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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
or
☐
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)
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British Columbia, Canada |
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Not Applicable |
(State or other jurisdiction of incorporation or
organization) |
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(I.R.S. Employer Identification No.) |
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Bodega 19-B Parque Industrial Tibitoc P.H,
Tocancipá - Cundinamarca, Colombia
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N/A |
(Address of principal executive offices) |
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(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:
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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
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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.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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.
CLEVER LEAVES HOLDINGS INC.
TABLE OF CONTENTS
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Page |
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PART I - FINANCIAL INFORMATION |
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ITEM 1. |
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Condensed Consolidated Statements of Financial Position
as of September 30, 2022 and December 31,
2021
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Condensed Consolidated Statements of Operations for the Three and
Nine months ended September 30, 2022 and 2021
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Condensed Consolidated Statements of Shareholders’ Equity for the
Three and Nine months ended September 30, 2022 and
2021
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Condensed Consolidated Statements of Cash Flows for the Nine months
ended September 30, 2022 and 2021
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Notes to Condensed Consolidated Financial Statements |
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ITEM 2. |
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ITEM 3. |
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ITEM 4. |
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PART II - OTHER INFORMATION |
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ITEM 1. |
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ITEM 1A. |
Risk Factors
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ITEM 5. |
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ITEM 6. |
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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.
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.
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.
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
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 |
|
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
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.
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.
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 |
|
Weighted-
Average
Useful Life
(in Years) |
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
Customer contracts |
$ |
925 |
|
|
$ |
925 |
|
|
$ |
— |
|
|
0.0 |
Customer relationships |
1,000 |
|
|
487 |
|
|
513 |
|
|
3.4 |
Customer list |
650 |
|
|
346 |
|
|
304 |
|
|
2.3 |
Brand |
4,500 |
|
|
1,200 |
|
|
3,300 |
|
|
7.3 |
Total finite-lived intangible assets |
$ |
7,075 |
|
|
$ |
2,958 |
|
|
$ |
4,117 |
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
Licenses |
$ |
19,000 |
|
|
N/A |
|
$ |
19,000 |
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
$ |
26,075 |
|
|
$ |
2,958 |
|
|
$ |
23,117 |
|
|
|
Impairment Testing - Finite-Lived Intangibles
In accordance with ASC Topic 350, “Intangibles – Goodwill and
Other,” the Company performs its annual impairment test
as
of December 31 of each year. As part of the review, the Company
will perform a qualitative assessment to determine whether
indicators of impairment existed, along with considering, among
other factors, the financial performance, industry conditions, as
well as microeconomic developments. The Company also reviews
intangibles for impairment whenever events or changes in
circumstances indicate that the carrying value of its intangibles
may not be recoverable. After the close of each interim
quarter,
management assesses whether any indicators of impairment exist
requiring the Company to perform an interim goodwill and other
intangible assets impairment analysis.
Impairment Testing - Indefinite-Lived Intangibles
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)
Due to the continued decline in the Company’s stock price and the
current year’s projected revenues falling behind target, the
Company performed an interim impairment assessment on its
indefinite-lived intangible assets, consisting of cannabis related
licenses for its Colombian operations. Utilizing a discounted cash
flow model with a weighted average cost of capital (“WACC”) of 22%,
the Company performed the assessment and recognized an impairment
charge of $19,000, offset with the related deferred tax liability
write-off of $6,650 for the three and nine months ended
September 30, 2022.
2021 Impairment Testing
In conjunction with the 2021 annual impairment testing, the Company
reviewed finite-lived intangible assets for impairment. In
performing such review, the Company makes judgments about the
recoverability of purchased finite lived intangible assets whenever
events or changes in circumstances indicate that an impairment may
exist. The Company recognizes an impairment if the carrying amount
of the long-lived asset group exceeds the Company’s estimate of the
asset group’s undiscounted future cash flows.
Significant assumptions used in the impairment analysis include
financial projections of free cash flow (including assumptions
about revenue projections, regulations, operating margins, capital
requirements and income taxes), long-term growth rates for
determining terminal value beyond the discretely forecasted periods
and discount rates. For our intangible assets related to the
Cannabinoid segment, our estimated revenue projections reflect that
Decree 811 that was followed by the passing of the Regulation 227
in February 2022, which was further resolved in April 2022, to
allow us to export cannabis flower from Colombia starting 2023. The
Colombian government signed Resolution 539, which outlines the
regulation and the technical guidelines for commercializing dried
flower and medicinal-grade cannabis extracts.
For the three and nine months ended September 30, 2021, no
impairment was recognized related to the carrying value of any of
the Company’s finite or indefinite-lived intangible
assets.
Amortization Expense
The following table reflects the estimated future amortization
expense for each period presented for the Company’s finite-lived
intangible assets as of September 30, 2022:
|
|
|
|
|
|
|
Estimated
Amortization
Expense |
2022 |
$ |
221 |
|
2023 |
715 |
|
2024 |
542 |
|
2025 |
542 |
|
2026 |
482 |
|
Thereafter |
1,043 |
|
Total |
$ |
3,545 |
|
9. GOODWILL
Impairment Testing
During the fourth quarter of 2021, the Company assessed whether
there were events or changes in circumstances that would indicate
that our goodwill may have been impaired. The Company performed a
quantitative impairment test, including computing the fair value of
the reporting units and comparing that value to its carrying value.
The Company considered external and internal factors, including
overall financial performance and entity-specific factors as part
of the assessment. We recognized the challenge of the overall
decline in the cannabinoid sector in the months preceding December
31, 2021, combined with our stock price volatility and related
factors and as a result, the Company determined that it was more
likely than not that the carrying value of its cannabinoid
operating segment exceeds the fair value as of the year end testing
date. Based upon the Company's 2021 annual goodwill impairment
test, the Company concluded that goodwill was impaired as of the
testing date of December 31, 2021. During the three months ended
December 31, 2021 the Company recognized $18,508
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)
non-cash goodwill impairment charge related to the cannabinoid
segment, as a result, the Company had no goodwill on the statement
of financial position as of December 31, 2021.
The Company calculated the fair value of the operating segments
using discounted estimated future cash flows. The weighted-average
cost of capital used in testing the reporting unit for impairment
was 14%, with a perpetual growth rate of 3%.
10. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
December 31,
2021 |
Land |
$ |
5,065 |
|
|
$ |
5,065 |
|
Building & warehouse |
16,375 |
|
|
13,381 |
|
Laboratory equipment |
6,399 |
|
|
6,295 |
|
Agricultural equipment |
2,467 |
|
|
2,404 |
|
Computer equipment |
1,725 |
|
|
1,681 |
|
Furniture & appliances |
829 |
|
|
852 |
|
Construction in progress
(a)
|
2,769 |
|
|
5,709 |
|
Other |
1,246 |
|
|
1,247 |
|
Property, plant and equipment, gross |
36,875 |
|
|
36,634 |
|
Less: accumulated depreciation |
(7,879) |
|
|
(5,702) |
|
Property, plant and equipment, net |
$ |
28,996 |
|
|
$ |
30,932 |
|
(a)
Construction in progress primarily relates to on-going construction
of the Company's Colombian and Portugal facilities
11. DEBT
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
December 31,
2021 |
Convertible Notes due 2024, current portion
(a)
|
$ |
— |
|
|
$ |
16,559 |
|
Herbal Brands Loan due May 2023, current portion
|
— |
|
|
470 |
|
Other loans and borrowings, current portion
|
520 |
|
|
479 |
|
Total debt, current portion |
$ |
520 |
|
|
$ |
17,508 |
|
Convertible notes due 2024
|
— |
|
|
1,140 |
|
Herbal Brands Loan due May 2023
(b)
|
— |
|
|
4,760 |
|
Other loans and borrowings, net |
1,383 |
|
|
1,687 |
|
Total debt, long term |
$ |
1,383 |
|
|
$ |
7,587 |
|
Ending balance
|
$ |
1,903 |
|
|
$ |
25,095 |
|
(a)
Convertible Note, current portion is reflected net of debt discount
and debt issuance costs of $2,197 as of December 31,
2021.
(b)
Herbal Brand's Loan, non-current is reflected net of debt issuance
costs of
$410 in as of December 31, 2021.
Herbal Brands Loan due May 2023
In May 2019 and in connection with the Herbal Brands, Inc
("Herbal Brands") acquisition, the Company entered into a loan
agreement (the "Loan and Security Agreement") with Rock Cliff
Capital under which the Company secured a non-revolving loan of
$8,500 (the "Herbal Brands Loan"). The Herbal Brands Loan
bore interest at 8.00% per annum, calculated based on the actual
number of days elapsed, due and payable in arrears on the first day
of each fiscal quarter commencing July 1, 2019. The Herbal Brands
Loan was to be repaid or prepaid prior to its maturity date of May
2, 2023 and required the Company to repay, on a quarterly basis,
85% of positive operating cash flows. The Company could also choose
to prepay a portion of or the full
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)
balance of the loan, subject to a fee equal to the greater of (i)
zero, and (ii) $2,338, net of interest payments already paid on
such prepayment date. The loan was secured by inventory, property
plant and equipment and other assets as collateral.
In connection with the Herbal Brands Loan, the Company issued
equity-classified warrants for Class C preferred shares to Rock
Cliff Capital (the "Rock Cliff Warrants") with an initial fair
value of $717, which was reflected in additional paid-in capital,
with an initial expiration date of May 3, 2021. For more
information, refer to Note 12.
The Herbal Brands Loan and Rock Cliff Warrants were deemed
freestanding financial instruments with the loan accounted for as
debt, subsequently measured using amortized cost, and the Rock
Cliff Warrants, representing a written call option, accounted for
as an equity-classified contract with subsequent changes in fair
value not recognized as long as warrants continue to be classified
as equity. Using a relative fair value method, at the time of
issuance, the Company recognized approximately $7,783 as loans and
borrowings and approximately $717 in additional paid-in capital for
the equity classified warrant.
In August 2020, the Company amended certain terms of the Herbal
Brands Loan to provide for additional interest of 4.00% per annum,
compounding quarterly and payable in-kind at maturity. In addition,
the Company extended the expiration date of the Rock Cliff Warrants
to May 3, 2023. As part of the amendment, the net debt to EBITDA
covenant test was no longer required due to the occurrence of a
Qualified IPO on December 18, 2020. The Company accounted for the
amendment to the Herbal Brands Loan as a debt modification. Due to
the extension of the warrants expiration, the Company reviewed the
fair value of the options before and after the amendment, as a
result the Company recognized approximately $400 of additional debt
issuance costs related to the increase in the fair value of the
warrants in its statement of financial position at December 31,
2021. Such costs will be amortized on a straight-line basis through
the amended expiration date of the Rock Cliff
Warrants.
Following the closing of the business combination on December 18,
2020 between Clever Leaves International Inc., a corporation
organized under the laws of British Columbia, Canada, Schultze
Special Purpose Acquisition Corp., a Delaware corporation, Novel
Merger Sub Inc., a Delaware corporation and the Company, which
resulted in both Clever Leaves International Inc. and Schultze
Special Purpose Acquisition Corp. becoming wholly owned
subsidiaries of the Company (the "Business Combination") and
pursuant to the terms, the holder of the Rock Cliff Warrants can
purchase 63,597 of the Company's common shares at a strike price of
$26.73 per share.
In May 2022, the Company fully repaid the Herbal Brands Loan in the
amount of approximately $5,642, including interest and fees, in
full satisfaction of Herbal Brands' obligations under the Loan and
Security Agreement. As a result of the full repayment of the Herbal
Brand Loan, the Company recorded the remaining amortization balance
of the Rock Cliff Warrants within interest and amortization of debt
issuance cost" in the condensed consolidated statement of
operations.
For the three months ended September 30, 2022 and 2021, the
Company recognized interest expense of approximately nil and $174,
respectively, from the Herbal Brands Loan and repaid principal of
approximately $5,642 and $269, respectively, of the Herbal Brands
Loan in accordance with the terms of the loan
agreement.
For the nine months ended September 30, 2022 and 2021, the
Company recognized interest expense of approximately $715 and $564,
respectively, from the Herbal Brands Loan and repaid principal of
approximately $5,642 and $1,376, respectively, of the Herbal Brands
Loan in accordance with the terms of the loan
agreement.
As of September 30, 2022, there was no outstanding principal
balance, including interest, of the Herbal Brands
Loan.
2024 Note Purchase Agreement
On July 19, 2021, the Company entered into a Note Purchase
Agreement with Catalina LP (“the "Note Purchase Agreement") and
issued a secured convertible note (the "Convertible Note") to
Catalina LP (“Catalina”), an affiliate of SunStream Bancorp Inc., a
joint venture initiative sponsored by Sundial Growers Inc. (Nasdaq:
SNDL), pursuant to the Note Purchase Agreement in the principal
amount of $25,000. The Convertible Note provided for maturity three
years from the date of issuance and interest accrual at a rate of
5% per annum from the date of issuance. Interest on the Convertible
Note was payable on a quarterly basis, either in cash or by
increasing the principal amount of the Convertible Note, at the
Company's election. The Company may, in
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)
its sole discretion, prepay any portion of the outstanding
principal and accrued and unpaid interest on the Convertible Note
at any time prior to the maturity date.
The principal and accrued interest owing under the Convertible Note
could be converted at any time by the holder into the Company's
common shares, without par value, at a per share price of $13.50.
Up to $12,500 in aggregate principal under the Convertible Note
could be so converted within one year of issuance, subject to
certain additional limitations.
Subject to certain limitations set forth in the Convertible Note,
each of the Company and the noteholder could redeem all or a
portion of the outstanding principal and accrued interest owing
under the Convertible Note into common shares, at a per share price
equal to the greater of (x) an 8% discount to the closing price per
share on the applicable redemption date or (y) $6.44 (the “Optional
Redemption Rate”). Up to $12,500 in aggregate principal under the
Convertible Note could be so redeemed within one year of issuance,
subject to certain additional limitations.
If the closing price per share of the Company’s common shares on
the Nasdaq Capital Market is below $7.00 for 15 consecutive trading
days, neither party would be permitted to redeem any portion of the
Convertible Note until the closing price per common share has been
above $7.00 for 15 consecutive trading days. At any time, including
during the time while the holder is restricted from redeeming all
or any portion of the Notes, the holder of the Convertible Note
could elect to receive cash repayment of principal and accrued
interest on the Convertible Note, in an amount not to exceed $3,500
in any 30 consecutive calendar day period, which amount shall be
reduced to $2,000 when the principal on the Convertible Note is
less than $12,500.
The holder of the Convertible Note would not be entitled to convert
any portion of the Convertible Note if, after such conversion, such
holder would have beneficial ownership of, and direct or indirect
control or direction over, more than 9.99% of the Company’s
outstanding common shares.
The Convertible Note was subject to certain events of default. The
occurrence of these events of default would give rise to a 5%
increase in the interest rate to a total of 10% per annum for as
long as the event of default continues and give the holder of the
Convertible Note the right to redeem the outstanding principal and
accrued interest on the Convertible Note at the Optional Redemption
Rate. Certain events of default also require the Company to repay
all outstanding principal and accrued interest on the Convertible
Note. In addition, in certain circumstances, if the Company failed
to timely deliver common shares as required upon conversion or
redemption of the Convertible Note, then the Company would be
required to pay, on each day that such failure to deliver common
shares continues, an amount in cash equal to 0.75% of the product
of (x) the number of common shares the Company failed to deliver
(on or prior to share delivery deadline and to which holder is
entitled) multiplied by (y) any closing trading price of the common
shares (selected by the Holder in writing during the period
beginning on the applicable Conversion/Redemption Date and ending
on the applicable Conversion/Redemption Share Delivery Deadline.)
The obligations of the Company under the Note Purchase Agreement
were guaranteed by certain of the Company's
subsidiaries.
The Company evaluated all settlement possibilities to conclude if
the Convertible Note represented an obligation under ASC 480. As of
the inception of the Convertible Note, the Company analyzed whether
the Share Redemption is predominant based on the likelihood the
Convertible Note would settle in accordance with that particular
provision, compared to the likelihood of settling under all other
possibilities and determined that in order for the Convertible Note
to be subject to ASC 480, there must be a 90% likelihood of
settlement using a variable number of shares such that the monetary
value is substantially fixed. Based upon the overall assessment of
settlement possibilities, the Company concluded that the
Convertible Note is not subject to ASC 480.
In connection with the 2024 Convertible Note and issuance of common
shares upon Convertible Note conversions during year 2021, the
Company analyzed the convertible instrument for a beneficial
conversion feature in accordance with ASC 470-10 and in accordance
to ASC 815. The Company determined it was not a derivative
requiring liability treatment and the redemption feature was not
bifurcated as a derivative liability, as it was closely related to
the host. The Company concluded that during October 2021, the
contingency linked to the beneficial conversion factor was met and
the beneficial conversion factor with discount on debt was
recognized. The Company recorded a beneficial conversion feature of
$4,748 in Additional Paid in Capital. The discount created by the
beneficial conversion factor was amortized from the date the
contingency was met to maturity or earlier redemption date of
holder's put. As a result, the Company recorded $3,519 total debt
amortization, within Interest expense in the Consolidated Statement
of Operations for 2021. The Conversion feature was evaluated under
ASC 815 for an embedded derivative and noted that conversion
features qualifies for the scope exception for instruments that are
indexed to Company's own equity and bifurcation is not required
from the host debt instrument.
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 Company evaluated the guidance for Beneficial Conversion
Features ("BCF") per ASC 470. At the commitment date, the fair
value of the shares contingently issuable upon conversion was
greater than the allocated proceeds and calculated the intrinsic
value of conversion feature for the amount of $9,496 which should
be recognized in earnings if and when the contingencies are
resolved. In establishing the accounting policy for the recognition
of this contingent BCF, the Company considered that this settlement
is only available to a limited portion of principal ($12,500
convertible in the first year), when price is below $7.00. The
second half of the debt becomes convertible when the trading price
falls to $7.00 during the second or third year the Convertible Note
is outstanding. During 2021, first contingency feature was resolved
and BCF for $4,748 was recorded.
Additionally, the Company recorded debt issuance cost of $630 and
debt discount of $335, which together total of $965. The discount
created by the beneficial conversion factor was amortized from the
date the contingency was met to maturity or earlier redemption date
of holder's put. These costs are amortized to interest expense over
the life of the debt. A portion of the discount was accelerated in
proportion to the extent note holder had the right to exercise the
contingent put to receive cash repayments on account of principal
and accrued Interest.
On January 13, 2022, the Company and Catalina LP entered the First
Amendment to the Secured Convertible Note (the "First Amendment
Agreement"), amending certain terms of the original Secured
Convertible Note issued by the Company to Catalina. The amendment
changed the Optional Redemption Price to be the greater of (i)
$2.208 ($6.44 in the Original Note); and (ii) an 8% discount to the
4-day lowest volume weighted average trading price (VWAP) of the
Common Shares on the Nasdaq Capital Market on each of the three
days prior to and including the date of the Optional Redemption
Notice (the Original Note provided for an 8% discount to the
closing price of the Common Shares on the Original Redemption
Date). These amendments were temporary amendments that would have
expired on July 19, 2022, at which time the terms of the original
note apply with respect to such amendments. The First Amendment
Agreement allowed Catalina to elect to receive cash repayment on
account of Principal if the closing price per share of the
Company’s common shares on the Nasdaq Capital Market is below $2.20
(from $7.00 in the original Secured Convertible Note) on any 10 of
the previous 20 trading days. The terms of the Original Note would
have applied to redemptions or repayments after July 19, 2022,
unless further amended by the parties thereto.
The amendment also added the limitations on redemptions into Common
Shares by Catalina as follows: (1) from and after February 1, 2022,
Catalina may redeem up to an aggregate amount of $2,000 (the “Base
Redemption Amount”) during a calendar month at the Optional
Redemption Price; (2) from and after February 1, 2022, Catalina may
redeem up to an additional $1,500 (the “Additional Redemption
Amount”) during a calendar month at a redemption price that is the
greater of (i) $4.60 and (ii) an 8% discount to the 4-day VWAP; and
(3) until January 31, 2022, Catalina may redeem up to an aggregate
amount of $4,000 (the “Make-Up Base Redemption Amount”) at the
Optional Redemption Price; and (4) until January 31, 2022, Catalina
may redeem up to an additional $3,000 (the “Make-Up Additional
Redemption Amount”) at a redemption price that is the greater of
(i) $4.60 and (ii) an 8% discount to the 4-day VWAP. The Company
compared the change in fair value of the conversion feature to the
pro forma carrying amount and noted that it is more than 10%. The
Company accounted for this amendment as a debt extinguishment. The
Company also compared the effective conversion price with fair
value of the Company's common stock and noted no BCF to be
reacquired at the time of extinguishment. As a result, during the
three months ended March 31, 2022, the Company recognized a loss on
debt extinguishment of $2,263 which included unamortized debt
issuance cost and BCF that was evaluated under the terms of the
original Catalina LP Secured Convertible note.
At the amendment date, new terms were evaluated for Beneficial
Conversion Features ("BCF") per ASC 470 and noted that the fair
value of the shares issuable upon conversion was greater than the
allocated proceeds. As a result, the Company calculated and
recorded the intrinsic value of conversion feature and BCF of
$1,749. The Company recognized $1,644 discount created by the BCF
for the quarter ended March 31, 2022, accelerating amortization on
straight line basis from the date of amendment to the date of
payment. No other derivative bifurcation was noted.
In April 2022, the Company fully repaid its 2024 Convertible Note
with accrued interest. As a result of the full repayment of the
2024 Convertible Note, the Company recognized the remaining balance
of $105 discount created by the BCF for the quarter ended June 30,
2022, within interest expense in the Consolidated Statement of
Operations.
The Company repaid principal of $16,719 and accrued interest of
$27, for a total amount of $16,746, of the 2024 Convertible Note
during the nine months ended September 30, 2022.
During the nine months ended September 30, 2022, the Company
issued a total of 1,507,000 common shares upon debt conversion to
the noteholder of $3,363 aggregate principal amount.
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)
As of September 30, 2022, there was no outstanding principal
balance, including interest, of the 2024 Convertible Note
payable.
Other Borrowings
Portugal Debt
In January 2021, Clever Leaves Portugal Unipessoal LDA borrowed
€1,000 ($1,213) (the "Portugal Debt"), from a local lender (the
"Portugal Lender") under the terms of its credit line agreement.
The Portugal Debt pays interest quarterly at a rate of Euribor plus
3 percentage points. This loan is secured by our mortgaged
asset.
For the three months ended September 30, 2022 and 2021, the
Company recognized interest expense of approximately €7 ($7) and
nil, respectively, and repaid principal of approximately €63 ($63)
and nil, respectively, of the Portugal Debt in accordance with the
terms of the loan agreement. For the nine months ended
September 30, 2022 and 2021, the Company recognized interest
expense of approximately €22 ($24) and nil, respectively, and
repaid principal of approximately €188 ($200) and nil,
respectively, of the Portugal Debt in accordance with the terms of
the loan agreement. The outstanding principal balance of the
Portugal Debt as of September 30, 2022 and December 31, 2021
was €813 ($1,013) and €1,000 ($1,213), respectively.
Colombia Debt
Ecomedics S.A.S. has entered into loan agreements with multiple
local lenders (collectively, the "Colombia Debt"), under which the
Company borrowed approximately COP$5,305,800 ($1,295) of mainly
working capital loans. The working capital loans are secured by
mortgage of our farm land in Colombia as collateral. These loans
bear interest at a range of 10.96% to 12.25% per annum denominated
in Colombian pesos. The first payment of the principal and interest
will be repaid six months after receiving the loan. After the first
payment, the principal and interest will be repaid
semi-annually.
For the three months ended September 30, 2022 and 2021, the
Company recognized interest expense of approximately COP$7,809 ($2)
and nil, respectively, and repaid principal of approximately
COP$306,822 ($69) and nil, respectively. For the nine months ended
September 30, 2022 and 2021, the Company recognized interest
expense of approximately COP$259,144 ($67) and nil respectively,
and repaid principal of approximately COP$875,664 ($213) and nil,
respectively. The outstanding principal balance of the Colombia
Debt as of September 30, 2022 and December 31, 2021 was
COP$4,035,296 ($890) and COP$4,592,095 ($1,153),
respectively.
12. CAPITAL STOCK
Common Shares
As of September 30, 2022 and December 31, 2021, a total
of 43,571,444 and 26,605,797 common shares were issued and
outstanding, respectively. The increase in share count was
primarily the result of shares issuance under the ATM. See Equity
Distribution Agreement disclosed below.
In April 2022, the Company fully repaid its 2024 Convertible Note
with accrued interest. In connection with the convertible note
purchase agreement, the Company issued a total of 1,507,000, shares
of common stock upon debt conversion to the noteholder as of
September 30, 2022. For more information, refer to Note 11 to
our interim financial statements for the period ended of
September 30, 2022.
Equity Distribution Agreement
On January 14, 2022, the Company entered into an Equity
Distribution Agreement (the “Equity Distribution Agreement”) with
Canaccord Genuity LLC, as sales agent (the “Agent”). Under the
terms of the Equity Distribution Agreement, the Company may issue
and sell its common shares, without par value, having an aggregate
offering price of up to $50,000 from time to time through the
Agent. The issuance and sale of the common shares under the Equity
Distribution Agreement have been made, and any such future sales
will be made, pursuant to the Company’s effective registration
statement on Form S-3 (File No. 333-262183), which includes an
“at-the-market” (“ATM”) offering prospectus supplement (the
"Prospectus Supplement"), as amended by Amendment No.1 and
Amendment No.2 (defined below).
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)
On March 24, 2022, the Company filed Amendment No. 1 to the
Prospectus Supplement ("Amendment No. 1") indicating that it was,
at that time, subject to “baby shelf” rules pursuant to Instruction
I.B.6. of Form S-3. As such, the Company could not sell more than
one-third of the aggregate market value of the voting and
non-voting common equity held by non-affiliates, with such
aggregate market value calculated using figures from a date or
dates, as the case may be, within the preceding 60-days from the
date of filing the Annual Report. Pursuant to this baby shelf cap,
the Company could not offer to or sell equity securities for more
than one-third of its public float, which, limited the aggregate
offering price pursuant to the ATM to approximately
$18,111.
The Company filed Amendment No. 2 to the Prospectus Supplement
(“Amendment No. 2”) on March 28, 2022, to reflect that it was no
longer subject to the limitations under General Instruction I.B.6
of Form S-3 and, therefore, in accordance with the terms of the
Equity Distribution Agreement, the Company may offer and sell its
common shares having an aggregate offering price of up to $46,599
from time to time through the Agent.
Subject to terms of the Equity Distribution Agreement, the Agent is
not required to sell any specific number or dollar amount of common
shares but has agreed to act as the Company’s sales agent, using
commercially reasonable efforts to sell on the Company’s behalf all
of the common shares requested by the Company to be sold,
consistent with the Agent’s normal trading and sales practices, on
terms mutually agreed between the Agent and the Company. The Agent
is entitled to compensation under the terms of the Equity
Distribution Agreement at a fixed commission rate not to exceed
3.0% of the gross proceeds from each issuance and sale of common
shares.
For the three months ended September 30, 2022, the Company had
issued and sold 3,947,198 shares pursuant to the ATM offering, for
aggregate net proceeds of $4,118, which consisted of gross proceeds
of $4,286 and $168 equity issuance costs.
For the nine months ended September 30, 2022, the Company had
issued and sold a total of 14,994,765 shares pursuant to the ATM
offering, for aggregate net proceeds of $26,341, which consisted of
gross proceeds of $27,686 less $1,345 of equity issuance
costs.
Warrants
As of September 30, 2022, excluding the Rock Cliff warrants,
the Company had 12,877,361 of its public warrants classified as a
component of equity and 4,900,000 of its private warrants
recognized as liability. Each warrant entitles the holder to
purchase one common share at an exercise price of $11.50 per share
commencing 30 days after the closing of the Business Combination
and will expire on December 18, 2025, at 5:00 p.m., New York City
time, or earlier upon redemption. Once the warrants are
exercisable, the Company may redeem the outstanding public warrants
at a price of $0.01 per warrant if the last reported sales price of
the Company’s common shares equals or exceeds $18.00 per share (as
adjusted for share splits, share capitalizations, reorganizations,
recapitalizations and the like) for any 20 trading days within a 30
trading day period ending on the third trading day prior to the
date on which the Company will send the notice of redemption to the
warrant holders. The private warrants were issued in the same form
as the public warrants, but they (i) are not redeemable by the
Company and (ii) may be exercised for cash or on a cashless basis
at the holder’s option, in either case as long as they are held by
the initial purchasers or their permitted transferees (as defined
in the warrant agreement). Once a private warrant is transferred to
a holder other than an affiliate or permitted transferee, it is
treated as a public warrant for all purposes. The terms of the
warrants may be amended in a manner that may be adverse to holders
with the approval of the holders of at least a majority 50.1% of
the then outstanding warrants.
In accordance to ASC 815, certain provisions of private warrants
that do not meet the criteria for equity treatment are recorded as
liabilities with the offset to additional paid-in capital and are
measured at fair value at inception and at each reporting period in
accordance with ASC 820,
Fair Value Measurement,
with changes in fair value recognized in the statement of
operations in the period of change.
As of September 30, 2022, the Company performed a valuation of
the private warrants and as a result recorded a net gain on
remeasurement for the three and nine months ended
September 30, 2022, of approximately $196 and $2,009,
respectively, in its consolidated statement of
operations.
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)
As of September 30, 2021, the Company performed a valuation of
the private warrants and as a result recorded, in the consolidated
statement of operations, a net gain on remeasurement for the three
months and nine months ended September 30, 2021 of
approximately $9,065 and $5,390, respectively, in its consolidated
statement of operations.
Herbal Brands Acquisition
In April 2019, the Company issued the Rock Cliff Warrants to
purchase 193,402 Clever Leaves Class C convertible preferred
shares on a 1:1 basis, at a strike price of $8.79 per share. The
fair value of the Rock Cliff Warrants was $717. The warrants can be
exercised in part or in whole at any time prior to the expiration
date of May 3, 2021, and are not assignable, transferable, or
negotiable. The equity classified warrants are amortized to
interest expense over the life of the debt. In May 2022, the
Company fully repaid the Herbal Brand loan, and as a result, the
Company recognized the remaining amortization balance within
interest expense in the consolidated statement of
operation.
In August 2020 and in connection with the Company's modification to
the Herbal Brands Loan, the Company extended the expiration date of
the Rock Cliff Warrants to May 3, 2023. Following the closing of
the Business Combination and pursuant to the terms, the holder of
the Rock Cliff Warrants can purchase 63,597 of the Company's common
shares at a strike price of $26.73 per share.
In May 2022, the Company fully repaid the Herbal Brands Loan in the
amount of approximately $5,642, including interest and fees, in
full satisfaction of Herbal Brands' obligations under the Loan and
Security Agreement. As a result of the full repayment of the Herbal
Brand Loan, the Company recorded the remaining amortization balance
of the Rock Cliff Warrants within interest and amortization of debt
issuance cost in the consolidated statement of operation as of June
30, 2022.
During the three and nine months ended September 30, 2022, the
Company amortized $nil and $200, respectively, to interest
expense.
During the three and nine months ended September 30, 2021, the
Company amortized $38 and $113, respectively, to interest
expense.
13. GENERAL AND ADMINISTRATION
The components of general and administrative expenses were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
|
|
|
Salaries and benefits |
$ |
3,280 |
|
|
$ |
3,838 |
|
|
$ |
11,685 |
|
|
$ |
10,824 |
|
Office and administration |
1,201 |
|
|
1,356 |
|
|
3,561 |
|
|
3,822 |
|
Professional fees |
517 |
|
|
858 |
|
|
3,596 |
|
|
4,665 |
|
Share based compensation |
958 |
|
|
3,264 |
|
|
2,606 |
|
|
8,137 |
|
Rent |
257 |
|
|
337 |
|
|
1,047 |
|
|
994 |
|
Other
(a)
|
(126) |
|
|
963 |
|
|
(134) |
|
|
939 |
|
Total
|
$ |
6,087 |
|
|
$ |
10,616 |
|
|
$ |
22,361 |
|
|
$ |
29,381 |
|
(a)
For the three and nine months ended September 30, 2021, the
Company reclassified $454 and $1,037, respectively, research and
development ("R&D") expenses, reported in the previous periods
in other general & administrative expense to R&D expense,
as presented on the Consolidated Statement of Operations, to
conform to the current period presentation.
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)
14. RESTRUCTURING EXPENSE
The Company has been reviewing, planning and implementing various
strategic initiatives targeted principally at reducing costs,
enhancing organizational efficiency and optimize its business
model. As part of this process, the Company recorded a
restructuring charge of approximately $4,008 related to asset write
off, severance, and other related costs during the three months
ended March 31, 2022.
Asset write off
– With the recent passage of Regulation 227 in February 2022 and
the Joint Resolution 539 of 2022 by the Colombian Government in
April 2022, the Company will be able to export cannabis flower for
medicinal use. With this significant new opportunity opening up,
the Company evaluated its current production capacity for cannabis
extracts and thus identified the need to scale back on some of the
extraction capacity and related assets. Excess assets, including a
large extractor, was identified and abandoned for a total of $2,773
during the three months ended March 31, 2022.
Reduction-in-workforce
- The Company approved plans to reduce its workforce in various
departments across multiple geographies to effectively align its
resources and manage operating costs, which resulted in a total
charge of approximately $1,235 of severance costs for the three
months ended March 31, 2022 related to the workforce reductions. As
of September 30, 2022, the Company paid $473 and reversed $217
of the total $1,235 of severance costs. At September 30, 2022,
the balance of $546 of accrued termination related costs remained
outstanding as part of "Other long-term liabilities" on our
consolidated statement of financial position.
15. SHARE-BASED COMPENSATION
Stock-Based Compensation Plans
The Company's 2018 Equity Incentive Plan, 2020 Equity Incentive
Plan and Earnout Plan are described in the Company's 2021 Form
10-K.
Share-Based Compensation Expense
The following table summarizes the Company's share-based
compensation expense for each of its awards, included in the
Consolidated Statements of Operations for the three and nine months
ended September 30, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
|
|
|
Share-based compensation award type: |
|
|
|
|
|
|
|
Stock Options |
$ |
66 |
|
|
$ |
283 |
|
|
$ |
336 |
|
|
$ |
1,005 |
|
RSUs |
892 |
|
|
2,981 |
|
|
2,270 |
|
|
7,132 |
|
Total Shared Based Compensation Expense |
$ |
958 |
|
|
$ |
3,264 |
|
|
2,606 |
|
|
8,137 |
|
The Company recognized share-based compensation expense in general
and administrative expense.
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)
Stock Options
The following table is a summary of options activity for the
Company’s equity incentive plans for the nine months ended
September 30, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Weighted-Average
Exercise Price
|
|
Weighted-Average
Remaining
Contractual
Term (Years)
|
|
Aggregate Intrinsic Value |
Balance as at December 31, 2021 |
784,193 |
|
|
$ |
5.91 |
|
|
3.68 |
|
$ |
— |
|
Granted |
23,114 |
|
|
2.16 |
|
|
7.25 |
|
— |
|
Exercised |
(158,882) |
|
|
0.24 |
|
|
— |
|
|
$ |
130 |
|
Forfeited |
(54,427) |
|
|
7.54 |
|
|
— |
|
|
— |
|
Expired |
(158,104) |
|
|
5.91 |
|
|
— |
|
|
— |
|
Balance as of September 30, 2022 |
435,894 |
|
|
$ |
7.21 |
|
|
2.71 |
|
$ |
— |
|
Vested and expected to vest as of September 30, 2022 |
425,361 |
|
|
$ |
7.13 |
|
|
2.74 |
|
$ |
— |
|
Vested and exercisable as of September 30, 2022 |
318,079 |
|
|
$ |
6.81 |
|
|
2.15 |
|
$ |
— |
|
The aggregate intrinsic value of stock options is calculated as the
difference between the exercise price of the stock options and the
fair value of the Company’s common shares for all stock options
that had exercise prices lower than the fair value of the Company’s
common shares.
The weighted-average grant-date fair value per share of
stock-options granted during the nine months ended
September 30, 2022 and 2021 was $1.95 and $9.97,
respectively.
The share-based compensation expense related to unvested stock
options awards not yet recognized as of September 30, 2022 and
December 31, 2021, was $561 and $1,414, respectively, which is
expected to be recognized over a weighted average period of 1.2 and
1.4 years, respectively.
Restricted Share Units
Time-based Restricted Share Units
The fair value for time-based RSUs is based on the closing price of
the Company’s common shares on the grant date.
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 table summarizes the changes in the Company’s
time-based restricted share unit activity during the nine months
ended September 30, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Share Units
|
|
Weighted-Average
Grant Date Fair Value
|
Non-vested as of December 31, 2021 |
502,701 |
|
|
$ |
10.93 |
|
Granted |
2,004,324 |
|
|
2.53 |
|
Vested |
(276,921) |
|
|
9.19 |
|
Canceled/forfeited |
(648,385) |
|
|
3.44 |
|
Non-vested as of September 30, 2022
|
1,581,719 |
|
|
$ |
3.66 |
|
Market-based Restricted Share Units
The Company has previously granted RSUs with both a market
condition and a service condition (market-based RSUs) to the
Company’s employees. No such market-based RSUs were granted during
the nine months ended September 30, 2022. The market-based
condition for these awards requires that (i) the Company’s common
shares maintain a closing price equal to or greater than $12.50 for
any 20 trading days within any consecutive 30 trading day period on
or before December 18, 2022 (which condition was met on March 16,
2021) or (ii) the Company's common shares maintain a closing price
equal to or greater than $15.00 for any 20 trading days within any
consecutive 30 trading day period on or before December 18, 2024.
Provided that the market-based condition is satisfied, and the
respective employee remains employed by the Company, the
market-based restricted share units will vest in four equal annual
installments on the applicable vesting date.
The following table presents the weighted-average assumptions used
in the Monte Carlo simulation model to determine the fair value of
the market-based restricted share units granted in the nine months
ended September 30, 2022:
|
|
|
|
|
|
|
Weighted Average Assumptions |
Grant date share price |
$ |
2.53 |
|
Risk-free interest rate |
1.6 |
% |
Expected dividend yield |
0.0 |
% |
Expected volatility |
75 |
% |
Expected life (in years) |
2.54 - 2.36
|
The following table summarizes the changes in the Company’s
market-based restricted share unit activity during the nine months
ended September 30, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Share Units
|
|
Weighted-Average
Grant Date Fair Value
|
Non-vested as of December 31, 2021 |
1,073,331 |
|
|
$ |
12.94 |
|
Granted |
— |
|
|
— |
|
Vested |
(35,268) |
|
|
13.91 |
|
Canceled/forfeited |
(305,955) |
|
|
12.84 |
|
Non-vested as of September 30, 2022 |
732,108 |
|
|
$ |
12.93 |
|
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)
16. REVENUE
The Company’s policy is to recognize revenue at an amount that
reflects the consideration that the Company expects that it will be
entitled to receive in exchange for transferring goods or services
to its customers. The Company’s policy is to record revenue when
control of the goods transfers to the customer. The Company
evaluates the transfer of control through evidence of the
customer’s receipt and acceptance, transfer of title, the Company’s
right to payment for those products and the customer’s ability to
direct the use of those products upon receipt. Typically, the
Company’s performance obligations are satisfied at a point in time,
and revenue is recognized, either upon shipment or delivery of
goods. In instances where control transfers upon customer
acceptance, the Company estimates the time period it takes for the
customer to take possession and the Company recognizes revenue
based on such estimates. The transaction price is typically based
on the amount billed to the customer and includes estimated
variable consideration where applicable.
Disaggregation of Revenue
Refer to Note 17 Segment Reporting to our interim financial
statements for the period ended of September 30, 2022 for
disaggregation of revenue data.
Contract Balances
The timing of revenue recognition, billing and cash collections
results in billed accounts receivable and deferred revenue
primarily attributable to advanced customer payment, on the
Consolidated Statements of Financial Position. Accounts receivables
are recognized in the period in which the Company's right to the
consideration is unconditional. The Company's contract liabilities
consist of advance payment from a customer, which is classified on
the Consolidated Statements of Financial Position as current and
non-current deferred revenue.
As of September 30, 2022, the Company's deferred revenue,
included in current liabilities was $1,280. The Company had no
deferred revenue, included in non-current liabilities as of
September 30, 2022.
As of December 31, 2021, the Company's deferred revenue,
included in current and non-current liabilities was $653 and
$1,548, respectively.
17. SEGMENT REPORTING
Operating segments include components of an enterprise about which
separate financial information is available that is evaluated
regularly by the chief operating decision maker (the Company’s
Chief Executive Officer, “CEO”) in deciding how to allocate
resources and in assessing the Company’s performance.
Operating segments for the Company are organized by product type
and managed by segment managers who are responsible for the
operating and financial results of each segment. Due to the
similarities in the manufacturing and distribution processes for
the Company’s products, much of the information provided in these
consolidated financial statements and the footnotes to the
consolidated financial statements, is similar to, or the same as,
that information reviewed on a regular basis by the Company’s
CEO.
The Company’s management evaluates segment profit/loss for each of
the Company’s operating segments. The Company defines segment
profit/loss as income from continuing operations before interest,
taxes, depreciation, amortization, share-based compensation
expense, gains/losses on foreign currency fluctuations,
gains/losses on the early extinguishment of debt and miscellaneous
expenses. Segment profit/loss also excludes the impact of certain
items that are not directly attributable to the reportable
segments’ underlying operating performance. Such items are shown
below in the table reconciling segment profit/(loss) to
consolidated income/(loss) from continuing operations before income
taxes. The Company does not have any material inter-segment sales.
Information about total assets by segment is not disclosed because
such information is not reported to or used by the Company’s CEO.
Segment goodwill and other intangible assets, net, are disclosed in
Note 9 and Note 8, respectively.
As of September 30, 2022, the Company’s operations were
organized in the following two reportable segments:
1.The
Cannabinoid operating segment: comprised of the Company’s
cultivation, extraction, manufacturing and commercialization of
cannabinoid products. This operating segment is in the early stages
of commercializing
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)
cannabinoid products internationally pursuant to applicable
international and domestic legislation, regulations, and other
permits. The Company’s principal customers and sales for its
products are primarily outside of the U.S.
2.Non-Cannabinoid
operating segment: comprised of the brands acquired as part of the
Herbal Brands acquisition in April 2019. The segment is
engaged in the business of formulating, manufacturing, marketing,
selling, distributing, and otherwise commercializing nutraceuticals
and other natural remedies, wellness products, detoxification
products, nutraceuticals, and nutritional and dietary supplements.
The Company’s principal customers for its Herbal Brands products
include mass retailers, specialty and health retailer and
distributors in the U.S.
The following table is a comparative summary of the Company’s net
sales and segment profit by reportable segment for the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2022 |
2021 |
|
2022 |
|
2021 |
Segment Net Sales:
|
|
|
|
|
|
|
|
Cannabinoid |
$ |
979 |
|
|
$ |
875 |
|
|
$ |
4,269 |
|
|
$ |
2,131 |
|
Non-Cannabinoid |
2,326 |
|
|
3,156 |
|
|
8,917 |
|
|
9,049 |
|
Total net sales |
3,305 |
|
|
4,031 |
|
|
13,186 |
|
|
11,180 |
|
|
|
|
|
|
|
|
|
Segment Profit (Loss):
|
|
|
|
|
|
|
|
Cannabinoid |
$ |
(4,395) |
|
|
$ |
(4,391) |
|
|
$ |
(17,421) |
|
|
$ |
(10,859) |
|
Non-Cannabinoid |
95 |
|
|
551 |
|
|
1,109 |
|
|
1,797 |
|
Total segment loss |
$ |
(4,300) |
|
|
$ |
(3,840) |
|
|
$ |
(16,312) |
|
|
$ |
(9,062) |
|
|
|
|
|
|
|
|
|
Reconciliation:
|
|
|
|
|
|
|
|
Total segment loss |
$ |
(4,300) |
|
|
$ |
(3,840) |
|
|
$ |
(16,312) |
|
|
$ |
(9,062) |
|
Unallocated corporate expenses |
(1,425) |
|
|
(2,243) |
|
|
(6,802) |
|
|
(8,416) |
|
Non-cash share-based compensation |
(958) |
|
|
(3,264) |
|
|
(2,606) |
|
|
(8,137) |
|
Depreciation and amortization |
(508) |
|
|
(337) |
|
|
(1,562) |
|
|
(1,440) |
|
Intangible asset impairment |
(19,000) |
|
|
— |
|
|
(19,000) |
|
|
— |
|
|
|
|
|
|
|
|
|
Loss from operations |
$ |
(26,191) |
|
|
$ |
(9,684) |
|
|
$ |
(46,282) |
|
|
$ |
(27,055) |
|
|
|
|
|
|
|
|
|
Loss (gain) on debt extinguishment, net |
— |
|
|
(3,375) |
|
|
2,263 |
|
|
(3,375) |
|
|
|
|
|
|
|
|
|
Gain on remeasurement of warrant liability |
(196) |
|
|
(9,065) |
|
|
(2,009) |
|
|
(5,390) |
|
Gain on investment |
— |
|
|
— |
|
|
(6,851) |
|
|
— |
|
Foreign exchange loss |
768 |
|
|
298 |
|
|
1,420 |
|
|
1,137 |
|
Interest (income) expense and amortization of debt issuance
cost |
(51) |
|
|
485 |
|
|
2,719 |
|
|
2,383 |
|
Other expense (income), net |
101 |
|
|
964 |
|
|
111 |
|
|
(123) |
|
(Loss) Income before income tax |
$ |
(26,813) |
|
|
$ |
1,009 |
|
|
$ |
(43,935) |
|
|
$ |
(21,687) |
|
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 table disaggregates the Company’s revenue by channel
for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Mass retail |
$ |
2,008 |
|
|
$ |
1,958 |
|
|
$ |
7,243 |
|
|
$ |
5,567 |
|
Distributors |
927 |
|
|
1,650 |
|
|
4,250 |
|
|
4,330 |
|
Specialty, health and other retail |
282 |
|
|
277 |
|
|
1,234 |
|
|
852 |
|
E-commerce |
88 |
|
|
146 |
|
|
459 |
|
|
431 |
|
Total |
$ |
3,305 |
|
|
$ |
4,031 |
|
|
$ |
13,186 |
|
|
$ |
11,180 |
|
The following table represents the Company's revenues attributed to
countries based on location of customer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|
2022 |
2021 |
2022 |
|
2021 |
United States |
$ |
2,228 |
|
|
$ |
3,130 |
|
$ |
8,736 |
|
|
$ |
9,022 |
|
Israel |
116 |
|
|
$ |
226 |
|
$ |
1,139 |
|
|
$ |
424 |
|
Australia |
333 |
|
|
501 |
|
1,017 |
|
|
1,141 |
|
Brazil |
249 |
|
|
1 |
|
1,169 |
|
|
147 |
|
Germany |
360 |
|
|
25 |
|
912 |
|
|
25 |
|
Other |
19 |
|
|
148 |
|
213 |
|
|
421 |
|
Total |
$ |
3,305 |
|
|
$ |
4,031 |
|
$ |
13,186 |
|
|
$ |
11,180 |
|
During the nine months ended September 30, 2022 and 2021, the
majority of the Company's net sales for the non-cannabinoid segment
were in the U.S., with approximately $8.7 million of
non-cannabinoid net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Revenues |
|
Percentage of Accounts Receivable |
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
September 30, |
|
December 31, |
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Customer A |
|
* |
|
* |
|
* |
|
* |
|
24% |
|
* |
Customer B
(a)
|
|
17% |
|
15% |
|
12% |
|
17% |
|
10% |
|
25% |
Customer C
(b)
|
|
* |
|
* |
|
* |
|
* |
|
20% |
|
18% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer E
(b)
|
|
* |
|
* |
|
* |
|
* |
|
13% |
|
* |
* denotes less than 10%
(a) net sales attributed are reflected in the non-cannabinoid
segments
(b) net sales attributed are reflected in the cannabinoid
segments
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
December 31,
2021 |
Long-lived assets
|
|
|
|
Colombia |
$ |
16,722 |
|
|
$ |
18,950 |
|
Portugal |
12,087 |
|
|
11,733 |
|
Other(a)
|
187 |
|
|
249 |
|
Total |
$ |
28,996 |
|
|
$ |
30,932 |
|
(a)“Other”
includes long-lived assets primarily in the U.S.
Long-lived assets consist of the Company's property plant and
equipment assets.
18. NET (LOSS) INCOME PER SHARE
Basic net loss per share is calculated by dividing net loss by the
weighted-average number of common shares outstanding during the
year, without consideration for common share equivalents. Diluted
net loss per share is computed by dividing net loss by the
weighted-average number of common share equivalents outstanding for
the year determined using the treasury-stock method. For purposes
of this calculation, common share warrants and stock options are
considered to be common share equivalents and are only included in
the calculation of diluted net income per share when their effect
is dilutive.
The following table sets forth the computation of basic and diluted
net loss and the weighted average number of shares used in
computing basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Numerator: |
|
|
|
|
|
|
|
Net (loss) Income |
$ |
(20,163) |
|
|
$ |
995 |
|
|
$ |
(37,349) |
|
|
$ |
(21,726) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic and
diluted |
42,222,564 |
|
|
25,755,972 |
|
|
36,633,222 |
|
|
25,466,404 |
|
|
|
|
|
|
|
|
|
Net (loss) income per common share- basic and diluted |
$ |
(0.48) |
|
|
$ |
0.04 |
|
|
$ |
(1.02) |
|
|
$ |
(0.85) |
|
The Company's potentially dilutive securities, which include common
stock, warrants, stock options, and unvested restricted stock 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 attributable to
common shareholders is the same.
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 Company excluded the following potential common shares,
presented based on amounts outstanding as of September 30,
2022 and 2021, from the computation of diluted net loss per share
attributable to common shareholders because including them would
have had an anti-dilutive effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
September 30, 2021 |
|
|
|
|
Common stock warrants |
17,840,951 |
|
|
17,840,951 |
|
SAMA earnout shares |
570,211 |
|
|
570,211 |
|
Stock options |
435,894 |
|
|
792,646 |
|
Unvested restricted share units |
2,313,827 |
|
|
1,846,670 |
|
Total |
21,160,883 |
|
|
21,050,478 |
|
19. LEASES
On January 1, 2022, we adopted the accounting standard ASC 842,
Leases, using the modified retrospective method. We elected this
adoption date as our date of initial application. As a result, we
have not updated financial information related to, nor have we
provided disclosures required under ASC 842 for, periods prior to
January 1, 2022. The primary changes to our policies relate to
recognizing most leases on our statement of financial position as
liabilities with corresponding right-of-use ("ROU")
assets.
The Company has entered into agreements under which we lease
various real estate spaces in North America, Europe and Latin
America, under non-cancellable leases that expire on various dates
through calendar year 2029. Some of our leases include options to
extend the term of such leases for a period from 12 months to 60
months, and/or have options to early terminate the lease. Some of
our leases require us to pay certain operating expenses in addition
to base rent, such as taxes, insurance and maintenance
costs.
As the Company’s leases do not typically provide an implicit rate,
the Company utilizes the appropriate incremental borrowing rate,
determined as the rate of interest that the Company would have to
pay to borrow on a collateralized basis over a similar term and in
a similar economic environment.
Practical Expedients
The modified retrospective approach included a package of optional
practical expedients that we elected to apply. Among other things,
these expedients permitted us not to reassess prior conclusions
regarding lease identification, lease classification and initial
direct costs under ASC 842. The Company does not separate lease and
non-lease components in determining ROU assets or lease liabilities
for real estate leases. Additionally, the Company does not
recognize ROU assets or lease liabilities for leases with original
terms or renewals of one year or less.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Statement Classification |
|
Three Months Ended September 30, 2022 |
Nine Months Ended September 30, 2022 |
Operating lease costs: |
|
|
|
|
|
Operating lease costs-Fixed |
|
General and administrative |
|
$ |
238 |
|
$ |
1,026 |
|
Operating lease costs-Variable |
|
General and administrative |
|
$ |
39 |
|
$ |
61 |
|
Short term lease costs |
|
General and administrative |
|
$ |
38 |
|
$ |
139 |
|
Sub-lease income |
|
General and administrative |
|
$ |
(59) |
|
$ |
(179) |
|
Operating lease costs |
|
Inventory |
|
$ |
154 |
|
$ |
154 |
|
Total lease costs |
|
|
|
$ |
410 |
|
$ |
1,201 |
|
The table above includes amounts relating to the Company's lease
costs, which includes net costs recognized in our operating
expenses during the period, including amounts capitalized as part
of the costs of Inventory, in accordance to ASC 330.
Variable
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)
lease costs primarily include maintenance, utilities and operating
expenses that are incremental to the fixed base rent payments and
are excluded from the calculation of operating lease liabilities
and ROU assets. For the three and nine months ended
September 30, 2022, cash paid for amounts associated with our
operating lease liabilities were approximately $457 and $1,354,
respectively, which were classified as operating activities in the
consolidated statement of cash flows.
The following table shows our undiscounted future fixed payment
obligations under our recognized operating leases and a
reconciliation to the operating lease liabilities as of
September 30, 2022:
|
|
|
|
|
|
|
|
|
Leases and a reconciliation to the operating lease liabilities as
of September 30, 2022
|
|
|
Remainder of Year 2022 |
|
$ |
474 |
|
2023 |
|
1,487 |
|
2024 |
|
832 |
|
2025 |
|
281 |
|
2026 |
|
131 |
|
Thereafter |
|
213 |
|
Total future fixed operating lease payments |
|
$ |
3,418 |
|
|
|
|
Less: Imputed interest |
|
$ |
421 |
|
Total operating lease liabilities |
|
$ |
2,997 |
|
|
|
|
Weighted-average remaining lease term - operating
leases |
|
2.79 |
Weighted-average discount rate - operating leases |
|
9.2 |
% |
Due to our election to apply the effective date method of adoption
for ASC 842, we have included the following additional disclosure
under our historical lease accounting under ASC 840.
As of December 31, 2021, future minimum lease payments under
non-cancelable operating lease were as follows
|
|
|
|
|
|
|
|
|
Lease Commitments |
|
|
2022 |
|
$ |
1,910 |
|
2023 |
|
1,562 |
|
2024 |
|
845 |
|
2025 |
|
337 |
|
2026 |
|
152 |
|
Thereafter |
|
286 |
|
Total |
|
$ |
5,092 |
|
20. SUBSEQUENT EVENTS
No events have occurred subsequent to the balance sheet date and
through the date of this filing that would require adjustment to or
disclosure in the financial statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Amounts in thousands of U.S. dollars, except as otherwise
noted.
Our Company
We are a multi-national operator in the botanical cannabinoid
and nutraceutical industries, with operations and investments in
Colombia, Portugal, Germany the United States and Canada. We are
working to develop one of the industry’s leading, low-cost global
business-to-business supply chains with the goal of providing high
quality, pharmaceutical grade cannabis and wellness products to
customers and patients at competitive prices produced in a
sustainable and environmentally friendly manner. Our customers
consist of retail distributors and pharmaceutical and cannabis
companies.
We have invested in ecologically sustainable, large-scale,
botanical cultivation and processing, as the cornerstone of our
medical cannabinoid business, and we continue to develop strategic
distribution channels and brands. We currently own approximately
2.1 million square feet of greenhouse cultivation capacity
across two continents and approximately 15 million square feet of
agricultural land. In addition, our pharmaceutical-grade extraction
facility is capable of processing 104,400 kilograms of dry flower
per year.
In July 2020, we became one of a small number of vertically
integrated cannabis companies to receive EU GMP certifications for
our Colombian operations. We believe this certification provides us
with one of the largest licensed capacities for cannabis
cultivation and cannabinoid extraction globally, while our
strategically located operations allow us to produce our products
at a fraction of the average cost of production incurred by our
peers in Canada and the United States.
In addition to the cannabinoid business, we are also engaged in the
non-cannabinoid business of formulating, manufacturing, marketing,
selling, distributing, and otherwise commercializing nutraceutical
and other natural remedies and wellness products, to more than
20,000 retail locations across the United States, through our
wholly owned subsidiary Herbal Brands, Inc. (“Herbal Brands”).
Herbal Brands has an Arizona based GMP-compliant, Food and Drug
Administration (“FDA”) registered facility and is a national
distributor of nutraceutical products. Along with nutraceutical
products, after conducting research and development on variety of
CBD products, Herbal Brands launched its first consumer brand,
Joysol, to include cannabinoids (CBD) for distribution through its
existing distribution channels in January 2022. Herbal Brands’
nationwide customer base provides a platform we intend to leverage
for greater potential cannabinoid distribution in the future,
should U.S. federal laws change and regulations
permit.
Our business model is focused on partnering with leading and
emerging cannabis and pharmaceutical businesses by providing them
with lower cost product, variable cost structures, reliable supply
throughout the year, and accelerated speed to market. We believe
this is achievable due to our production locations, capacity,
product registrations and various product
certifications.
We manage our business in two segments: the Cannabinoid and
Non-Cannabinoid segments.
1.The
Cannabinoid operating segment is comprised of our cultivation,
extraction, manufacturing, commercialization, and distribution of
cannabinoid products. This operating segment is in the early stages
of commercializing cannabinoid products internationally subject to
applicable international and state laws and regulations. Our
customers and sales for our cannabinoid segment products are mostly
outside of the United States.
2.The
Non-Cannabinoid operating segment is comprised of the brands
and manufacturing assets acquired as part of our acquisition of
Herbal Brands. The segment is engaged in the business of
formulating, manufacturing, marketing, selling, distributing, and
otherwise commercializing wellness products and nutraceuticals. Our
principal customers for the Herbal Brands products include
specialty and health retailers, mass retailers and specialty and
health stores in the United States.
Factors Impacting our Business
We believe that our future success will primarily depend on the
following factors:
Globalization of the industry. Due
to our MNO model focused on geographic diversification, which
distinguishes us from many of our competitors and allows us to
scale our production in low-cost regions of the world, we
believe we are well positioned to capitalize in markets where the
medical cannabis and hemp industry offers a reasonably regulated
and free flow of
goods across national boundaries. While certain countries, such as
Canada, have historically not welcomed imported cannabis or hemp
products for commercial purposes, other countries, such as Germany,
Brazil and Israel, depend primarily on imports.
Global medical market expansion. We
believe that we are well-positioned to capitalize on expansion
of global cannabis markets, as more legal medical cannabis
geographies emerge. Medical cannabis is now authorized at the
national or federal level in over 41 countries, and more than half
of these countries have legalized or introduced significant reforms
to their cannabis-use laws to broaden the scope of permitted
medical uses beyond the original parameters. Over the past three
years, we have established regional operations in Colombia,
Portugal, Germany, the United States and Canada, and we have
invested significant resources in personnel and partnerships to
build the foundation for new export channels.
Product development and innovation. Because
of the rapid evolution of the cannabis industry, the disparate
regulations across different geographies, and the time required to
develop and validate pharmaceutical-grade products, the pace
at which we can expand our portfolio of products and formulations
will impact market acceptance for our products. To increase our
output while maintaining or reducing unit costs, we may need to
enhance our cultivation, extraction, and other processing methods.
We believe our focus on the production of proprietary and exclusive
products or formulations that comply with stringent regulations, or
that result in enhanced benefits for patients or consumers, could
create advantages in various markets.
Regulatory expertise and adaptation. As
more markets welcome the importation of cannabis or hemp products
for commercial purposes, which requires navigating and complying
with the strict and evolving cannabis regulations across the
different geographies, we believe that we are well positioned to
expand in these markets. We have built a global regulatory team
that is experienced in developing good relationships with
regulatory agencies and governments that govern and shape the
cannabis industry in their respective jurisdictions. Key expertise
includes complying with and securing quotas, product approvals,
export permits, import permits and other geographic specific
licenses.
Strategically expanding productive capacity and manufacturing
capabilities. It
is beneficial to have low operating costs and to control the
production process to generate consistency and quality on a large
scale. As we expand into new markets and grow our presence in
existing markets, we expect significant investments in cultivation
and processing will be required, which may necessitate additional
capital raises. We also aim to increase productive capacity through
innovation in cultivation or processing methods, improving yields
and output levels of our existing assets. While we believe our core
cultivation and extraction operations in Colombia are adequately
sized for our current business operations, as our cannabis sales
grow and expand to flower products, we plan to expand our
operations and invest in advanced processing or finished good
manufacturing capabilities, particularly in Colombia and
Portugal.
Key Operating Metrics
We use the following key operating metrics to evaluate our business
and operations, measure our performance, identify trends affecting
our business, project our future performance and make strategic
decisions. Other companies, including companies in our industry,
may calculate key operating metrics with similar names differently,
which may reduce their usefulness as comparative
measures.
The following table presents select operational and financial
information of the Cannabinoid segment for the three and nine
months ended September 30, 2022 and 2021:
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Three months ended September 30, |
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Operational information: |
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2022 |
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2021
(d)
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Change |
(In $000s, except kilogram and per gram data) |
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