clvr-20220930

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-39820

Clever Leaves Holdings Inc.

(Exact name of registrant as specified in its charter)


British Columbia, Canada						Not Applicable
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

Bodega 19-B Parque Industrial Tibitoc P.H, Tocancipá - Cundinamarca, Colombia						N/A
(Address of principal executive offices)						(Zip Code)

(Registrant’s telephone number, including area code): (561) 634-7430

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common shares without par value

CLVR

The Nasdaq Stock Market LLC

Warrants, each warrant exercisable for one common share at an exercise price of $11.50

CLVRW

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of registrant’s common shares and non-voting common shares outstanding as of November 8, 2022 was 43,808,694 and 332,961, respectively.

Table of Contents

CLEVER LEAVES HOLDINGS INC.

TABLE OF CONTENTS


		Page
	PART I - FINANCIAL INFORMATION
ITEM 1.	Financial Statements of Clever Leaves Holdings Inc. (Unaudited)
	Condensed Consolidated Statements of Financial Position as of September 30, 2022 and December 31, 2021	4
	Condensed Consolidated Statements of Operations for the Three and Nine months ended September 30, 2022 and 2021	5
	Condensed Consolidated Statements of Shareholders’ Equity for the Three and Nine months ended September 30, 2022 and 2021	6
	Condensed Consolidated Statements of Cash Flows for the Nine months ended September 30, 2022 and 2021	8
	Notes to Condensed Consolidated Financial Statements	9

ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	34

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risks	49

ITEM 4.	Controls and Procedures	50

	PART II - OTHER INFORMATION
ITEM 1.	Legal Proceedings	52
ITEM 1A.	Risk Factors	52
ITEM 5.	Other Information	52
ITEM 6.	Exhibits	53
	SIGNATURES	54

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. Some of the statements in this quarterly report on Form 10-Q of Clever Leaves Holdings Inc. ("Form 10-Q") constitute forward-looking statements that do not directly or exclusively relate to historical facts. You should not place undue reliance on such statements because they are subject to numerous risks and uncertainties which are difficult to predict and many of which are beyond our control and could cause our actual results to differ from the forward-looking statements. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements are often, but not always, made through the use of words or phrases such as “believe,” “anticipate,” “could,” “may,” “would,” “should,” “intend,” “plan,” “potential,” “predict,” “forecast,” “will,” “expect,” “budget,” “contemplate,” “believe,” “estimate,” “continue,” “project,” “positioned,” “strategy,” “outlook” and similar expressions. You should read statements that contain these words carefully because they:

•discuss future expectations;

•contain projections of future results of operations or financial condition; or

•state other “forward-looking” information.

All such forward-looking statements are based on our current expectations and involve estimates and assumptions that are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the results expressed in the statements. We believe it is important to communicate our expectations to our security holders. However, there may be future events that we are not able to predict accurately or over which we have no control. The risk factors and cautionary language discussed in Part I, Item 1A, "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2021 (the "Annual Report" or "2021" Form 10-K, provide examples of risks, contingencies, uncertainties, and events that may cause our actual results to differ materially from the expectations described by us in such forward-looking statements, including among other things:

•changes adversely affecting the industry in which we operate;

•our ability to achieve our business strategies or to manage our growth;

•our ability to cultivate and sell products our customers want;

•general economic conditions, including the effects of COVID-19, the United Kingdom's exit from the European Union and the ongoing military conflict between Russia and Ukraine (and resulting sanctions) on the global economy, global financial markets and our business;

•regional political and economic conditions, including emerging market conditions;

•the effects of COVID-19 on the supply and distribution chain, and the availability of third-party distributors generally;

•the impact and magnitude of rising energy costs;

•the impact and magnitude of inflation and currency fluctuations;

•the regulation and legalization of adult-use, recreational cannabis;

•our ability to maintain the listing of our securities on Nasdaq;

•our ability to retain our key employees;

•the availability or terms of future financing; and

•other factors that are more fully discussed in Part I, Item 1A of the 2021 Form 10-K under the heading “Risk Factors”, and those discussed in other documents we file with the SEC.

These risks could cause actual results to differ materially from those implied by the forward-looking statements contained in this Form 10-Q.

All forward-looking statements included herein attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.

ITEM 1. FINANCIAL STATEMENTS

CLEVER LEAVES HOLDINGS INC.

Condensed Consolidated Statements of Financial Position

(Amounts in thousands of U.S. Dollars, except share and per share data)

(Unaudited)


		As of		As of
	Note	September 30, 2022		December 31, 2021

Assets
Current:
Cash and cash equivalents		$	17,183	$	37,226
Restricted cash		424		473
Accounts receivable, net		2,591		2,222
Prepaids, deposits and other receivables	6	3,695		5,064

Inventories, net	5	16,653		15,408
Total current assets		40,546		60,393

Investment – Cansativa	7	5,406		1,458
Property, plant and equipment, net of accumulated depreciation of $7,879 and $5,702 for September 30, 2022 and December 31, 2021, respectively	10	28,996		30,932
Intangible assets, net	8	3,545		23,117

Operating lease right-of-use assets, net	19	2,869		—
Other non-current assets		54		260
Total Assets		$	81,416	$	116,160

Liabilities
Current:
Accounts payable		$	2,338	$	3,981
Accrued expenses and other current liabilities		2,425		2,898
Convertible note due 2024, current portion	11	—		16,559
Loans and borrowings, current portion	11	520		949
Warrant liability		196		2,205
Operating lease liabilities, current portion	19	1,459		—
Deferred revenue, current portion		1,280		653
Total current liabilities		8,218		27,245
Convertible note due 2024 — long-term	11	—		1,140
Loans and borrowing — long-term	11	1,383		6,447
Deferred revenue — long-term		—		1,548
Operating lease liabilities — long-term	19	1,538		—
Deferred tax liabilities		—		6,650
Other long-term liabilities		775		360
Total Liabilities		$	11,914	$	43,390

Contingencies and commitments

Shareholders’ equity
Preferred shares, without par value, unlimited shares authorized, nil shares issued and outstanding for each of September 30, 2022 and December 31, 2021	12	—		—
Common shares, without par value, unlimited shares authorized: 43,571,444 and 26,605,797 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	12	—		—
Additional paid-in capital		221,591		187,510
Accumulated deficit		(152,089)		(114,740)
Total shareholders' equity		69,502		72,770
Total liabilities and shareholders' equity		$	81,416	$	116,160

See accompanying notes to the condensed consolidated financial statements

CLEVER LEAVES HOLDINGS INC.

Condensed Consolidated Statements of Operations

(Amounts in thousands of U.S. Dollars, except share and per share data)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,
	Note	2022		2021		2022		2021
Revenue	17	$	3,305	$	4,031	$	13,186	$	11,180



Cost of sales		(3,025)		(2,100)		(9,564)		(5,341)
Gross profit		280		1,931		3,622		5,839

Expenses
General and administrative	13	6,087		10,616		22,361		29,381
Sales and marketing		615		208		2,076		1,036
Research and development		343		454		1,114		1,037
Restructuring expenses	14	(82)		—		3,791		—
Intangible asset impairment	8	19,000		—		19,000		—

Depreciation and amortization		508		337		1,562		1,440
Total expenses		26,471		11,615		49,904		32,894

Loss from operations		(26,191)		(9,684)		(46,282)		(27,055)

Other Expense (Income), net
Interest (income) expense and amortization of debt issuance cost		(51)		485		2,719		2,383
Gain on remeasurement of warrant liability	12	(196)		(9,065)		(2,009)		(5,390)
Gain on investment	7	—		—		(6,851)		—
Loss (gain) on debt extinguishment, net	11	—		(3,375)		2,263		(3,375)

Foreign exchange loss		768		298		1,420		1,137
Other expense (income), net		101		964		111		(123)
Total other (income) expenses, net		622		(10,693)		(2,347)		(5,368)

(Loss) Income before income tax		$	(26,813)	$	1,009	$	(43,935)	$	(21,687)

Deferred income tax (recovery)		(6,650)		—		(6,650)		—
Equity investment share of loss		—		14		64		39
Net (Loss) Income		$	(20,163)	$	995	$	(37,349)	$	(21,726)
Net (Loss) Income per share - basic and diluted	18	$	(0.48)	$	0.04	$	(1.02)	$	(0.85)
Weighted-average common shares outstanding - basic and diluted	18	42,222,564		25,755,972		36,633,222		25,466,404

See accompanying notes to the condensed consolidated financial statements.

CLEVER LEAVES HOLDINGS INC.

Condensed Consolidated Statements of Shareholders’ Equity

(Amounts in thousands of U.S. Dollars, except share and per share data)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Retained Deficit		Total Shareholders’ Equity
	Shares	Amount		Amount		Amount		Amount
Balance at December 31, 2020	24,883,024	$	—	$	164,264	$	(69,014)	$	95,250
Net loss	—	—		—		(13,765)		(13,765)
Founders earn-out shares vested	570,212	—		—		—		—
Issuance of common shares upon vesting RSUs	7,713	—		—		—		—
Exercise of warrants	122,639	—		1,410		—		1,410

Stock-based compensation expense	—	—		1,550		—		1,550
Balance at March 31, 2021	25,583,588	$	—	$	167,224	$	(82,779)	$	84,445
Net loss	—	—		—		(8,956)		(8,956)
Issuance of common shares upon vesting RSUs	5,111	—		—		—		—
Stock option exercise	40,942	—		10		—		10
Stock-based compensation expense	—	—		3,323		—		3,323



Balance at June 30, 2021	25,629,641	$	—	$	170,557	$	(91,735)	$	78,822
Net Income	—	—		$	—	$	995	$	995
Stock-based compensation expense	—	—		3,264		—		3,264
Conversions of debt to common stock, net of debt issuance	538,403	—		4,590		—		4,590




Balance at September 30, 2021	26,168,044	$	—	$	178,411	$	(90,740)	$	87,671


	Note	Common Stock			Additional Paid-in Capital		Retained Deficit		Total Shareholders’ Equity
		Shares	Amount		Amount		Amount		Amount
Balance at December 31, 2021		26,605,797	$	—	$	187,510	$	(114,740)	$	72,770
Net loss		—	—		—		(16,140)		(16,140)
Issuance of common shares upon vesting RSUs	15	247,453	—		—		—		—
Stock option exercise		116,112	—		22		—		22
Stock-based compensation expense	15	—	—		500		—		500
Issuance of common stock - gross	12	11,047,567	—		23,400		—		23,400
Equity issuance costs	12	—	—		(1,177)		—		(1,177)
Conversions of Convertible Note to common shares	12	607,000	—		1,324		—		1,324
Beneficial conversion feature	11	—	—		1,749		—		1,749
Balance at March 31, 2022		38,623,929	$	—	$	213,328	$	(130,880)	$	82,448
Net loss							(1,046)		(1,046)
Issuance of common shares upon vesting RSUs	15	39,898	—		—		—		—
Stock option exercise		35,582	—		—		—		—
Stock-based compensation expense	15	—	—		1,148		—		1,148


Conversions of debt to common stock, net of debt issuance	12	900,000			$	2,039	$	—	2,039


Balance at June 30, 2022		39,599,409	$	—	$	216,515	$	(131,926)	$	84,589
Net loss							$	(20,163)	$	(20,163)
Issuance of common shares upon vesting RSUs	15	24,837	—		—		—		—
Stock-based compensation expense	15	—	—		958		—		958
Issuance of common stock - gross	12	3,947,198	—		4,286		—		4,286
Equity issuance costs	12	—	—		(168)		—		(168)

Balance at September 30, 2022		43,571,444	—		$	221,591	$	(152,089)	$	69,502

See accompanying notes to the condensed consolidated financial statements.

CLEVER LEAVES HOLDINGS INC.

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands of U.S. Dollars)

(Unaudited)


		Nine Months Ended September 30,
		2022		2021
Cash Flow from Operating Activities:
Net loss		$	(37,349)	$	(21,726)
Adjustments to reconcile to net cash used in operating activities:
Depreciation and amortization		2,935		1,815
Amortization of debt discount and debt issuance cost		1,949		325
Inventory provisions	5	3,822		1,496
Restructuring and related costs	14	3,791		—
Gain on remeasurement of warrant liability	12	(2,009)		(5,390)
Non-cash lease expense	19	128		—
Deferred tax recovery		(6,650)		—
Foreign exchange loss		1,420		1,137
Stock-based compensation expense	15	2,606		8,137
Intangible asset impairment	8	19,000		—

Equity investment share of loss		64		39
Gain on investment	7	(6,851)		—
Loss (gain) on debt extinguishment	11	2,263		(3,375)

Other non-cash expense, net		600		394
Changes in operating assets and liabilities:
(Increase) in accounts receivable		(369)		(484)
(Increase) in prepaid expenses	6	(466)		(638)
Decrease (increase) in other receivables and other non-current assets		555		(544)
(Increase) in inventory	5	(5,067)		(4,447)
(Decrease) in accounts payable and other current liabilities		(4,756)		(5,110)
Increase in other non-current liabilities		415		176
Net cash used in operating activities		$	(23,969)	$	(28,195)

Cash Flow from Investing Activities:
Purchase of property, plant and equipment		$	(1,856)	$	(5,948)
Proceeds from partial sale of equity method investment		2,498		—
Net cash provided by (used in) investing activities		$	642	$	(5,948)

Cash Flow from Financing Activities:
Proceeds from issuance of long-term debt		—		25,000
Repayment of debt	11	(22,897)		(26,363)
Other borrowings		73		1,826
Debt Issuance on Convertible debt		—		(932)
Proceeds from issuance of shares	12	27,686		—
Equity issuance costs	12	(1,345)		—

Proceeds from exercise of warrants		—		1,410
Stock option exercise		22		10
Net cash provided by financing activities		$	3,539	$	951
Effect of exchange rate changes on cash, cash equivalents & restricted cash		(304)		(62)
Decrease in cash, cash equivalents & restricted cash		$	(20,092)	$	(33,254)
Cash, cash equivalents & restricted cash, beginning of period		37,699		79,460
Cash, cash equivalents & restricted cash, end of period (a)		$	17,607	$	46,206

Supplemental schedule of cash flow information:
Cash paid for interest		$	220	$	375

Supplemental disclosures for non-cash financing activity:
Right-of-use assets recognized		$	3,871	$	—
Conversions of debt to commons shares		$	3,263	$	4,209
Beneficial conversion feature		$	1,749	$	—

(a) These amounts include restricted cash of $424 and $444 as of September 30, 2022 and September 30, 2021, respectively, which are comprised primarily of cash on deposits for certain lease arrangements.

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

CLEVER LEAVES HOLDINGS INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands of U.S. dollars, except share and per share amounts and where otherwise noted)

1. CORPORATE INFORMATION

Clever Leaves Holdings Inc., (the “Company”) is a multi-national U.S. based holding company focused on cannabinoids. In addition to the cannabinoid business, the Company is also engaged in the non-cannabinoid business of nutraceutical and other natural remedies and wellness products. The Company is incorporated under the Business Corporations Act of British Columbia, Canada.

The mailing address of the Company's principal executive office is Bodega 19-B Parque Industrial Tibitoc P.H, Tocancipá - Cundinamarca, Colombia.

2. BASIS OF PRESENTATION

The accompanying condensed consolidated interim financial statements (“Financial Statements”) are unaudited. These Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial statements and with the instructions to Form 10-Q and Article 10 of regulation S-X. Accordingly, they do not include all disclosures required for annual financial statements. These Financial Statements reflect all adjustments, which, in the opinion of the management, are necessary for a fair presentation of the results for the interim periods presented. All significant intercompany transactions and balances have been eliminated. All adjustments were of a normal recurring nature. Interim results are not necessarily indicative of results to be expected for the full year.

The Financial Statements include the accounts of the Company and its wholly owned subsidiaries. Company’s subsidiaries and respective ownership percentage has not changed from the year ended December 31, 2021.

These Financial Statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2021, included in its Annual Report on Form 10-K, as filed with the SEC on March 24, 2022 (the "Annual Report").

Prior Period Reclassifications - Certain prior period reclassifications were made to conform to the current period presentation. These reclassifications had no effect on the previously reported total assets, total liabilities, stockholder's equity, net loss (income) or cash flow.

Going Concern

These interim financial statements have been prepared in accordance with U.S. GAAP, which assumes that the Company will be able to meet its obligations and continue its operations for the next twelve months.

As shown in the accompanying interim financial statements, the Company had an accumulated deficit as of September 30, 2022, as well as operating losses and negative cash flows from operations since inception and expects to continue to incur net losses for the foreseeable future until such time that it can generate significant revenue from the sale of its available inventories.

At September 30, 2022, the Company had cash and cash equivalents of $17,183. As of September 30, 2022, based on the Company's current working capital needs, anticipated operating expenses and net losses, and the uncertainties surrounding its ability to raise additional capital as needed, there is substantial doubt as to whether existing cash and cash equivalents will be sufficient to meet its obligations as they come due within twelve months from the date the consolidated financial statements were issued. The Company’s ability to execute its operating plans through 2023 and beyond depends on its ability to obtain additional funding through financing transactions, such as equity or debt offerings, or other transactions to raise capital to meet planned growth requirements and to fund future operations, which may not be available on acceptable terms, or at all. The consolidated financial statements do not include any adjustments for the recovery and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

During the nine months ended September 30, 2022 the Company raised additional financing through an "at-the-market" ("ATM") equity offering as discussed in Note 12.

CLEVER LEAVES INTERNATIONAL INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(In thousands of U.S. dollars, except where otherwise noted and share and per share amounts)

Principles of Consolidation

The Financial Statements include the accounts of the Company and its consolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company's significant accounting policies are disclosed in its audited consolidated financial statements for the year ended December 31, 2021, included in the Annual Report. There have been no changes in the Company's significant accounting policies as discussed in the Annual Report.

Use of Accounting Estimates

The preparation of these Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the Financial Statements and accompanying notes in the reported period. These estimates include, but are not limited to, allowance for doubtful accounts, inventory valuation, determination of fair value of stock-based awards and estimate of incremental borrowing rate for determining the present value of future lease payments, intangible assets, useful lives of property and equipment, revenue recognition and income taxes and related tax asset valuation allowances. While the significant estimates made by management in the preparation of the consolidated financial statements are reasonable, prudent, and evaluated on an ongoing basis, actual results may differ materially from those estimates.

Recently Adopted Accounting Pronouncements

ASU No. 2016-02, Leases (Topic 842)

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2016-02, Leases ("ASU 2016-02") and in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements ("ASU 2018-11") (collectively referred to as "ASC 842"). This guidance requires the recognition of right-of-use ("ROU") assets and lease liabilities, arising from financing and operating leases, on the consolidated balance sheet, along with additional qualitative and quantitative disclosures. Companies are required to adopt this guidance using a modified retrospective approach and apply the transition provisions under the guidance at either 1) the later of the beginning of the earliest comparative period presented in the financial statements and the commencement date of the lease, or 2) the beginning of the period of adoption (i.e., on the effective date). Under the transition method using the second application date, a company initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The Company adopted the guidance on January 1, 2022, beginning of our calendar year 2022, using the modified retrospective transition method and initially applied the transition provisions at January 1, 2022, which allowed us to continue to apply the legacy guidance in ASC 840 for periods prior to calendar year 2022. We elected the package of transition practical expedients, which among other things, allows us to keep the historical lease classifications and not have to reassess the lease classification for any existing leases as of the date of adoption. We also made the following accounting policy elections as allowed by ASC 842:

•to apply the short-term lease exception, which allows us to keep leases with an initial term of twelve months or less off the statement of financial position.

•to account for each separate lease component of a contract and its associated non-lease components as a single-lease component for all our leases.

As a result of the adoption of this standard, there was no adjustment to the opening balance of retained earnings as there was no cumulative effect adjustment at the date of adoption. Accordingly, the primary impact of adopting ASC 842 was the recognition of ROU assets and lease liabilities for operating leases of approximately $4,120 and $4,120, respectively for all existing leases which had remaining obligations as of January 1, 2022. ASC 842 did not have a material impact on our results of operations or statement of cash flow.

Table of Contents

CLEVER LEAVES HOLDINGS INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands of U.S. dollars, except share and per share amounts and where otherwise noted)

ASU No. 2021-04, Earnings Per Share (Topic 260)

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options ("ASU No. 2021-04"), which provides a principles-based framework to determine whether an issuer should recognize the modification or exchange as an adjustment to equity or an expense. ASU No. 2021-04 requires issuers to account for modifications or exchanges of freestanding equity-classified written call options (e.g., warrants) that remain equity classified after the modification or exchange based on the economic substance of the modification or exchange. The amendments in ASU No. 2021-04 are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted for all entities, including adoption in an interim period. The adoption of ASU No.2021-04 did not have a material impact on the Company's consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

ASU No. 2020-06, Debt (Topic 815)

In August 2020, the FASB issued ASU No. 2020-06, Debt - (Topic 815) ("ASU No. 2020-06"), which simplifies an issuer’s

accounting for convertible instruments and its application of the derivatives scope exception for contracts in its own equity. The

amendments in ASU No. 2020-06 are effective for public companies, other than smaller reporting companies, for fiscal years

beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments

are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early

adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those

fiscal years. The Company is currently evaluating the effect of adopting ASU No. 2020-06.

ASU No. 2016-13- Credit Losses on Financial Instruments (Topic 326)

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model which will result in earlier recognition of credit losses for certain financial instruments and financial assets. For trade receivables, we are required to estimate lifetime expected credit losses. For available-for-sale debt securities, the Company will recognize an allowance for credit losses rather than a reduction to the carrying value of the asset. ASU 2016-13 is effective for the Company’s fiscal year beginning January 1, 2023. The Company is currently evaluating the effect of adopting ASU No 2016-13.

4. FAIR VALUE MEASUREMENTS

The following table provides the fair value measurement hierarchy of the Company’s assets and liabilities, except for those

Table of Contents

CLEVER LEAVES HOLDINGS INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands of U.S. dollars, except share and per share amounts and where otherwise noted)

assets and liabilities that are short term in nature and approximate the fair values, as of the periods presented:


	Level 1		Level 2		Level 3		Total

As of September 30, 2022
Assets:
Investment – Cansativa	—		—		5,406		5,406
Total Assets	$	—	$	—	$	5,406	$	5,406
Liabilities:
Loans and borrowings	—		1,903		—		1,903
Warrant liability	—		—		196		196

Total Liabilities	$	—	$	1,903	$	196	$	2,099

As of December 31, 2021
Assets:
Investment – Cansativa	—		—		1,458		1,458
Total Assets	$	—	$	—	$	1,458	$	1,458
Liabilities:
Loans and borrowings	—		7,396		—		7,396
Warrant liability	—		—		2,205		2,205
Convertible notes	—		17,699		—		17,699
Total Liabilities	$	—	$	25,095	$	2,205	$	27,300

Investment – Cansativa

Our investment in Cansativa’s equity securities that was previously accounted for using the equity method was partially divested during the three months ended June 30, 2022. Given that this investment does not have a “readily determinable fair value,” or is not traded in a verifiable public market, the Company accounted for this investment under ASC 321, Investments - Equity Securities. The Company used the practical expedient available under ASU 2016-01, the cost method investment which presents and carries this investment using the alternative measurement method which is cost minus impairment, if any, plus or minus changes resulting from observable price changes in “orderly transactions,” as defined in ASC 321, for the identical or a similar investment of the same issuer. The Company periodically reviews the investments for other than temporary declines in fair value below cost and more frequently when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. As of September 30, 2022, the Company believes the carrying value of its cost method investments were recoverable in all material respects. For more information, refer to Note 7 to our interim financial statements for the period ended of September 30, 2022.

The following table provides a summary of changes in fair value of the Company’s Level 3 investments for the nine months ended September 30, 2022:


	Level 3
Balance, December 31, 2021 (Measured at equity method)	$	1,458
Share of Equity investment loss	$	(64)
Balance, March 31, 2022	$	1,394
Sale on investments	$	(515)
Gain due to change in fair value included in earnings	$	4,868
Balance, June 30, 2022	$	5,747

Table of Contents

CLEVER LEAVES HOLDINGS INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands of U.S. dollars, except share and per share amounts and where otherwise noted)


Change in value due to foreign exchange loss	$	(341)
Balance, September 30, 2022	$	5,406

During the nine months ended September 30, 2022, there were no transfers between fair value measurement levels.

The change in fair value of warrant liabilities related to private warrants during the nine months ended September 30, 2022, is as follows:


Private Placement Warrants:	Total Warrant Liability
Warrant liability at December 31, 2021	$	2,205
Change in fair value of warrant liability	(490)
Warrant liabilities at March 31, 2022	$	1,715
Change in fair value of warrant liability	(1,323)
Warrant liabilities at June 30, 2022	$	392
Change in fair value of warrant liability	(196)
Warrant liabilities at September 30, 2022	$	196

The Company determined the fair value of its private warrants using the Monte Carlo simulation model. The following assumptions were used to determine the fair value of the Private Warrants as of September 30, 2022 and December 31, 2021:


	As of
	September 30, 2022	December 31, 2021
Risk-free interest rate	4.23%	1.11%
Expected volatility	95%	60%
Share Price	$0.60	$3.10
Exercise Price	$11.50	$11.50
Expiration date	December 18, 2025	December 18, 2025

•The risk-free interest rate assumptions are based on U.S. dollar zero curve derived from swap rates at the valuation date, with a term to maturity matching the remaining term of warrants.

•The expected volatility assumptions are based on average of historical volatility based on comparable industry volatilities of public warrants.

5. INVENTORIES, NET

Inventories are comprised of the following items as of the periods presented:


	September 30, 2022		December 31, 2021
Raw materials	$	1,471	$	1,477
Work in progress – cultivated cannabis	3,331		1,241
Work in progress – harvested cannabis and extracts	466		1,070
Finished goods – cannabis extracts	10,640		11,432
Finished goods – other	745		188
Total	$	16,653	$	15,408

During the three and nine months ended September 30, 2022, the Company recorded inventory provisions for approximately $1,696 and $3,822, respectively, to cost of sales to write-down obsolete inventories. During the three and nine months ended September 30, 2021, the Company recorded inventory provisions for approximately $693 and $1,496, respectively, to cost of

Table of Contents

CLEVER LEAVES HOLDINGS INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands of U.S. dollars, except share and per share amounts and where otherwise noted)

sales to write-down obsolete inventory.

The Company also has inventory consignment agreements in which revenue is recognized at a point in time, when the customer or distributors sells finished products from consignment inventory. Delivery and transfer of control occur at that point, when title and risk of loss transfers and the customer or distributor becomes obligated to pay for the products pulled from consigned inventory. As of September 30, 2022 and December 31, 2021, the Company had $196 and $66, respectively in consignment inventory.

6. PREPAID, DEPOSITS AND OTHER RECEIVABLES

Prepaid, deposits and other receivables are comprised of the following items as of the periods presented:


	September 30, 2022		December 31, 2021
Prepaid expenses	$	1,597	$	935
Indirect tax receivable	1,841		2,322
Deposits	51		47
Other receivable and advances	206		1,760
Total	$	3,695	$	5,064

Prepaid expenses and deposits represent amounts paid upfront to vendors for director and officer's insurance, security deposits and supplies.

7. INVESTMENTS

Cansativa

On December 21, 2018, the Company, through its subsidiary Northern Swan Deutschland Holdings, Inc., entered into a seed investment agreement with the existing stockholders of Cansativa GmbH (“Cansativa”), a German limited liability company primarily focused on the import and sale of cannabis products for medical use and related supplements and nutraceuticals. Prior to the Company’s investment, Cansativa’s registered and fully paid-in share capital amounted to 26,318 common shares. Under the investment agreement, the Company has agreed with the existing stockholders to invest up to EUR 7,000 in Cansativa in three separate tranches of, respectively, EUR 1,000, EUR 3,000 and up to a further EUR 3,000. The first EUR 1,000 (specifically, EUR 999.92, approximately $1,075, or “Seed Financing Round”) was invested in Cansativa to subscribe for 3,096 newly issued preferred voting shares at EUR 322.97 per preferred share, and as cash contributions from the Company to Cansativa. The seed EUR 322.97 per share price was based on a fully diluted pre-money valuation for Cansativa of EUR 8,500, and the increase of Cansativa’s registered share capital by the 3,096 preferred shares in the Seed Financing Round provided the Company with 10.53% of the total equity ownership of Cansativa. The Company paid the seed investment subscription by, first, an initial nominal payment of EUR 3.1, (i.e., EUR 1.00 per share) upon signing the investment agreement to demonstrate the Company’s intent to invest, and the remainder of EUR 996.82 was settled in January 2019 to officially close the investment deal after certain closing conditions have been met by the existing stockholders and Cansativa. The Company accounted for its investment in Cansativa using the equity accounting method, due to the Company's significant influence, in accordance with ASC 323, Investments — Equity Method and Joint Ventures.

The Company recorded its investment in Cansativa at the cost basis of an aggregated amount of EUR 999.92, approximately $1,075, which is comprised of EUR 3.10 for the initial nominal amount of the Seed Financing Round and EUR 996.82 for the remaining Seed Financing Round (i.e., Capital Reserve Payment), with no transaction costs.

In accordance with the seed investment agreement, in September 2019, the Company made an additional investment of approximately EUR 650, or approximately $722, for 2,138 shares in Cansativa, thereby increasing its equity ownership to 16.6% of the book value of Cansativa’s net assets of approximately EUR 1,233, and approximately EUR 1,122 of equity method goodwill as Cansativa was still in the process of getting the licenses and expanding its operations. As of September 30, 2020, the balance of Tranche 2 option expired un-exercised and as a result the Company recognized a loss on investment of approximately $370 in its Statement of Operations and the carrying value of the Tranche 2 option was reduced to nil.

Table of Contents

CLEVER LEAVES HOLDINGS INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands of U.S. dollars, except share and per share amounts and where otherwise noted)

In December 2020, Cansativa allocated shares of its common stock to a newly installed employee-stock ownership plan (“ESOP”). As a result of the ESOP installment, the Company’s equity ownership of Cansativa, on a fully-diluted basis, decreased from 16.59% to 15.80% of the book value of Cansativa’s net assets. Additionally, Cansativa raised additional capital through the issuance of Series A preferred stock (“Cansativa Series A Shares”) to a third-party investor at a per share price of EUR 543.31. As a result of the Series A Share issuance, the Company’s equity ownership of Cansativa, on a fully diluted basis, decreased from 15.80% to 14.22% of the book value of Cansativa’s net assets. The Company accounted for the transaction as a proportionate sale of ownership share and recognized a gain of approximately $211 in its consolidated statement of operations within loss on investments line. This change did not impact the equity method classification.

In April 2022, the Company sold 1,586 shares in Cansativa to an unrelated third-party for approximately EUR 2,300. Additionally Cansativa issued 10,184 series B and 992 ESOP shares. As a result, the Company's equity ownership of Cansativa, on a fully diluted basis, decreased from 14.22% to 7.6% of the book value of Cansativa net assets. Furthermore, the Company relinquished the board seat, indicating that the Company's influence was no longer "significant", to which the equity method of accounting was applicable. Going forward, the Company will account for this investment under ASC 321, Investments – Equity Securities. The Company will utilize the practical expedient under ASC 321 as the investment does not qualify for the practical expedient under ASC 820 and there is no readily determinable fair value for these privately held shares of Cansativa on a recurring basis.

At the time of the sale, the Company compared the transaction value of the shares sold to the carrying value of shares sold and recognized a gain of $1,983. Immediately following the sale, the Company then remeasured its retained interest which resulted in an additional gain of $4,868. As a result, a total of $6,851 is recorded in other income in the Consolidated Statements of Operations during the quarter ending June 30, 2022. Using the measurement alternative, as defined in ASC 321, the Company will remeasure the value of its retained interest if and when additional sales of Cansativa shares occur with third parties.

For the three months ended September 30, 2022 and 2021, the Company's share from the investment were $nil and net losses of $14, respectively. For the nine months ended September 30, 2022 and 2021, the Company's share from the investment were net losses of $64 and $39, respectively.

8. INTANGIBLE ASSETS, NET

The Company had acquired cannabis-related licenses as part of a business combination in 2018, with a gross value of approximately $19,000, which have indefinite useful lives as they are expected to generate economic benefit to the Company in perpetuity. In addition, as part of the Herbal Brand acquisition in 2019, the Company acquired finite-lived intangible assets with a gross value of approximately $7,075. During the three months ended September 30, 2022 and 2021 the Company recorded approximately $191 and $191, respectively, of amortization related to its finite-lived intangible assets. During the nine months ended September 30, 2022 and 2021 the Company recorded approximately $573 and $972, respectively, of amortization related to its finite-lived intangible assets.

Table of Contents

CLEVER LEAVES HOLDINGS INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands of U.S. dollars, except share and per share amounts and where otherwise noted)

The following tables present details of the Company’s total intangible assets as of September 30, 2022 and December 31, 2021. The value of product formulation intangible asset is included in the value of Brand:


	September 30, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted- Average Useful Life (in Years)
Finite-lived intangible assets:
Customer contracts	$	925	$	925	$	—	0.0
Customer relationships	1,000		624		376		3.2
Customer list	650		444		206		1.6
Brand	4,500		1,537		2,963		6.6
Total finite-lived intangible assets	$	7,075	$	3,530	$	3,545

Indefinite-lived intangible assets:
Licenses	$	19,000	N/A		$	19,000
Licenses-impairment	(19,000)		N/A		(19,000)
Total indefinite-lived intangible assets	$	—	N/A		$	—

Total intangible assets	$	7,075	$	3,530	$	3,545

December 31, 2021

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount