting Firm, are included in this report:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Changes in Stockholders’

Equity (Deficit)

Consolidated Statements of Cash Flows

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019

Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the Years Ended December 31, 2021, 2020 and 2019

Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019

Notes to Consolidated Financial Statements

List of financial

statement schedules:

All schedules have been omitted because

they are not applicable or the required information is shown in the financial statements or notes thereto.

List of Exhibits required by Item

601 of Regulation S-K.

List of financial statement schedules:

All schedules have been omitted because they

are not applicable or the required information is shown in the financial statements or notes thereto.

List of Exhibits required by Item 601 of Regulation

See part (b) below.

(b) Exhibits.

and Plan of Reorganization, dated as of September 17, 2020, by and among Pivotal Investment Corporation II, PIC II Merger

Agreement and Plan of Reorganization, dated as of September 17, 2020, by and among Pivotal Investment Corporation II, PIC II Merger Sub Corp.

and XL Hybrids, Inc.

December 4, 2020

Amended and Restated Certificate of Incorporation.

Second Amended and Restated Certificate of Incorporation.

December 23, 2020

and Restated Bylaws.

Amended and Restated Bylaws.

December 23, 2020

Common Stock Certificate.

Specimen Common Stock Certificate.

December 23, 2020

Warrant Certificate.

Specimen Warrant Certificate.

December 23, 2020

Agreement, dated as of July 11, 2019, between Continental Stock Transfer & Trust Company and the Registrant.

Warrant Agreement, dated as of July 11, 2019, between Continental Stock Transfer & Trust Company and the Registrant.

July 16, 2019

1 unchanged sentence

and MOTIV Partners LLC.

March 31, 2021

Amendment to Warrant Agreement, dated as of December 15, 2020, between XL Hybrids, Inc.

and MOTIV Partners LLC.

March 31, 2021

Description of Registered Securities

Agreement, dated as of July 19, 2019, by and between XL Hybrids, Inc.

March 31, 2021

Supply Agreement, dated as of July 19, 2019, by and between XL Hybrids, Inc.

and Parker-Hannifin Corporation.

November 10, 2020

Agreement, dated as of September 30, 2019, by and between XL Hybrids, Inc.

and Dimitri N.

October 2, 2020

Hybrids, Inc.

XL Hybrids, Inc.

2010 Equity Incentive Plan, including form of stock option agreement and form of restricted stock agreement.

October 2, 2020

of Subscription Agreement.

Form of Subscription Agreement.

September 18, 2020

Rights Agreement.

Registration Rights Agreement.

October 2, 2020

1 unchanged sentence

October 2, 2020

of Letter Agreement from each of the Registrant’s initial shareholders, officers and directors.

Form of Letter Agreement from each of the Registrant’s initial shareholders, officers and directors.

June 13, 2019

1 unchanged sentence

2020 Equity Incentive Plan.

March 31, 2021

XL Fleet Corp.

2020 Equity Incentive Plan Form of Stock Option Agreement.

December 23, 2020

XL Fleet Corp.

2020 Equity Incentive Plan Form of Restricted Stock Unit Agreement.

December 23, 2020

Form of Indemnification Agreement between the Registrant and each officer and director.

December 23, 2020

Executive Employment Agreement dated as of November 1, 2021, by and

between XL Fleet Corp.

and Eric Tech

November 1, 2021

Employment Agreement for James Berklas, dated November 4, 2021

November 10, 2021

Amended and Restated Corporate Code of Conduct and Ethics and Whistleblower Policy.

December 23, 2020

Subsidiaries of the Registrant.

December 23, 2020

Consent of Marcum LLP, independent registered public accounting firm

Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C.

Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Principal Executive Officer Pursuant to 18 U.S.C.

Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Instance Document

Taxonomy Extension Schema Document

Taxonomy Extension Calculation Linkbase Document

Taxonomy Extension Definition Linkbase Document

Taxonomy Extension Label Linkbase Document

Taxonomy Extension Presentation Linkbase Document

Page Interactive Data File

Filed herewith

Schedule and exhibits to this exhibit omitted pursuant to Regulation S-K Item 601(b)(2).

The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.

Certain confidential portions of this exhibit were omitted by means of marking such portions with asterisks because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

Indicates management contract or compensatory plan or arrangement.

In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No.

34-47986, the certification furnished in Exhibits 32.1 hereto is deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed”

for purposes of Section 18 of the Exchange Act or deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act of 1933 except to the extent that the registrant specifically incorporates it by reference.

Certification of Principal Financial Officer Pursuant to 18 U.S.C.

1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Taxonomy Extension Label Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

Cover Page Interactive Data File

and exhibits to this exhibit omitted pursuant to Regulation S-K Item 601(b)(2).

The Company agrees to furnish supplementally a copy of

any omitted schedule or exhibit to the SEC upon request.

confidential portions of this exhibit were omitted by means of marking such portions with asterisks because the identified confidential

portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

management contract or compensatory plan or arrangement.

accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No.

34-47986, the certifications furnished in Exhibits 32.1 and

32.2 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for purposes of Section

18 of the Exchange Act or deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act of 1933

except to the extent that the registrant specifically incorporates it by reference.

Form 10-K Summary.

Not applicable

In accordance with

Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf

by the undersigned, thereunto duly authorized.

XL FLEET CORP.

In accordance with Section 13 or 15(d) of the

Exchange Act, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto

duly authorized.

March 1, 2022

/s/ Dimitri N.

Chief Executive Officer

(Principal Executive Officer)

POWER OF ATTORNEY

KNOW ALL PERSONS BY

THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dimitri N.

Kazarinoff and Thomas J.

III, and each of them or his attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign

any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection

therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact,

or his substitutes, may do or cause to be done by virtue of hereof.

In accordance with

the Exchange Act, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and

in the capacities and on the dates indicated.

/s/ Dimitri N.

Chief Executive Officer

March 1, 2022

(Principal Executive Officer and Principal Financial Officer and Principal Accounting Officer)

/s/ Thomas J.

President and Director

March 31, 2021

/s/ Debora M.

Director and Chair of the Board

March 31, 2021

/s/ Declan P.

March 31, 2021

/s/ Kevin Griffin

March 31, 2021

Chris Goldner

Interim Chief Financial

(Principal Financial Officer and

Principal Accounting Officer)

Director and Chief Executive

(Principal Executive Officer)

Chris Goldner

Interim Chief Financial

Chris Goldner

(Principal Financial Officer

and Principal Accounting Officer)

and Chair of the Board

Kevin Griffin

/s/ Christopher Hayes

March 31, 2021

Kevin Griffin

Christopher Hayes

/s/ Jonathan J.

March 31, 2021

/s/ Niharika Ramdev

March 31, 2021

Christopher Hayes

Niharika Ramdev

/s/ Sarah Sclarsic

March 31, 2021

Niharika Ramdev

Sarah Sclarsic

XL Fleet Corp.

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Operations for the Years Ended December 31, 2020

Consolidated Statement of Changes in Stockholders’

Equity (Deficit)

for the Years Ended December 31, 2020 and 2019

Consolidated Statements of Cash Flows for the Years Ended December 31, 2020

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Shareholders and Board of Directors of

XL Fleet Corp.

and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying

consolidated balance sheets of XL Fleet Corp.

and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related

consolidated statements of operations, changes in stockholders’

equity (deficit) and cash flows for each of the two years in the

period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion,

the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019,

and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with

accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are

the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based

on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance

with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether

the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were

we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal

control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing

procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the

financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management,

as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for

/s/ Marcum llp

We have served as the Company’s auditor since 2020 .

March 31, 2021

XL Fleet Corp.

Consolidated Balance Sheets

December 31, 2020 and December 31, 2019

(In thousands, except share and per share amounts)

Current assets:

Cash and cash equivalents

Restricted cash

Accounts receivable

Inventory, net

Prepaid expenses and other current assets

Total current assets

Property and equipment, net

Intangible assets, net

Liabilities and stockholders’

equity (deficit)

Current liabilities:

Current portion of long-term debt, net of debt discount and issuance costs

Subordinated convertible promissory notes

Convertible debt derivative liability

Accounts payable

Accrued expenses and other current liabilities

Total current liabilities

Long-term debt, net of current portion

Deferred revenue

Contingent consideration

New market tax credit obligation (1)

Total liabilities

Commitments and contingencies (Note 17)

Stockholders’

equity (deficit)

Common stock, $0.0001 par value;

350,000,000 and 130,000,000 shares authorized at December

31, 2020 and 2019, respectively;

131,365,171 and 80,400,727 issued and outstanding at December 31, 2020 and 2019, respectively

Additional paid-in capital

Accumulated deficit

Total stockholders’

equity (deficit)

Total liabilities and stockholders’

equity (deficit)

(1) Held by variable interest entity

See notes to consolidated financial statements.

XL Fleet Corp.

Consolidated Statements of Operations

For the Years Ended December 31, 2020 and 2019

(In thousands, except per share and share amounts)

Cost of revenues

Operating expenses:

Research and development

Selling, general, and administrative expenses

Loss from operations

Other (income) expense:

Interest expense, net

Loss on extinguishment of debt

Change in fair value of convertible notes payable derivative liabilities

Net loss per share, basic and diluted

Weighted-average shares outstanding, basic and diluted

See notes to consolidated financial statements.

XL Fleet Corp.

Consolidated Statements of Changes in Stockholders’

For the Years Ended December 31, 2020 and 2019

(In thousands, except share amounts)

Stockholders’

Balance at January 1, 2020

Exercise of stock options

Exercise of warrants

Stock-based compensation expense

Conversion of convertible debt

Issuance of restricted stock

PIC shares recapitalized, net of issuance costs

Shares issued in offering, net of issuance costs

Balance at December 31, 2020

Stockholders’

Balance at January 1, 2019

Issuance of restricted stock

Exercise of stock options

Issuance of stock in asset acquisition

Issuance of warrants

Stock-based compensation expense

Stockholder distribution

Balance at December 31, 2019

See notes to consolidated financial statements.

XL Fleet Corp.

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2020 and 2019

(In thousands)

Operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation

Bad debt expense

Depreciation and amortization expense

Contingent consideration

Fair value change of derivative liability

Loss on extinguishment of debt

Debt discount

Changes in operating assets and liabilities:

Accounts receivable

Inventory, net

Prepaid expenses and other current assets

Accounts payable

Accrued expenses and other current liabilities

Deferred revenue

Net cash used in operating activities

Investing activities:

Purchases of property and equipment

Net cash used in investing activities

Financing activities:

Proceeds from the issuance of subordinated convertible promissory notes

Repayments to the issuance of subordinated convertible promissory notes

Proceeds from paycheck protection program

Repayments to paycheck protection program

Proceeds from debt

Repayments of debt

Repayment of contingent consideration

Repayments of revolving line of credit

Proceeds from revolving line of credit

Proceeds from recapitalization of PIC shares, net of issuance costs

Proceeds from issuance of common stock, net of issuance costs

Payment of issuance costs in connection with term loans and revolving line of credit

Proceeds from exercise of stock options

Stockholder distribution

Proceeds from exercise of warrants

Net cash provided by financing activities

Net increase/(decrease) in cash and cash equivalents and restricted cash:

Cash and cash equivalents and restricted cash, beginning of period

Cash, cash equivalents, and restricted cash at end of year

Supplemental disclosure of cash flow information:

Cash paid for interest

Supplemental disclosures of noncash investing and financing information:

Issuance of warrants

Contingent and deferred consideration issued in connection with business combination

Issuance of stock in asset acquisition

Issuance costs in accrued expenses

Conversion of convertible debt

Retrospective recapitalization of stockholders’

Reduce derivative liability for extinguishment of convertible notes payable

Increase derivative liability for issuance of convertible notes payable

Reduce derivative liability for the conversion and repayment of

the convertible notes payable

See notes to consolidated financial statements.

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Organization, Description of Business and Liquidity

Description of Business:

and its subsidiaries (“XL Fleet”

or the “Company”) is a leading provider of fleet electrification

solutions for commercial vehicles in North America, with over 4,300 electrified powertrain systems sold and driven over 140 million

miles by over 200 fleets, as of December 31, 2020.

XL Fleet’s vision is to become the world leader in fleet electrification solutions, with a mission

of accelerating the adoption of fleet electrification systems through cost effective, customer tailored and comprehensive solutions.

Merger and Organization:

On December 21, 2020 (the “Closing

Date”), privately held XL Hybrids, Inc., a Delaware corporation, (“Legacy XL”) consummated the merger pursuant

to that certain Agreement and Plan of Reorganization, dated as of September 17, 2020 (the “Merger Agreement”), by and

among Pivotal Investment Corporation II (“Pivotal”), PIC II Merger Sub Corp., a Delaware corporation and wholly owned

subsidiary of Pivotal (“Merger Sub”), and Legacy XL.

Pursuant to the terms of the Merger Agreement, a business combination

between Legacy XL and Pivotal was effected through the merger of Merger Sub with and into Legacy XL, with Legacy XL surviving as

a wholly-owned subsidiary of Pivotal (the “Merger”

and, collectively with the other transactions described in the Merger

Agreement, the “Business Combination”).

On the Closing Date, and in connection with the closing of the Business Combination

(the “Closing”), Pivotal Investment Corporation II changed its name to XL Fleet Corp.

(“XL Fleet Corp.”)

(See Note 3).

COVID-19 Worldwide Pandemic:

On March 11, 2020, the World

Health Organization characterized the outbreak of the novel coronavirus (“COVID-19”) as a global pandemic and recommended

containment and mitigation measures.

Since then, extraordinary actions have been taken by international, federal, state, and local

public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the

These actions include travel bans, quarantines, “stay-at-home”

orders, and similar mandates for many individuals

to substantially restrict daily activities and for many businesses to curtail or cease normal operations.

Consistent with the actions taken by governmental authorities, the

Company has taken appropriately cautious steps to protect its workforce and support community efforts.

As part of these efforts,

and in accordance with applicable government directives, the Company initially implemented work from home policies where practical

at its facilities in late March 2020.

Starting late March 2020, approximately 40 of its employees were able to complete their duties

from home, which enabled much critical work to continue.

The remaining 19 members of its workforce were unable to perform their

normal duties from home.

In April 2020, the Company resumed limited operations under revised operational and manufacturing plans

that conform to the latest COVID-19 health precautions.

This includes universal facial covering requirements, rearranging facilities

to follow social distancing protocols, conducting regular temperature checks and undertaking regular and thorough disinfecting

of surfaces and tools.

However, the COVID-19 pandemic and the continued precautionary actions taken related to COVID-19 have adversely

impacted, and are expected to continue to adversely impact, its operations, its contractors and the automotive original equipment

manufacturers.

The Company has experienced, and expects to continue to experience,

reduced operations and production line shutdowns at vehicle OEMs due to COVID-19, limitations on travel by the Company’s

personnel and personnel of the Company’s customers, and future delays or shutdowns of vehicle OEMs or the Company’s

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Organization, continued

The COVID-19 pandemic and the protocols and procedures the Company

has implemented in response to the pandemic have caused some delays in operational activities.

The full impact of the COVID-19

pandemic on its business and results of operations subsequent to December 31, 2020 will depend on future developments, such as

the ultimate duration and scope of the outbreak and its impact on its operations and impact on its customers and industry partners.

The Company believes its cash and cash equivalents

on hand at December 31, 2020 and management’s operating plan, will provide sufficient liquidity to fund its operations for at least

the next twelve months from the issuance of these financial statements.

Summary of Significant Accounting Policies

Basis of consolidated financial statement presentation:

financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”).

The accompanying consolidated financial statements of the Company include the accounts of its wholly owned subsidiaries

and variable interest entities, for which the Company is the primary beneficiary.

Because the Company holds certain rights that

provide the power to direct the activities of variable interests that most significantly impact the VIE economic performance, as

well as to potentially receive benefits or the obligation to absorb potentially significant losses, the Company has a controlling

interest in such VIEs.

See Note 9, “New Markets Tax Credit,”

for the discussion of financing arrangements involving

certain entities that are variable interest entities that are included in these consolidated financial statements.

All significant

intercompany transactions have been eliminated in consolidation.

Emerging Growth Company:

Section 102(b)(1) of the Jumpstart

Our Business Startups Act (“JOBS Act”) exempts emerging growth companies from being required to comply with new or revised

financial accounting standards until private companies (that is, those that have not had a Securities Act of 1933 registration

statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended)

are required to comply with the new or revised financial accounting standards.

The JOBS Act provides that a company can elect to

opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any

such election to opt out is irrevocable.

The Company has elected not to opt out of such extended transition period which means

that when a standard is issued or revised and it has different application dates for public or private companies, the Company,

as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard,

until such time the Company is no longer considered to be an emerging growth company.

At times, the Company may elect to early

adopt a new or revised standard.

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Summary of Significant Accounting Policies, continued

Use of estimates:

The preparation of financial statements

in conformity with U.S.

GAAP requires management to make certain estimates and assumptions that affect the reported amounts of

assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts

of expenses during the reporting period.

The Company’s most significant estimates and judgments involve deferred income taxes,

valuation of share-based compensation, including the fair value of common stock, the valuation of the convertible notes payable

derivative liability, and the valuation of business combinations, including the fair values and useful lives of acquired assets

and assumed liabilities and the fair value of purchase consideration.

Management bases its estimates on historical experience and

on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying

values of assets and liabilities.

Actual results could differ from those estimates, and such differences could be material to the

Company’s financial statements.

Segment information:

ASC 280, Segment Reporting, defines

operating segments as components of an enterprise where discrete financial information is available that is evaluated regularly

by the chief operating decision-maker (“CODM”) in deciding how to allocate resources and in assessing performance.

XL operates a single integrated business operation for the purpose of providing electrification systems for the owners of vehicles.

XL’s Chief Executive Officer (“CEO”) is the CODM of the Company.

The CODM is provided financial and operating

information for the integrated business as a whole.

Upon receipt of such information, the CODM evaluates and manages the operations

based upon such integrated information, and the CODM utilizes this integrated information for purposes of allocating resources

and evaluating XL’s financial performance.

The CODM uses cash flows as the primary measure to manage the business and does

not segment the business for internal reporting or decision making.

Based upon this information, the Company has concluded that

it should report its operations as a single segment.

Concentration of Credit Risk:

Financial instruments which

potentially subject the Company to concentrations of credit risk consist of cash and trade receivables.

At times, such cash may

be in excess of the FDIC limit.

At December 31, 2020 and 2019, the Company had cash in excess of the $250 federally insured limit.

The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.

With respect to trade receivables, the Company routinely assesses

the financial strength of its customers and, as a consequence, believes that the receivable credit risk exposure is limited.

of December 31, 2020, one customer accounted for approximately 82% of accounts receivable.

In 2019, two customers accounted for

approximately 64% of accounts receivable.

For the years ended December 31, 2020 and 2019, one customer and two customers accounted

for approximately 68% and 65% of revenues, respectively.

Cash and cash equivalents:

The Company considers all highly

liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents.

Cash and cash equivalents

include cash held in banks and money market accounts.

Cash equivalents are carried at cost, which approximates fair value due to

their short-term nature.

The Company’s cash and cash equivalents are placed with high-credit quality financial institutions

and issuers, and at times exceed federally insured limits.

To date, the Company has not experienced any credit loss relating to

its cash and cash equivalents.

Restricted cash:

Restricted cash held at both December 31,

2020 and 2019, consists of bank deposits required for a letter of credit which is reserved for the Company’s California lease.

Accounts receivable:

Accounts receivable are stated at the

gross invoice amount, net of an allowance for doubtful accounts.

The allowance for doubtful accounts is maintained at a level considered

adequate to provide for potential account losses on the balance based on management’s evaluation of the anticipated impact

of current economic conditions, changes in the character and size of the balance, past and expected future loss experience, among

other pertinent factors.

As of December 31, 2020 and 2019, the Company recorded an allowance of doubtful accounts of $0.

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Summary of Significant Accounting Policies, continued

Inventory is comprised of raw materials, work in

process and finished goods.

Inventory is stated at the lower of cost (determined using the weighted-average cost method) or net

realizable value.

Cost of raw material inventories include the purchase and related costs incurred in bringing the products to their

present location and condition.

The Company uses consistent methodologies to evaluate inventory for net realizable value and

periodically reviews inventories for obsolescence and any inventories identified as slow moving or obsolete are initially reserved

for and then written-off.

As of December 31, 2020 and 2019, the Company’s inventory reserve for obsolescence was $58 and

$248, respectively.

Fair value measurements:

ASC 820, Fair Value Measurements

and Disclosures, clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or

paid to transfer a liability in an orderly transaction between market participants.

As such, fair value is a market-based measurement

that should be determined based upon assumptions that market participants would use in pricing an asset or liability.

for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring

fair value as follows:

Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company can access at the measurement date.

Significant other observable inputs other than level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data.

Significant unobservable inputs that reflect the Company’s judgment about the assumptions that market participants would use in pricing an asset or liability.

An asset’s or liability’s fair value measurement

level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Assets and liabilities measured at fair value are based on one or

more of the following three valuation techniques noted in ASC 820:

Prices and other relevant information generated by market transactions involving identical or comparable assets

or liabilities.

Amount that would be required to replace the service capacity of an asset (replacement cost).

Techniques to convert future amounts to a single present value amount based upon market expectations (including

present value techniques, option pricing and excess earnings models).

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Summary of Significant Accounting Policies, continued

The Company believes its valuation methods are appropriate and consistent

with other market participants, however the use of different methodologies or assumptions to determine the fair value of certain

financial instruments could result in a different fair value measurement at the reporting date.

The Company’s financial instruments consist of cash and cash

equivalents, accounts receivable, accounts payable, accrued liabilities, contingent consideration liability, term loan and revolver

debt, convertible notes payable derivative liability, and convertible notes payable.

The carrying value of cash and cash equivalents,

accounts receivable, accounts payable, and accrued expenses approximates fair value because of the short-term nature of those instruments.

The fair value of the Company’s revolving line of credit and term loan are based on

current lending rates for similar borrowings, assuming the debt is outstanding through maturity, and considering the collateral

and as a result approximate their fair values.

The Company estimates the fair value of its convertible notes payable using

level two and level three inputs by discounting the future cash flows using current interest rates at which it could obtain similar

borrowings in consideration of the estimated enterprise value of the Company.

Prepaid expenses and other current assets:

Prepaid expenses

and other current assets include prepaid insurance, prepaid rent, and supplies, which are expected to be recognized or realized

within the next 12 months.

Property and equipment, net:

Property and equipment, net

is stated at cost less accumulated depreciation, or if acquired in a business combination, at fair value as of the date of acquisition.

Depreciation is calculated using the straight-line method, based upon the following estimated useful lives:

Furniture and fixtures

Computer and related equipment

Leasehold improvements

Lesser of useful life of the asset or remaining life of the lease

Improvements are capitalized while replacements, maintenance and

repairs, which do not improve or extend the lives of the respective assets, are expensed as incurred.

When property and equipment

is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts, and any gain

or loss on the disposition is recorded in the statement of operations as a component of other (expense) income, net.

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Summary of Significant Accounting Policies, continued

Business combinations:

The Company accounts for the acquisition

of a business in accordance with ASC 805, Business Combinations (ASC 805).

Amounts paid to acquire a business

are allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition.

determines the fair value of purchase consideration, including contingent consideration, and acquired intangible assets based on

detailed valuations that use certain information and assumptions provided by management.

The Company allocates any excess purchase

price over the fair value of the net tangible and intangible assets acquired to goodwill.

The results of operations of acquired

businesses are included in the financial statements from the date of acquisition forward.

Acquisition-related costs are expensed

in periods in which the costs are incurred

The Company uses the income approach to determine the fair value

of developed technology acquired in a business combination.

This approach determines fair value by estimating the after-tax cash

flows attributable to the respective asset over its useful life and then discounting these after-tax cash flows back to a present

The Company bases its revenue assumptions on estimates of relevant market sizes, expected market growth rates, expected

trends in technology and expected product introductions by competitors.

Developed technology represents patented and unpatented

technology and know-how.

Refer to Note 3 for discussion of the Company’s 2019 business

Intangible assets, net:

assets are initially recorded at fair value and stated net of accumulated amortization and impairments.

The Company amortizes its

intangible assets that have finite lives using either the straight-line method, or if reliably determinable, based on the pattern

in which the economic benefit of the asset is expected to be utilized.

Amortization is recorded over the estimated useful lives,

which for developed technology is 4 years.

The Company evaluates the recoverability of its definite lived intangible assets whenever

events or changes in circumstances or business conditions indicate that the carrying value of these assets may not be recoverable

based on expectations of future undiscounted cash flows for each asset group.

If the carrying value of an asset or asset group

exceeds its undiscounted cash flows, the Company estimates the fair value of the assets, generally utilizing a discounted cash

flow analysis based on the present value of estimated future cash flows to be generated by the assets using a risk-adjusted discount

To estimate the fair value of the assets, the Company uses market participant assumptions pursuant to ASC 820, Fair

Value Measurements .

Impairment of long-lived assets:

The Company reviews long-lived

assets, including property and equipment and, intangible assets with definite lives, for impairment whenever events or changes

in circumstances indicate that an asset group’s carrying amount may not be recoverable.

The Company conducts its long-lived

asset impairment analysis in accordance with ASC 360-10, Impairment or Disposal of Long-Lived Assets , which requires the

Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash

flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows.

undiscounted cash flows do not indicate the carrying amount of the asset group is recoverable, an impairment charge is measured

as the amount by which the carrying amount of the asset group exceeds its fair value.

During the years ended December 31, 2020

and 2019, no impairment indicators were identified.

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Summary of Significant Accounting Policies, continued

Impairment of goodwill:

Goodwill represents the excess of

cost over the fair market value of net tangible and identifiable intangible assets of acquired businesses.

Goodwill is not amortized

but instead is annually tested for impairment, or more frequently if events or circumstances indicate that the carrying amount

of goodwill may be impaired.

The Company has recorded goodwill in connection with its historical acquisition of a business.

The Company performs its annual goodwill impairment assessment at

October 1 each fiscal year, or more frequently if events or circumstances arise which indicate that goodwill may be impaired.

assessment can be performed by first completing a qualitative assessment on the Company’s single reporting unit.

can also bypass the qualitative assessment in any period and proceed directly to the quantitative impairment test, and then resume

the qualitative assessment in any subsequent period.

Qualitative indicators that may trigger the need for annual or interim quantitative

impairment testing include, among other things, deterioration in macroeconomic conditions, declining financial performance, deterioration

in the operational environment, or an expectation of selling or disposing of a portion of the reporting unit.

Additionally, a significant

change in business climate, a loss of a significant customer, increased competition, a sustained decrease in share price, or a

decrease in estimated fair value below book value may trigger the need for interim impairment testing of goodwill.

If the Company believes that, as a result of its qualitative assessment,

it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the quantitative impairment

test is required.

The quantitative test involves comparing the fair value of the reporting unit with its carrying amount, including

If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recorded as a reduction to

goodwill with a corresponding charge to earnings in the period the goodwill is determined to be impaired.

The income tax effect

associated with an impairment of tax-deductible goodwill is also considered in the measurement of the goodwill impairment.

goodwill impairment is limited to the total amount of goodwill.

The Company determines the fair value of its reporting unit using

a combination of the income approach (discounted cash flow method) and market approach (guideline transaction method and guideline

public company method).

Management weighs each of the methods applied to determine the fair value of its reporting unit.

Under the discounted cash flow method, the Company determines fair

value based on the estimated future cash flows for the reporting unit, discounted to present value using a risk-adjusted industry

weighted-average cost of capital, which reflects the overall level of inherent risk and the rate of return an outside investor

would expect to earn.

Cash flow projections are derived from budgeted amounts (typically a one-year model) and subsequent period

cash flows are developed using growth rates that management believes are reasonably likely to occur from a market participant’s

All cash flow projections are evaluated by management.

A terminal value is derived by capitalizing free cash flow into

The capitalization rate is derived from the weighted-average cost of capital and the estimated long-term growth rate.

On January 1, 2019, the Company adopted Accounting

Standards Codification (ASC) 606, Revenue from Contracts with Customers, using the modified retrospective method applied to all

“not completed”

contracts at the time of adoption.

A “not completed”

contract in accordance with ASC 606

represents a contract for which all or substantially all of the revenues have not been recognized under ASC 605, Revenue Recognition

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Summary of Significant Accounting Policies, continued

The Company’s revenue is primarily derived from the sales

of hybrid electric powertrain systems.

The Company’s products are marketed and sold to end-user fleet customers and channel

partners in the United States and Canada.

Sales of products and services are subject to economic conditions and may fluctuate based

on changes in the industry, trade policies and financial markets.

Revenue is recognized upon transfer of control to the customer,

which occurs when the Company has a present right to payment, legal title has passed to the customer, the customer has the significant

risks and rewards of ownership, and where acceptance is not a formality, the customer has accepted the product or service.

transfer of control is upon shipment of the equipment as the terms are FOB shipping point, or equivalent and the Company has no

other promised goods or services in its contracts with customers.

In limited instances, the Company provides installation services

to end-user fleet customers related to the purchased hybrid electric powertrain equipment.

When provided, the installation services

are not distinct within the context of the contract due to the fact that the end-use fleet customer is purchasing a completed modification

to its vehicles and therefore, the installation services involve significant integration to integrate the hybrid electric powertrain

equipment with the customer’s vehicle.

As a result, the hybrid electric powertrain equipment and installation services represent

a single performance obligation within these contracts with customers.

The Company recognizes the revenue for the equipment sale

and installation service at the same time, which is after the installation is complete.

The Company has elected to treat shipping

and handling activities related to contracts with channel partner customers as costs to fulfill the promise to transfer the associated

equipment and not as a separate performance obligation.

The Company provides limited-assurance-type warranties for its equipment

and work performed under its contracts.

The warranty period typically extends for 3 years following transfer of control of the

The warranties solely relate to correction of product defects during the warranty period, which is consistent with similar

warranties by offered by competitors.

Therefore, the Company has determined that this warranty is outside the scope of ASC 606

and will continue to be accounted for under ASC 460, Guarantees.

At the time of purchase of the equipment, customers may

purchase from the Company an extended warranty for its equipment.

The extended warranty commences upon the end of the assurance-based

warranty period and is considered a separate performance obligation that represents a stand-ready obligation to perform warranty

services after the assurance-type warranty expires.

The transaction price allocated to the extended warranty is recognized ratably

over the extended warranty period.

When the Company’s contracts with customers contain multiple

performance obligations, the contract transaction price is allocated on a relative standalone selling price (SSP) basis to each

performance obligation.

The Company determines standalone selling prices based on observable selling prices for the sale of its

For extended warranties, the Company determines SSP based on expected cost plus margin.

The Company establishes the margin

based on review of market conditions and margins obtained by market participants for similar services.

Any allocation of the transaction

price required is determined at the contracts’

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Summary of Significant Accounting Policies, continued

The transaction price is the amount of consideration to which the

Company expects to be entitled in exchange for transferring goods and services to the customer.

Revenue is recorded based on the

transaction price, which is solely made up of fixed consideration for its products and services.

The Company does not adjust transaction

price for the effects of a significant financing component when the period between the transfer of the promised good or service

to the customer and payment for that good or service by the customer is expected to be one year or less.

The Company has not identified

any significant financing components to date.

The Company’s sales can in certain instances include non-cash consideration

in the form of the customer transferring to the Company, the customer’s rights to cash incentives from programs administered

by municipalities related to hybrid vehicle programs that a customer is entitled as a result of its purchase.

The incentives are

fixed amounts that are readily determinable.

The Company values the non-cash consideration at its fair value, which generally is

the amount of the incentive.

Payment terms on invoices range from 30 to 60 days.

excludes from revenue any sales tax and other government-assessed and imposed taxes on revenue generating activities that are

invoiced to customers.

The Company has elected to apply the practical expedient to expense

costs to obtain contracts, which principally relate to sales commissions, at the time the liability is incurred when the expected

amortization period is one year or less.

The Company offers a limited warranty generally

ranging from one to three years.

The Company accrues the estimated cost of product warranties for unclaimed charges based on historical

experiences and expected results.

Should product failure rates and material usage costs differ from these estimates revisions to

the estimated warranty liability would be required.

The Company periodically assesses the adequacy of its recorded product warranty

liabilities and adjusts the balances as required.

Warranty expense is recorded as a component of cost of product revenue in the

statements of operations.

A provision for product warranties has been recorded at December 31, 2020 and 2019 (See Note 8).

Company incurred warranty expense of $1,205 and $368 for the years ended December 31, 2020 and 2019, respectively.

Income taxes:

The Company accounts for income taxes in accordance

with ASC 740, Income Taxes , under which deferred tax liabilities and assets are recognized for the expected future tax consequences

of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities and net operating

loss and tax credit carryforwards.

Deferred income taxes are provided for the temporary differences arising between the carrying

amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and operating

loss carry-forwards and credits.

Deferred tax assets and liabilities are measured using enacted rates in effect for the year in

which the differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of changes in

tax rates is recognized in the statements of operations in the period in which the enactment rate changes.

Deferred tax assets

and liabilities are reduced through the establishment of a valuation allowance if, based on available evidence, it is more likely

than not that the deferred tax assets will not be realized.

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Summary of Significant Accounting Policies, continued

Uncertain tax positions taken or expected to be taken in a tax return

are accounted for using the more likely than not threshold for financial statement recognition and measurement.

The determination

as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well

as consideration of the available facts and circumstances.

For the years ended December 31, 2020, and 2019, there were no

uncertain tax position taken or expected to be taken in the Company’s tax returns.

In the normal course of business, the Company is subject to regular

audits by U.S.

federal and state and local tax authorities.

With few exceptions, the Company is no longer subject to federal, state

or local tax examinations by tax authorities in its major jurisdictions for tax years before 2018.

The Company did not recognize any tax related interest or penalties

in the accompanying consolidated financial statements, but would record any such interest and penalties as a component of the provision

for income taxes.

Share-based compensation:

The Company accounts for its share-based

compensation awards in accordance with ASC Topic 718, Compensation-Stock Compensation.

The Company issues stock-based awards to

purchase common stock to employees, directors and non-employee consultants.

Awards issued under the Company’s stock-based

compensation plans include stock options and restricted stock awards.

Stock options typically include service-based vesting conditions,

and restricted stock awards contain both service- and performance-based vesting conditions.

Stock Options

The Company accounts for stock-based compensation related to these

awards based on the fair value of the awards.

The Company uses the Black-Scholes option pricing model to determine the fair value

of stock-based awards, and recognizes the compensation cost on a straight line basis over the requisite service period of the awards

for employee, which is typically the four-year vesting period of the award, and effective contract period specified in the award

agreement for non-employee.

Compensation cost is typically recognized on a straight-line basis.

The fair value of common stock has been determined by the Board

of Directors at each award grant date based upon a variety of factors, including the results obtained from independent third-party

valuations, the Company’s financial position and historical financial performance, the current climate in the marketplace, the

effect of the rights and preferences of the preferred stockholders and the prospects of a liquidity event, among others.

The determination of the fair value of share-based payment awards

utilizing the Black-Scholes model is affected by the stock price and a number of assumptions, including expected volatility, expected

life, risk- free interest rate and expected dividends.

The Company does not have a history of trading in its common stock as it

was not a public company until December 21, 2020, and as such volatility was estimated using historical volatilities of comparable

public entities.

The expected life of the awards is estimated based on a simplified method, which uses the average of the vesting

term and the original contractual term.

The risk-free interest rate assumption is based on observed interest rates appropriate

for the expected life of the awards.

The dividend yield assumption is based on history and expectation of paying no dividends.

Forfeitures are accounted for as they occur.

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Summary of Significant Accounting Policies, continued

The fair value of stock options issued for the years ended December

31, 2020 and 2019 was measured with the following assumptions:

Expected volatility

Expected term (in years)

Risk-free interest rate

Expected dividend yield

The Company follows guidance issued within FASB

ASC 480, Distinguishing Liabilities from Equity , and FASB ASC 815, Derivatives and Hedging, to assist in the determination

of whether warrants should be classified as liabilities or equity.

Warrants to purchase shares of the Company’s common stock

or preferred stock, are valued at fair value at the date of grant using the Black-Scholes option pricing method.

The Company has

evaluated classification of warrants outstanding and determined all are appropriately classified as equity as of December 31, 2020

See Note 13 for additional disclosure on warrant accounting.

Research and development expense:

Research and development

costs did not meet the requirements to be recognized as an asset as the associated future benefits were at best uncertain and there

was no alternative future use at the time the costs were incurred.

Research and development costs include, but are not limited

to, costs incurred in performing research and development activities, including salaries, benefits, facilities, research- related

overhead, sponsored research costs, contracted services, license fees, and other external costs.

Net loss per share:

Basic net income (loss) per share is

computed by dividing net income (loss) (the numerator) by the weighted average number of common shares outstanding for the period

(the denominator).

Diluted net income (loss) is computed by net income (loss) dividing the diluted net income (loss) by the weighted

average number of common shares and potential common shares outstanding (if dilutive) during each period.

For purposes of this

calculation, potential dilutive common shares include stock options and warrants.

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Summary of Significant Accounting Policies, continued

Related parties:

A party is considered to be related to the

Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common

control with the Company.

Related parties also include principal owners of the Company, its management, members of the immediate

families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls

or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties

might be prevented from fully pursuing its own separate interests.

A party which can significantly influence the management or

operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly

influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate

interests is also a related party.

Recent accounting pronouncements issued and adopted:

2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04 (“ASU 2017-04”), Intangibles-Goodwill

and Other (Topic 350):

Simplifying the Test for Goodwill Impairment.

ASU 2017-04 simplifies the subsequent measurement of goodwill

by eliminating the second step of the goodwill impairment test.

The second step measures a goodwill impairment loss by comparing

the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill.

Under ASU 2017-04, a company

will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value.

will be applied prospectively and is effective for annual or interim goodwill impairment tests in fiscal years beginning after

December 15, 2019.

On January 1, 2020, the Company adopted ASU 2017-04.

The adoption of this standard did not have a material effect

on the Company’s financial position, results of operations, or cash flows.

Recent accounting pronouncements issued, not yet adopted:

In February 2016, the FASB issued a new accounting standard, ASC Topic 842, Leases (“ASC 842”), related to leases to

increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease liabilities on

the balance sheet.

Most significant among the changes in the standard is the recognition of ROU assets and lease liabilities by

lessees for those leases classified as operating leases under previous U.S.

Under the new standard, disclosures are required

to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising

The Company is currently working through an adoption plan which includes the evaluation of lease contracts compared

to the new standard.

While the Company is currently evaluating the impact the new guidance will have on its financial position

and results of operations, the Company expects to recognize lease liabilities and right of use assets.

The extent of the increase

to assets and liabilities associated with these amounts remains to be determined pending the Company’s review of its existing

lease contracts and service contracts with may contain embedded leases.

The guidance in ASC 842 is effective for the Company beginning

January 1, 2021.

The Company is currently evaluating the impact of the pending adoption of this new standard on its consolidated

financial statements.

The Company believes the adoption of ASC 842 will have a material impact on its financial statements and

expects to record a right-of-use asset and lease liability on its books.

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Summary of Significant Accounting Policies, continued

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit

Losses (Topic 326):

Measurement of Credit Losses of Financial Instruments , which, together with subsequent amendments, amends

the requirement on the measurement and recognition of expected credit losses for financial assets held to replace the incurred

loss model for financial assets measured at amortized cost and require entities to measure all expected credit losses for financial

assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

ASU 2016-13 is effective for the Company beginning January 1, 2023, with early adoption permitted.

The Company is currently

in the process of evaluating the effects of this pronouncement on the Company’s financial statements and does not expect it to

have a material impact on the consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic

Simplifying the Accounting for Income Taxes , which is intended to simplify various aspects related to accounting for

income taxes.

The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after

December 15, 2020, with early adoption permitted.

ASU 2019-12 is effective for the Company beginning January 1, 2021.

The Company is currently in the process of evaluating the effects of this pronouncement on the Company’s financial statements

and does not expect it to have a material impact on the consolidated financial statements.

Merger with Pivotal Investment Corporation II

On the Closing Date, pursuant to the Merger Agreement, Merger Sub

merged with and into Legacy XL, with Legacy XL surviving as a wholly owned subsidiary of XL Fleet Corp.

On the Closing Date, each

outstanding share of common stock of Legacy XL (including each share of Legacy XL’s common stock issued as a result of the

conversion of Legacy XL’s preferred stock and any conversion or exchange of Legacy XL’s convertible promissory notes)

was converted into the right to receive 0.75718950 shares (“Exchange Ratio”) of Pivotal’s common stock, par value

$0.0001 per share.

In connection with the consummation

of the Business Combination, each outstanding share of Pivotal’s Class A common stock, par value $0.0001 per share (“Pivotal

Class A Common Stock”), including (a) any shares of Pivotal’s Class B common stock, par value $0.0001 per share

(“Pivotal Class B Common Stock”) that were converted into Pivotal Class A Common Stock in connection with the

Merger and (b) any Pivotal units that were separated into the component securities, including Pivotal Class A Common Stock in connection

with the Merger, was converted into one share of Common Stock.

On the Closing Date, a number of purchasers (each, a “Subscriber”)

purchased from the Company an aggregate of 15,000,000 shares of Common Stock (the “PIPE Shares”), for a purchase

price of $10.00 per share and an aggregate purchase price of $150,000,000, pursuant to separate subscription agreements (each,

a “Subscription Agreement”

and the financing, the “PIPE”).

Pursuant to the Subscription Agreements, the

Company gave certain registration rights to the Subscribers with respect to the PIPE Shares.

The sale of PIPE Shares was consummated

concurrently with the Closing of the Merger.

T he Company assumed private placement warrants to purchase 4,233,333 shares

of common stock, with an exercise price of $1.50 per share, and public warrants to purchase 7,666,667 shares of common stock, with

an exercise price of $11.50 per share (see Note 13).

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Merger with Pivotal Investment Corporation II, continued

Immediately prior to the Closing Date XL Fleet Corp.

filed its Second

Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, pursuant to which, among

other things, XL Fleet Corp.

(i) changed its name from Pivotal to “XL Fleet Corp.”, (ii) increased the number of shares

of Pivotal Class A Common Stock it is authorized to issue to 350,000,000 shares, (iii) removed the provisions for the Pivotal Class

B Common Stock (all such shares of Pivotal Class B Common Stock converted into shares of Pivotal Class A Common Stock in connection

with the Business Combination) so that the Pivotal Class B Common Stock ceased to exist and the Company now has a single class

of common stock (such resulting stock, the “Common Stock”), and (iv) removed the various provisions applicable only

to special purpose acquisition corporations.

Each of the options to purchase Legacy XL’s common stock,

whether or not exercisable and whether or not vested, and each of the warrants to purchase Legacy XL’s common stock, in each

case that was outstanding immediately prior to the effective time of the Business Combination, were assumed by XL Fleet Corp.

the Closing Date and converted into an option or warrant, as the case may be, to purchase a number of shares of Common Stock equal

to the number of shares subject to such option or warrant immediately prior to the effective time multiplied by the Exchange Ratio,

at an exercise price equal to the exercise price immediately prior to the effective time divided by the Exchange Ratio.

Holders of Legacy XL’s outstanding convertible promissory

notes were entitled to elect conversion or repayment of the principal amount of such notes, with accrued interest to be converted

into shares of Legacy XL common stock.

Immediately prior to the consummation of the Business Combination, the holders of such notes

elected to have Legacy XL pay in cash an aggregate principal amount of $11,250,000 of such notes within three business days of

the Closing Date.

On the Closing Date XL Fleet Corp.

issued an aggregate of 1,715,918 shares of its Common Stock upon conversion

of the remaining outstanding principal amount and accrued interest.

Immediately after the consummation of the Merger and prior to the

consummation of PIPE, the former stockholders and option holders of Legacy XL owned, or held rights to acquire, approximately 75.2%

of the fully-diluted common stock of Company, and Pivotal’s stockholders and option holders immediately prior to the Merger

owned approximately 24.8% of the fully-diluted common stock of the Company.

Based on the terms of the Merger, the transaction was

treated as a reverse merger of the Company by Legacy XL.

The merger was accounted for as a recapitalization of Legacy XL.

this method of accounting, Pivotal was treated as the “acquired”

company for financial reporting purposes.

This determination

was primarily based on Legacy XL comprising the ongoing operations of the combined company, Legacy XL senior management comprising

the senior management of the combined company, and that the former owners and management of Legacy XL have control of the board

of directors of the combined company after the Merger.

In accordance with guidance applicable to these circumstances, the Merger

was considered to be a capital transaction in substance.

Accordingly, for accounting purposes, the Merger was treated as the equivalent

of the Company issuing shares for the net assets of Pivotal, accompanied by a recapitalization.

The net assets of Pivotal will

be stated at historical cost, with no goodwill or other intangible assets recorded.

Operations prior to the closing of the Merger

will be those of the Company.

The following table reconciles the elements of the Business

Combination to the consolidated statements of cash flows and the consolidated statement of changes in stockholders’

(deficit) for the year ended December 31, 2020 (in thousands):

Pivotal’s trust and cash (net of redemption)

transaction costs and advisory fees paid

Net Business Combination and PIPE financing

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Acquisition of Quantum

On October 4, 2019, pursuant to the terms of an asset purchase agreement,

the Company acquired certain assets of Quantum Fuel Systems, LLC (“Quantum”

or the “Seller”), which will

be used to accelerate the Company’s product development timelines at a lower cost and rapidly expand and improve the Company’s

engineering capabilities (the “Acquisition”).

The Acquisition provided the Company access to intellectual property

and an assembled workforce that is the foundation for future technologies to be developed for the Company by the assembled workforce

applying its skills, knowledge and experience to utilize the acquired intellectual property.

The aggregate purchase consideration transferred by the Company

to the Sellers totaled $1,759 and included i) a deferred cash payment of $250 and accrued interest of $14, which was made on December

31, 2020, with an acquisition date estimated fair value of $229, ii) issuance of 458,902 shares of common stock with an estimated

fair value of $109, and iii) contingent purchase consideration associated with three milestone events with an initial estimated

fair value of $1,421.

The milestone events and associated contingent purchase consideration

consisted of the following:

● First milestone event will be met upon the retention of at least four

members of the acquired assembled workforce for at least twelve months.

The contingent purchase consideration associated with the

first milestone event is cash consideration totaling $450 with an estimated acquisition date fair value of $400.

This payment was

made on December 31, 2020.

● Second milestone event will be met upon achieving certain product

development criteria as outlined in the asset purchase agreement.

The contingent purchase consideration associated with this milestone

i) cash consideration totaling $475 and;

ii) additional consideration, at the Company’s election, of either cash

totaling $500 or the issuance of 655,575 shares of common stock.

The estimated acquisition date fair value of such amounts are

$387 and $123, respectively.

● Third milestone event will be met upon the successful demonstration

of a prototype as outlined in the asset purchase agreement.

The contingent purchase consideration associated with this milestone

i) cash consideration totaling $475 and;

ii) additional consideration, at the Company’s election, of either cash

totaling $500 or the issuance of 655,575 shares of common stock.

The estimated acquisition date fair value of such amounts are

$387 and $123, respectively.

The fair value of the deferred purchase consideration is based on

management’s estimated amount and timing of the future payment, discounted utilizing a rate of 125% to reflect market participant

The discount rate utilized was a risk-free rate selected based on the nearest risk-free rate term associated with

the payment of the deferred purchase consideration, with a credit risk premium applied as the payments are not risk-free.

The fair value of common stock issued in the Business Combination

has been determined by the Board of Directors based upon a variety of factors, including the results obtained from independent

third-party valuations, the Company’s financial position and historical financial performance, the current climate in the marketplace,

the effect of the rights and preferences of the preferred stockholders and the prospects of a liquidity event, among others.

The estimated fair value of the Company’s contingent purchase

consideration payable in cash for the first milestone is based on management’s estimated probability and timing of the future

payment, discounted utilizing a rate of 12.5% to reflect market participant assumptions.

The discount rate utilized was a risk-free

rate selected based on the nearest risk-free rate term associated with the payment of the deferred purchase consideration, with

a credit risk premium applied as the payments are not risk-free.

The estimated fair value of the Company’s contingent purchase

consideration payable in cash for the second and third milestones are based on management’s estimated probability and timing

of future payments, discounted utilizing a rate of 12.5%, to reflect market participant assumptions.

The discount rates utilized

were risk-free rates selected based on the nearest risk-free rate term associated with the payments of the purchase consideration

and contingent purchase consideration payable, with a credit risk premium applied as the payments are not risk-free.

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Acquisition of Quantum, continued

The estimated fair value of the Company’s contingent purchase

consideration payable in either cash or shares of common stock at the Company’s election for the second and third milestones

was determined using a Monte Carlo simulation model that includes significant unobservable inputs such as estimated probability,

fair value of underlying shares of common stock, risk-adjusted discount rates (utilizing an approximate rate of 12.5% to reflect

market participant assumptions), estimated volatility and timing of future payments.

The Acquisition was accounted for as a business combination using

the acquisition method of accounting in accordance with ASC 805, Business Combinations .

The purchase price is allocated

to the tangible assets and identifiable intangible assets acquired based upon their estimated fair values.

The excess of the purchase

price over the tangible and intangible asset acquired has been recorded to goodwill.

The Acquisition resulted in recorded goodwill

that can be attributable to the acquired assembled workforce and synergies related to certain of the acquired intangible assets.

Goodwill is expected to be amortizable for tax purposes.

Management plans to integrate the Acquisition into its existing business

structure, which is comprised of a single reporting unit.

The following table summarizes the fair value of consideration transferred

and the estimated fair values of the assets acquired as of the date of acquisition:

Deferred consideration

Contingent consideration

Share consideration-606,060 shares of XL Common Stock

Total consideration

Equipment and hardware

Intangible asset –

developed technology

Fair values of assets acquired

As part of the purchase price allocation, the Company determined

it had acquired a developed technology identifiable intangible asset.

The fair value of the internally developed technology was

estimated using the replacement cost method, whereby the components of the acquired internally developed technology were reviewed

to determine the cumulative cost of development for each component, inclusive of a developer’s profit and an entrepreneurial

The cumulative cost of development was then discounted to account for obsolescence factor.

The estimated useful life

over which the internally developed technology will be amortized is 4 years.

Other than the obligations incurred for contingent consideration, the

Company did not assume any liabilities in connection with the Acquisition.

The Company incurred acquisition-related costs of approximately

$48, which are included as a component of selling, general and administrative expenses in the accompanying statement of operations

for the year ended December 31, 2019.

The results of operations for the Acquisition are included in the

Company’s financial statements from the date of the acquisition.

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

The following table represents the Company’s revenues for

the years ended December 31, 2020 and 2019, respectively, disaggregated, by sales channel.

Disaggregation of revenue:

Revenue direct to customers

Revenue through channel partners

Total revenue

Remaining performance obligations:

At December 31, 2020 and

2019, there was approximately $305 and $133 in deferred revenue, respectively, related to unsatisfied extended warranty performance

Contract Balances:

The timing of revenue recognition, billings

and cash collections results in billed trade accounts receivable, and deferred revenue (contract liabilities) on the Consolidated

Balance Sheets.

In addition, the Company defers certain costs incurred to obtain a contract (contract costs).

Costs to obtain a contract:

Sales commissions paid to internal

sales personnel, as well as associated payroll taxes and retirement plan contributions (together, sales commissions and associated

costs) that are incremental to the acquisition of customer contracts, are capitalized as capitalized contract acquisition cost

on the balance sheet when the period of benefit is determined to be greater than one year.

In instances where an extended warranty

is sold, the period of benefit would extend beyond 12 months and therefore, the practical expedient would not be met for those

contracts and require capitalization of the related costs to obtain those contracts.

The Company has elected to allocate the capitalized

commissions to performance obligations on a relative basis (i.e., in proportion to the transaction price allocated to each performance

obligation) to determine the period of amortization.

As a result, substantially all of the commission is allocated to the combined

equipment and installation performance obligation and is amortized upon transfer of control of this performance obligation, which

typically occurs in same period in which commission liability is incurred.

Total commission expense recognized during the years

ended December 31, 2020 and 2019 was $105 and $226, respectively.

The amount of capitalized commissions as of December 31, 2020

and 2019 was not material.

The Company accrues estimated warranty costs at

the time of sale related to its assurance-type warranties.

In general, manufactured products are warranted for the shorter of three

years or 100,000 miles against defects in material and workmanship when properly used for their intended purpose, installed

correctly and appropriately maintained.

The amount of the accrued warranty liability is estimated based on historical claims rates

and warranty fulfillments costs adjusted for any expected changes in fulfillment costs.

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Revenue, continued

The following is a roll-forward of the Company’s accrued warranty

For the Years Ended

Balance as of January 1

Accrual for warranties issued

Warranty charges

Balance as of December 31

The warranty liability is included in accrued expenses and other

current liabilities on the Consolidated Balance Sheets.

Property and Equipment

Property, plant and equipment consisted of the following at December

Furniture and fixtures

Leasehold improvements

Less accumulated depreciation

Property and equipment, net

Depreciation expense on property and equipment, was $406 and $265

for the years ended December 31, 2020, and 2019, respectively.

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Intangible assets consist of developed

technology acquired during 2019.

The gross value of $863 is being amortized over a useful life of 4 years.

Accumulated amortization

was $270 at December 31, 2020.

Approximate annual aggregate amortization

expense of the intangibles for the years subsequent to December 31, 2020 is as follows:

Year ending December 31:

Total amortization

Amortization expense recognized

on intangible assets was $216 and $72 for the years ended December 31, 2020 and 2019, respectively.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the

following at December 31, 2020 and 2019:

Accrued warranty costs

Accrued compensation and related benefits

Contingent and deferred purchase consideration connection with Quantum acquisition

Accrued financing fees

Accrued expenses, other

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

New Markets Tax Credit Financing

On March 4, 2015, the Company entered into a financing transaction

Bancorp Community Development Corporation (U.S.

Bank) under a qualified New Markets Tax Credit (“NMTC”) program

related to the operation of the Company’s facility in Quincy, Illinois.

The NMTC program was provided for in the Community

Renewal Tax Relief Act of 2000 (the Act) and is intended to encourage capital investment in qualified lower income communities.

The Act permits taxpayers to claim credits against their Federal income taxes for up to 39% of qualified investments in the equity

of community development entities (CDEs).

CDEs are privately managed investment institutions that are certified to make qualified

low-income community investments.

In connection with the financing, the Company made two loans

totaling $10,454 to federal ($6,455 at 1.51%) and state ($3,999 at 1.53%) NMTC investment funds (the Investment Funds).

Simultaneously,

Bank made an equity investment of $4,995 to the Investment Funds and, by virtue of such contribution, is entitled to substantially

all of the tax benefits derived from the NMTC.

For compliance with the NMTC rules, principal payments on the loan do not begin

until June 10, 2025 (the NMTC rules prohibit principal payments during the 7-year term of the NMTC arrangement).

The maturity date

on the loans is December 31, 2044.

The Investment Funds then contributed the loan proceeds to a CDE,

which, in turn, loaned combined funds of $15,000, net of debt issuance costs of $546, to XL Hybrid Quincy, LLC, a wholly-owned

subsidiary of the Company, at an interest rate of 1.15% per year with a maturity date of March 4, 2045.

These loans are secured

by the leasehold improvements and equipment at the facility in Quincy, Illinois.

Repayment of the loans commences in March 10,

The proceeds from the loans from the CDE were used to partially fund the build-out of the facility in Quincy, Illinois.

The transaction includes a put/call feature whereby, at the end

of the seven-year NMTC compliance period, the Company may be obligated or entitled to repurchase U.S.

Bank’s equity interest

in the Investment Funds.

The Company believes that U.S Bank will exercise the put option in March 2022 at the end of the recapture

The value attributable to the put/call is anticipated to be nominal.

The NMTC is subject to 100% recapture for a period

of seven years as provided in the Internal Revenue Code.

The Company is required to be in compliance with various regulations and

contractual provisions that apply to the NMTC arrangement.

Non-compliance with applicable requirements could result in US Bank’s

projected tax benefits not being realized and, therefore, could require the Company to indemnify US Bank for any loss or recapture

of NMTCs related to the financing until such time as the obligation to deliver tax benefits is relieved.

The Company does not anticipate

any credit recapture will be required in connection with this financing arrangement.

The Company has determined that the financing arrangement with the

Investment Fund and CDEs contains a variable interest entity (“VIE”).

This conclusion was reached based on the following:

● The ongoing activities of the Investment Fund –

collecting and

remitting interest and fees and NMTC compliance –

were all considered in the initial design and are expected to significantly

affect the economic performance throughout the life of the Investment Fund;

● management considered the contractual arrangements that obligate the

Company to comply with NMTC rules and regulations, deliver tax benefits, and provide various other guarantees to the structure;

Bank’s lack of a material interest in the underlying economics

of the project as a result of the guarantees, indemnifications, and put/call options;

● the fact that the Company is obligated to absorb losses of the Investment

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

New Markets Tax Credit Financing, continued

As such, the Company concluded that it is the primary beneficiary

of the VIE and consolidated the Investment Fund, as a VIE, in accordance with the accounting standards for consolidation.

the Company consolidates an entity from which it has an approximately $10,500 loan receivable and consolidates an entity to which

it owes an approximately $15,000 loan payable, these two balances partially eliminate against each other in consolidation.

$4,995 in net proceeds received in exchange for the transfer of tax credits have been deferred and will be recognized when the

tax benefits have been fully earned and delivered to US Bank without risk of recapture.

The Company anticipates recognizing the

net cash received as income upon completion of the seven-year NMTC compliance period.

US Bank’s $4,995 contribution was initially

recorded as restricted cash and its interest in the Investment Fund is included in other liabilities in the consolidated balance

During the years ended December 31, 2020 and 2019, the Company amortized

$78 of debt issuance costs related to the NMTC.

The unamortized balance of debt issuance costs as of December 31, 2020 and 2019

is $91 and $169, respectively.

At December 31, 2020 and 2019, the carrying value of debt was

Subordinated convertible promissory notes

Unamortized debt discount

Subordinated convertible promissory notes, net

Unamortized debt discount

Vehicle financing agreements

Total debt obligations, net of deferred financing costs

current portion of debt

net of current portion

Bank term loan and revolver:

Effective December 10, 2018,

and as amended on November 19, 2019, August 12, 2020 and December 1, 2020, the Company entered into a Loan and Security Agreement

for a revolving line of credit (Revolver) and term loan (Term Loan) with Silicon Valley Bank.

The revolving line of credit bore

interest at a floating per annum rate equal to the greater of (i) the prime rate plus 4.50% or (ii) a fixed rate of 7.75%.

23, 2020, the revolver was repaid in full.

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Debt, continued

Interest payments under the Term Loan were payable in monthly installments

at a rate equal to the greater of 2% greater than the Prime Rate or a fixed rate of 7.00%.

In connection with the amendment to the Loan and Security Agreement

executed in November 2019, the Company secured access to an additional term loan (Growth Capital Term Loan).

Interest payments

were payable in monthly installments at a rate equal to the greater of 2% greater than the Prime Rate or a fixed rate of 7.00%.

The Loan and Security Agreement is secured by the assets and intellectual

property of the Company and is subject to certain non-financial and financial ratios including but not limited to adjusted quick

ratio compliance.

During 2019, the Company issued a warrant to purchase 189,296 shares

of common stock at a price of $0.24 per share that expires during 2029 to the lender in connection with the Growth Capital Term

At the discretion of the holder, the warrants may be exercised at any time in cash or may be subject to a cashless exercise

in which the warrant shares are converted to common stock under a defined conversion formula.

The estimated grant date fair value

of this common stock warrant was $0.17 per share.

This common stock warrant was assessed under ASC 480 Distinguishing Liabilities

from Equity and were accounted for as equity-classified warrants.

The grant date fair value of these common stock warrants

was recorded as a debt discount to be amortized over the term of the associated debt agreement under the effective interest method.

The amortization of the debt discount recorded for the years ended December 31, 2020 and 2019 is $31 and $18, respectively.

Term Loan and the Growth Capital Term Loan were repaid on December 23, 2020.

As of December 31, 2019, there were warrants to purchase

340,733 shares of common stock outstanding.

On December 24, 2020, all of these warrants were exercised on a cashless basis and

as a result, 338,223 shares of common stock were issued.

Convertible notes payable:

In January 2020, the Company’s

Board of Directors approved the issuance of subordinated convertible promissory notes up to an additional $13,000 and the amendment

to the existing subordinated convertible promissory notes such that they contain the same terms as the 2020 notes.

During the year

ended December 31, 2020, the Company issued subordinated convertible promissory notes in the amount of $8,100.

The notes mature

at the earlier of (i) February 6, 2021 or (ii) the date of a change of control as defined in the note agreements.

Upon a change

of control, the Company is required to repay all outstanding principal and interest and a 100% premium on the outstanding principal

balance of each note.

Under the terms of the agreements, upon a qualifying financing event occurring after July 31, 2020, the convertible

promissory notes and accrued interest would be convertible at 70% of the price per share paid generally by cash investors in such qualifying

During the year ended December 31, 2020, the Company incurred a

loss on extinguishment of $1,038 in connection with the amendment of $10,000 in face value of convertible notes.

Specifically,

during February of 2020, the Company entered into amendments of the convertible loan agreements with these note holders to extend

the maturities to February 2021.

The Company computed the discounted cash flows from these convertible notes as of the date of

the amendment, both before and after the amendment.

The Company determined that there was a greater than 10% change in the present

value of these cash flows, and as such, the amendment qualified as an extinguishment.

Pursuant to the relevant accounting guidance,

the Company recorded a loss on extinguishment of debt of $1,038.

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Debt, continued

The Company assessed these embedded features and determined that

they were not considered clearly and closely related to the host notes, and met the definition of a derivative.

Therefore, these

embedded features were all required to be bifurcated from the notes and accounted for separately as a combined derivative liability.

The Company estimated the fair value of the combined derivative liability which

was recorded as a liability and as a discount net against the subordinated convertible notes.

The Company was required to remeasure

the combined derivative liability to its then fair value at each subsequent balance sheet date, through an adjustment to current

earnings (see Note 11 for further details on the Company’s fair value measurements).

In connection with recording the derivative liability, the Company’s

consolidated balance sheet at December 31, 2020 reflects the reclassification of $3,551 from accumulated deficit to additional paid-in

capital to reflect adjustments to previously reported debt discount amortization and change in fair value of derivative liabilities.

The debt discount was amortized over the term of the associated debt

agreement utilizing the effective interest method.

The Company recorded $4,497 in amortization of these discounts as a component of

interest expense during the year ended December 31, 2020.

On December 21, 2020, the convertible notes and accrued interest were settled

with the payment in cash of convertible notes in the amount of $11,250 and the issuance of 1,715,918 shares upon the conversion

of convertible notes into principal and accrued interest of $6,850 and $1,709, respectively.

Vehicle financing agreements:

The Company has entered

into several vehicle financing agreements with various lenders with maturities ranging from 2020 to 2025.

Interest rates on these

agreements range from 2.95% to 10.00%.

Each agreement is collateralized by the equipment purchased.

Fair Value Measurements

Contingent consideration liability:

The contingent consideration

liability is considered a Level 3 measurement due to significant unobservable inputs in its valuation, which was based on the income

approach using a Monte Carlo Simulation.

The Monte Carlo Simulation evaluated the probability of occurrence of certain events which

impacted the mode and amount of payments to be made.

In addition, the payments were discounted based on current market expectations

about those future amounts.

The company utilized a third party to assist in calculating the fair value of the contingent consideration

The key inputs to the valuation model that was utilized to estimate

the fair value of the contingent consideration liability included volatility, risk free rate and probability of a subsequent round

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Fair Value Measurements, continued

Convertible notes payable derivative liabilities:

The convertible

notes payable derivative liabilities are considered a Level 3 measurement due to the utilization of significant unobservable inputs

in the valuation, which were based on ‘with and without’

valuation models.

Based on the terms and provisions of the 2019

Notes, the Company utilized a probability-weighted expected return model (“PWERM”) to estimate the fair value

of the embedded derivative features requiring bifurcation as of the respective issuance dates and as of the December 31, 2019

reporting date.

The PWERM is designed to utilize the Company’s best estimates of the timing and likelihood of the settlement

events that are related to the embedded derivative features in order to estimate the fair value of the respective convertible notes

with these embedded derivative features.

The fair value of the convertible notes with the derivative features

is compared to the fair value of a plain vanilla note (excluding the derivative features), which is calculated based on the present

value of the future cash flows.

The difference between the two values represents the fair value of the bifurcated derivative features

as of each respective valuation date.

The Company notes that the key inputs to the valuation models that

were utilized to estimate the fair value of the 2019 Notes convertible debt derivative liabilities included:

● The probability-weighted conversion discount is based on the

contractual terms of the convertible note agreement and the expectation of the pre-money valuation of the Company as of the

estimated date that the next equity financing event occurs.

● The remaining term was determined based on the remaining time period

to maturity of the related convertible note with embedded features subject to valuation (as of the respective valuation date).

● The Company’s equity volatility estimate was based on the re-levered historical

equity volatility of a selection of the Company’s comparable guideline public companies, based on the remaining term of the

respective convertible notes.

● The risk rate was the discount rate utilized in the valuation and

was determined based on reference to market yields for debt instruments with similar credit ratings and terms.

● The probabilities and timing of the next financing event and default

even are based on management’s best estimate of the future settlement of the respective convertible notes.

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Fair Value Measurements, continued

The following table sets forth the Company’s assets and liabilities

which are measured at fair value on a recurring basis by level within the fair value hierarchy:

Fair Value Measurements as of December 31, 2020

Contingent consideration

Fair Value Measurements as of December 31, 2019

Contingent consideration

Total liabilities

The following is a roll forward

of the Company’s Level 3 instruments:

Balance, January 1, 2019

Increase derivative liability for issuance of convertible notes payable

Increase contingent consideration in connection with Quantum business combination

Fair value adjustments- Derivatives

Fair value adjustments- Contingent consideration

Balance, December 31, 2019

Reduce derivative liability for extinguishment of convertible notes payable

Increase derivative liability for issuance of convertible notes payable

Fair value adjustments- Derivatives

Fair value adjustments- Contingent consideration

Reduce derivative liability for conversion and repayment of convertible notes

Reduce contingent consideration for cash payment of a portion of obligation

Balance, December 31, 2020

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Stockholders’

Common stock:

At December 31, 2020, the Company has authorized

a total of 350,000,000 shares of Common Stock.

The holders of Common Stock are entitled to vote on all matters and are entitled

to the number of votes equal to the number shares of Common Stock held.

Common stockholders are entitled to dividends when and

if declared by the Board of Directors.

The following shares of Common Stock are reserved for future issuance:

Warrants for the issuance of Common Stock

Stock options issued and outstanding

Authorized for future grant under 2020 Equity Incentive Plan

Common Stock Warrants:

During the year ended 2020 and in

connection with the merger, the Company assumed the private placement warrants to purchase 4,233,333 shares of Common Stock, with

an exercise price of $1.50 per share, and public warrants to purchase 7,666,667 shares of Common Stock, with an exercise price

of $11.50 per share.

During the year ended December 31, 2020, the Company issued 4,995,584

shares of Common Stock pursuant to the exercise of warrants which resulted in cash proceeds to the Company of $884.

As of December

31, 2020 and 2019, the Company had warrants outstanding to purchase 12,149,117 and 5,269,204 shares of Common Stock, respectively.

Subsequent to the year ended December 31, 2020, 243,000 Legacy XL Warrants were exercised, which resulted in the issuance of 233,555

shares of the Company’s common stock, in a cashless exercise.

Also, after December 31, 2020, 7,441,020 public warrants were exercised, which resulted

in the issuance of 7,441,020 shares of the Company’s Common Stock, generating cash proceeds of $85,543.

A summary of the warrant activity for the year ended December 31,

2020 was as follows:

Outstanding at December 31, 2019

Private Warrants assumed in connection with the Merger

Public Warrants assumed in connection with the Merger

Outstanding at December 31, 2020

Exercisable at December 31, 2020

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Share-Based Compensation Expense

During the years ended December 31, 2020 and 2019, the Company issued

2,738,912 and 4,923,549 options, respectively, to certain employees which will vest over a period of one to four years.

The weighted-average

grant date fair value of stock options awarded during the years ended December 31, 2020 and 2019, as determined by the Black-Scholes

option pricing model, was $0.90 and $0.63, respectively.

Share-based compensation expense for the years ended December 31,

2020 and 2019 was $978 and $208, respectively.

As of December 31, 2020, there was $4,857 of unrecognized compensation cost related

to share-based payments which is expected to be recognized over the remaining vesting periods, with a weighted-average period of

Stock Options

A summary of stock option award activity for the year ended December

31, 2020 was as follows:

Exercise Price

Outstanding at December 31, 2019

Cancelled or forfeited

Outstanding at December 31, 2020

Exercisable at December 31, 2020

The aggregate intrinsic value of stock options exercised in the

years ended December 31, 2020 and 2019 was $3,336 and $1,676 as determined on the date of exercise.

Cash received from options

exercised for the years ended December 31, 2020 and 2019 was $114 and $10, respectively.

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Share-Based Compensation Expense, continued

Restricted Stock Awards

The Company awarded two directors each 223,166 shares of the Company’s

Common stock on June 14, 2019.

On September 15, 2020, the award was amended such that the award would vest upon the expiration

of the lock up period for XL Fleet employees established in connection with the merger.

This amendment did not impact the fair

value of the award.

The Company awarded four employees an aggregate of 25,309 restricted

shares of the Company’s Common Stock during the year ended December 31, 2020.

These restricted shares were fully vested upon

The fair value of restricted stock

awards is estimated by the fair value of the Company’s Common Stock at the date of grant.

Restricted stock activity during

year ended at December 31, 2020 was as follows:

Weighted-average

grant-date fair

value per share

Non-vested, at beginning of period

Cancelled or forfeited

Non-vested, at end of period

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Net deferred income tax assets consist of the following components

as of December 31, 2020 and 2019:

Deferred tax assets (liabilities):

Net operating loss carryforwards

Tax credit carryforwards

Share-based compensation

Depreciation and amortization

Total deferred tax assets

Less valuation allowance

Net deferred tax assets (liabilities)

The Company utilizes an asset and liability approach for financial

accounting and reporting for income taxes.

The provision for income taxes is based upon income or loss after adjustment for those

permanent items that are not considered in the determination of taxable income.

Deferred income taxes represent the tax effects

of differences between the financial reporting and tax basis of the Company’s assets and liabilities at the enacted tax rates

in effect for the years in which the differences are expected to reverse.

The Company evaluates the recoverability of deferred tax assets

and establishes a valuation allowance when it is more likely than not that some portion or all the deferred tax assets will not

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause

changes to previous estimates of tax liability.

In management’s opinion, adequate provisions for income taxes have been made.

If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

Tax benefits are recognized only for tax positions that are more

likely than not to be sustained upon examination by tax authorities.

The amount recognized is measured as the largest amount of

benefit that is greater than 50 percent likely to be realized upon settlement.

A liability for “unrecognized tax benefits”

is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement

For the years ended December 31, 2020 and 2019, no liability for unrecognized tax benefits was required to be reported.

The Company has provided a full valuation allowance against its

net deferred tax assets since realization of any future benefit from deductible temporary differences and net operating loss cannot

be sufficiently assured.

Management of the Company has evaluated the positive and negative evidence bearing upon the reliability

of its deferred tax assets, which are comprised principally of net operating loss carryforwards and research and development credits.

Under the applicable accounting standards, management has considered the Company’s history of losses and concluded that it

is more likely than not that the Company will not recognize the benefits of federal and state deferred tax assets.

the Company increased its valuation allowance by $5,564.

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Income Taxes, continued

The Company has federal and state net operating loss carryforwards

of approximately $80,629 and $27,490, respectively.

$31,633 of the federal net operating loss carryforward will expire at various dates commencing

on 2029 and through 2037 and $48,996 were generated between the years ended December 31, 2018 and 2020 and have an indefinite life.

At December 31, 2020, the Company has federal and state tax credits of approximately $953 and $492, respectively.

These federal

and state tax credits are available to reduce future taxable income and expire at various dates commencing 2026 through 2039.

of the NOLs and tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue

Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future.

These ownership

changes may limit the amount of net operating loss and tax credit carryforwards that can be utilized annually to offset future

taxable income and tax, respectively.

The Company has not determined whether an ownership change under section 382 has occurred

or whether such limitation exists.

Related Party Transactions

Operating lease:

In March 2012, the Company entered into

a noncancelable lease agreement for office, research and development, and vehicle development and installation

facilities with an investor of the Company.

The lease term through February

The lease includes a rent escalation clause, and rent expense is being recorded on a straight-line basis.

Rent expense under the operating lease for the years ended December 31,

2020 and 2019 was $235.

Future minimum lease payments for this lease for the year ending

December 31 are as follows:

Commitments and Contingencies

Operating leases:

In January 2015, the Company entered into a noncancelable

lease agreement for warehouse, research and development, and vehicle development and installation facilities

in Quincy, Illinois through December 31, 2020.

In December 2019, the Company signed a noncancelable lease agreement

for office, warehouse, research and development, and distribution facilities in California through February

The Company entered

into a noncancelable lease agreement in Michigan for offices, prototype testing, and research and development through February

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Commitments and Contingencies, continued

Future minimum lease payments for these operating leases for the

years ending December 31 are as follows:

See Note 16 for related-party operating lease commitment.

Legal proceedings:

The Company is periodically involved in

legal proceedings, legal actions and claims arising in the normal course of business, including proceedings relating to product

liability, intellectual property, safety and health, employment and other matters.

Management believes that the outcome of such

legal proceedings, legal actions and claims will not have a significant adverse effect on the Company’s financial position,

results of operations or cash flows.

On March 8, 2021, a putative class action complaint was filed in

federal district court for the Southern District of New York (Suh v.

XL Fleet Corp., et al., Case No.

1:21-cv-02002) against the

Company and certain of its current officers and directors.

(the “Suh Complaint”).

On March 12, 2021, a second putative

class action complaint was filed in federal district court for the Southern District of New York (Kumar v.

XL Fleet Corp., et al.,

1:21-cv-02171) against the Company and certain of its current officers and directors (the “Kumar Complaint”).

Both the Suh Complaint and the Kumar Complaint allege that certain public statements made by the defendants between October 2,

2020 and March 2, 2021 violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.

The Company believes that the allegations asserted in the Suh Complaint and Kumar Complaint are without merit, and the Company

intends to vigorously defend both lawsuits.

There can be no assurance, however, that the Company will be successful.

At this time,

the Company is unable to estimate potential losses, if any, related to either lawsuit.

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Net Loss Per Share

The following is a reconciliation of the numerator and denominator

used to calculate basic earnings per share and diluted earnings per share for the years ended December 31, 2020, and 2019:

Weighted average shares outstanding, basic and diluted

Net loss per share, basic and diluted

The Company’s contingently convertible notes payable did not

meet the condition to be converted to Common Stock as of December 31, 2020 and 2019.

Additionally, the Company’s contingently

issuable unvested restricted stock did not meet the performance based vesting condition as of December 31, 2020 and 2019.

Potential dilutive securities, which include stock options, convertible

preferred stock and warrants have been excluded from the computation of diluted net loss per share as the effect would be to reduce

the net loss per share.

Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted

net loss per share is the same.

The number of shares underlying outstanding stock options and warrants:

Stock options

XL Fleet Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

(Amounts in thousands, except

share and per share data)

Retirement Plan

The Company has adopted a 401(k) plan to provide all eligible employees

a means to accumulate retirement savings on a tax-advantaged basis.

The 401(k) plan requires participants to be at least 21 years

In addition to the traditional 401(k), eligible employees are given the option of making an after-tax contribution to a Roth

401(k) or a combination of both.

Plan participants may make before tax elective contributions up to the maximum percentage of compensation

and dollar amount allowed under the Internal Revenue Code.

Participants are allowed to contribute, subject to IRS limitations on

total annual contributions from 1% to 90% of eligible earnings.

The plan provides for automatic enrollment at a 3% deferral rate

of an employee’s eligible wages.

The Company provides for safe harbor matching contributions equal to 100% on the first 3%

of an employee’s eligible earnings deferred and an additional 50% on the next 2% of an employee’s eligible earnings

Employee elective deferrals and safe harbor matching contributions are 100% vested at all times.

Sarah Sclarsic

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures