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OFFON

CLEVER LEAVES HOLDINGS INC.

(CLVR)
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CLEVER LEAVES : 10-K/A - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

05/14/2021 | 04:52pm EDT
This "Management's Discussion and Analysis of Financial Condition and Results of
Operations" should be read in conjunction with the "Business" section and our
audited consolidated financial statements as of and for the years ended
December 31, 2020, which are included elsewhere in this Form 10-K. The financial
information contained herein is taken or derived from such consolidated
financial statements, unless otherwise indicated. The following discussion
contains forward-looking statements. Actual results could differ materially from
those that are discussed in these forward-looking statements. Factors that could
cause or contribute to such differences include those discussed below and
elsewhere in this Form 10-K, particularly under "Risk Factors."
Amounts are presented in thousands of U.S. dollars, except for per share data or
as otherwise noted.

The following information has been adjusted to reflect the restatement and revision of our consolidated financial statements as described in the "Explanatory Note" at the beginning of this Form 10-K and in Note 3. in Notes to our consolidated financial statements included in this Form 10-K.


Our Company
We are a multi-national cannabis company with the mission to be an
industry-leading global cannabinoid company recognized for our principles,
people and performance while fostering a healthier global community. 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. In addition to the cannabinoid business, we are also engaged
in the non-cannabinoid business of formulating, manufacturing, marketing,
selling, distributing, and otherwise commercializing homeopathic and other
natural remedies, wellness products, and nutraceuticals. We continue to
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invest in building a distribution network with a global footprint, with
operations and investments in Colombia, Portugal, Germany, the United States and
Canada.
As of the date of this Form 10-K, we own over 1.9 million square feet of
greenhouse cultivation capacity across two continents and approximately 13
million square feet of agricultural land, with an option to acquire
approximately 73 million additional square feet of land for cultivation
expansion. Our Colombian cultivation operations have one of the largest
greenhouse capacities licensed for cannabis production in Latin America, and
have been granted GACP certification by CUMCS. Our Colombian manufacturing
facilities were granted Colombian GMP certification by INVIMA in August 2019 and
EU GMP certification by HALMED in July 2020. Our post-harvest facility also
received EU GMP certification in July 2020. We are the first company to legally
export cannabinoids from Colombia, and we are among a small number of cannabis
companies in the world to receive EU GMP certification. EU GMP certification is
a required qualification to import medical cannabis products into the European
market, which adheres to strict pharmaceutical quality standards. In
August 2020, our operations in Portugal were provisionally licensed for the
commercial cultivation, import and export of medical cannabis by INFARMED. Our
Portugal facility received the GACP certificate in March 2021.
Unlike several cannabis operators, which in many cases are confined to one
geography and may rely on initial market protections afforded by the existing
regulatory framework, we can scale our production in low-cost regions of the
world, such as Colombia and Portugal, while maintaining access to some higher
value-added end markets such as the EU because of our EU GMP certification and
global network.
Our business model is focused on partnering with leading and emerging cannabis
businesses by providing them with lower cost product, variable cost structures,
reliable supply throughout the year, and accelerated speed to market. This is
achievable due to our production locations, capacity, product registrations and
various product certifications. To date, we have had limited export shipments of
our cannabis products to Australia, Brazil, Canada, Chile, Germany, Israel,
Italy, the Netherlands, New Zealand, Peru, Poland, Spain, South Africa, the
United Kingdom and the United States.
In April 2019, we acquired Herbal Brands, which manufactures and distributes
nutraceutical products to over 15,000 retail locations across the United States.
Although the vast majority of our sales to date have been from our Herbal Brands
subsidiary, we believe Herbal Brands provides a platform we can leverage for
greater cannabinoid distribution in the future.
We manage our business in two segments: the Cannabinoid and Non-Cannabinoid
segments.
1.The Cannabinoid operating segment is comprised of the Company's 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. All our customers and sales for our cannabinoid
segment products are presently outside of the U.S.
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, excluding cannabinoid products. Our principal customers for the
Herbal Brands products include specialty and health retailers, mass retailers
and specialty and health stores in the U.S.

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 and Brazil, 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 Canada,
Colombia, Portugal, and Germany, and we have invested significant resources in
personnel and partnerships to build the foundation for new export channels.
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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.
Clever Leaves has 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 year ended December 31, 2020 and 2019:


                                                        Year ended December 

31,

Operational information:                                2020                2019                       Change
(In $000s,except kilogram and per gram
data)
Kilograms (dry flower) harvested(a)                      56,685            39,720            16,965                 43  %
Costs to produce (b)                               $      8,027          $  8,523          $   (496)                (6) %
Costs to produce per gram                          $       0.14          $   0.21          $  (0.07)               (34) %

Selected financial information:
Revenue                                            $      2,511          $    133          $  2,378                   N/M
Kilograms sold(c)                                        24,035               644            23,391                   N/M
Revenue per grams sold                             $       0.10          $   0.21          $  (0.11)               (53) %

N/M: Not a meaningful percentage.

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_______________
(a)Kilograms (dry flower) harvested -  represents the weight of dried plants
post-harvest both for sale and for research and development purposes. This
operating metric is used to measure the productivity of our farms.
(b)Costs to produce -  includes costs associated with cultivation, extraction,
depreciation, quality assurance and supply chain related to kilograms (dry
flower) harvested.
(c)Kilograms sold -  represents the amount in kilograms of product sold in dry
plant equivalents. Extract is converted to dry plant equivalent for purposes of
this metric.
During the years ended December 31, 2020 and 2019 we sold 24,035 and 644
kilograms, respectively, of dry flower equivalents. For the year ended
December 31, 2020, our cannabinoid segment sales were primarily in Colombia,
Australia, Israel and Brazil. The increase was primarily driven by the Company
commencing its sales activity for cannabinoid products.
We harvested 56,685 kilograms of cannabinoids in the year ended December 31,
2020, as compared to 39,720 kilograms in the year ended December 31, 2019. The
increase was primarily attributable to the expansion of our cultivation
facilities in Colombia.
Costs to produce were approximately $0.14 per gram of dry flower equivalent for
the year ended December 31, 2020, as compared to $0.21 per gram of dry flower
equivalent for the year ended December 31, 2019. The decrease in costs to
produce is primarily driven by the expansion of our cultivation capacity
facilities in Colombia and the resulting economies of scale.

Recent Developments

Portugal Licensing


The GACP certification attests that we operate under the guidelines that ensure
high quality production and products, according to WHO and European Medicine
Agency Guidelines ("EMA"), on good agricultural and collection practices for (i)
medicinal plants under WHO and (ii) starting materials of herbal origin under
EMA. Our operations in Colombia were granted such certification on May 27, 2020,
with an inclusion of land on November 9, 2020, which means that all greenhouses
operate under GACP.

The same certification was granted to our operation in Portugal on February 22, 2021, for its greenhouse and postharvest facility.

These certificates must be yearly renewed.

Notable 2020 Developments

Closing of the Business Combination


On December 18, 2020, Clever Leaves and SAMA consummated the previously
announced Business Combination contemplated by the Amended and Restated Business
Combination Agreement, dated as of November 9, 2020, by and among SAMA, Clever
Leaves, the Company and Merger Sub.

Pursuant to the Business Combination Agreement, each of the following
transactions occurred in the following order: (i) pursuant to a court-approved
Canadian plan of arrangement (the "Plan of Arrangement" and the arrangement
pursuant to such Plan of Arrangement, the "Arrangement"), at 11:59 p.m., Pacific
time, on December 17, 2020 (2:59 a.m., Eastern time, on December 18, 2020) (a)
all of the Clever Leaves shareholders exchanged their Class A common shares
without par value of Clever Leaves ("Clever Leaves common shares") for our
common shares without par value ("common shares") and/or non-voting common
shares without par value ("non-voting common shares") (as determined in
accordance with the Business Combination Agreement) and (b) certain Clever
Leaves shareholders received approximately $3,100 in cash in the aggregate (the
"Cash Arrangement Consideration"), such that, immediately following the
Arrangement, Clever Leaves became our direct wholly-owned subsidiary; (ii) at
12:01 a.m., Pacific time (3:01 a.m. Eastern time), on December 18, 2020, Merger
Sub merged with and into SAMA, with SAMA surviving such merger as our direct
wholly-owned subsidiary (the "Merger") and, as a result of the Merger, all of
the shares of SAMA common stock were converted into the right to receive common
shares as set forth in the Business Combination Agreement; (iii) immediately
following the consummation of the Merger, we contributed 100% of the issued and
outstanding capital stock of SAMA (as the surviving corporation of the Merger)
to Clever Leaves, such that,
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SAMA became a direct wholly-owned subsidiary of Clever Leaves; and (iv)
immediately following the contribution of SAMA to Clever Leaves, Clever Leaves
contributed 100% of the issued and outstanding shares of NS US Holdings, Inc., a
Delaware corporation and a wholly-owned subsidiary of Clever Leaves, to SAMA.
Upon the closing of the Merger, SAMA changed its name to Clever Leaves US, Inc.

On December 18, 2020, SAMA's units, shares of SAMA common stock and warrants
ceased trading on The Nasdaq Stock Market ("Nasdaq"), and our common shares and
warrants began trading on Nasdaq under the symbols "CLVR" and "CLVRW,"
respectively. For further details, see Note 8. and Note 13. to our audited
consolidated financial statements for the year ended December 31, 2020 included
in this Form 10-K.

COVID-19 Pandemic
The Company expects its operations to continue to be affected by the recent and
ongoing outbreak of the 2019 coronavirus disease ("COVID-19"), which was
declared a pandemic by the WHO in March 2020. The spread of COVID-19 has
severely impacted many economies around the globe. In many countries, including
those where the Company operates, businesses are being forced to cease or limit
operations for long or indefinite periods of time. Measures taken to contain the
spread of the virus, including travel bans, quarantines, social distancing, and
closures of non-essential services have triggered significant disruptions to
businesses worldwide, resulting in an economic slowdown. Global stock markets
have also experienced increased volatility and, in certain cases, significant
declines.

Governments and central banks have responded with monetary and fiscal
interventions to stabilize economic conditions and the Company has taken steps
to obtain financial assistance made available from jurisdictional governments,
however the Company expects its 2021 financial performance to continue to be
impacted and result in a delay of certain of its go-to-market initiatives.

The duration and impact of the COVID-19 pandemic, as well as the effectiveness
of government and central bank responses, remains unclear. It is not possible to
reliably estimate the duration and severity of these consequences, nor their
impact on the financial position and results of the Company for future periods.

We continue to monitor closely the impact of COVID-19, with a focus on the
health and safety of our employees, and business continuity. We have implemented
various measures to reduce the spread of the virus including requiring that our
non-production employees work from home, restricting visitors to production
locations, screening employees with infrared temperature readings and requiring
them to complete health questionnaires on a daily basis before they enter
facilities, implementing social distancing measures at our production locations,
enhancing facility cleaning protocols, and encouraging employees to adhere to
preventative measures recommended by the WHO. Our global operational sites have
been reduced to business-critical personnel only and physical distancing
measures are in effect. In addition, since our non-production workforce can
effectively work remotely using various technology tools, we are able to
maintain our full operations. Although our operational sites remain open,
mandatory or voluntary self-quarantines may further limit the staffing of our
facilities.

As a result of the COVID-19 pandemic, there have been disruptions in supply
chains, including the impact on international flights and air-cargo restrictions
that has limited the shipping of our products from Colombia to other countries.
Since July 10, 2020, international flights from Colombia have resumed on a
limited basis and with certain restrictions. In addition, there have been
disruptions to our planned expansion of certain product line and production
processes. The COVID-19 pandemic has also affected the completion of licensing
in Portugal due to INFARMED's impaired ability to conduct physical inspections
of our facilities. For more information on the potential impact of COVID-19 on
our business, refer to "Risk Factors - Risks Related to Our Business - The
current outbreak of the novel coronavirus, or COVID-19, has caused severe
disruptions in the global economy and to our business, and may have an adverse
impact on our performance and results of operations."

Convertible Note Amendments


In connection with the Business Combination, on November 9, 2020, Clever Leaves
and the noteholders agreed to amend the terms of the 2022 Convertible Notes to,
among other matters, decrease the interest rate to 8%, commencing January 1,
2021, and provide that such interest is to be paid in cash, quarterly in
arrears, and also provides the Company with the option to satisfy the payment of
quarterly interest by issuing common shares to the noteholders.

Following the closing of the Business Combination, the 2022 Convertible Notes
remained outstanding, but are convertible into our common shares in accordance
with their terms. For additional detail see " - Liquidity and Capital Resources
- Debt - Convertible Note Amendments" and Note 12. to our audited consolidated
financial statements for the year ended December 31, 2020 included in this Form
10-K.
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Neem Holdings Convertible Note and Neem Holdings Warrants


On November 9, 2020, Clever Leaves and the Company entered into an unsecured
subordinated convertible note (the "Neem Holdings Convertible Note") with a
principal amount of $3,000 in favor of Neem Holdings, LLC ("Neem Holdings"), a
shareholder of Clever Leaves. Clever Leaves is required to repay the Neem
Holdings Convertible Note within 10 business days after the closing of the
Business Combination, and the Company has agreed to promptly satisfy this
obligation in full. The Neem Holdings Convertible Note is interest free. The
Neem Holdings Convertible Note was repaid on December 23, 2020.

On November 9, 2020, Clever Leaves issued to Neem Holdings, a shareholder of
Clever Leaves, a warrant (the "Neem Holdings Warrants") to purchase the number
of Clever Leaves common shares (the "Warrant Shares") that would entitle Neem
Holdings to receive 300,000 common shares in the Arrangement for an aggregate
purchase price of $3. The Neem Holdings Warrants are exercisable for all, but
not less than all, of the Warrant Shares and expire at the earlier of (i) the
date and time that the Business Combination Agreement is terminated in
accordance with its terms; and (ii) the Arrangement Effective Time. The Neem
Holdings Warrants were exercised prior to the Arrangement Effective Time.

For further details, see Note 12. to our audited consolidated financial statements for the year ended December 31, 2020 included in this Form 10-K.

2020 Fourth Quarter Debenture Fundraising


In October 2020, Clever Leaves completed a financing, pursuant to which it
issued $1,230 aggregate principal amount of September 2023 Convertible
Debentures. In addition, on November 9, 2020, certain Subscribers in the SAMA
PIPE signed subscription agreements with Clever Leaves to invest $1,500 in the
aggregate in additional September 2023 Convertible Debentures as part of the
Convertible Debenture Investment. All September 2023 Convertible Debentures were
converted into Clever Leaves common shares and then into common shares of the
Company as part of the Arrangement. For additional details see "- Liquidity and
Capital Resources - Debt - 2020 Fourth Quarter Debenture Financing." and Note
12. to our audited consolidated financial statements for the year ended
December 31, 2020 included in this Form 10-K.

GNC Bankruptcy
On June 23, 2020, GNC and its affiliates filed voluntary petitions for relief
pursuant to Chapter 11 of Title 11 of the United States Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the District of Delaware. In
September 2020, a bankruptcy court judge approved the sale of GNC to an investor
and in the third quarter of 2020, substantially all of the assets of GNC were
sold to Harbin Pharmaceutical Group Holding Corp. Ltd., and GNC emerged from
Chapter 11 of the Bankruptcy Code. For more information on the potential impact
of GNC on our business, refer to "Risk Factors - Risks Related to our Business -
We currently depend on a limited set of customers for a substantial portion of
our revenue. If we fail to retain or expand our customer relationships or if one
or more significant customers were to terminate their relationship with us or
reduce their purchases, or, our revenue could decline significantly", as well as
Note 9. to our audited consolidated financial statements for the year ended
December 31, 2020 included in this Form 10-K.
Herbal Brands Loan Amendment
On August 27, 2020, we amended certain terms of the Herbal Brands Loan to
provide for an additional interest of 4% per annum, compounding quarterly and
payable in-kind at maturity. In addition, we extended the expiry date of the
outstanding 193,402 warrants till May 3, 2023. As part of the amendment, the
parties agreed that compliance with certain financial covenants under the Herbal
Brands Loan will be deferred until September 30, 2021 and will not be required
following a Qualified IPO (as defined in the Herbal Brands Loan). The Business
Combination meets the definition of Qualified IPO under the Herbal Brands Loan.
See Note 12. to our audited consolidated financial statements for the year ended
December 31, 2020 included in this Form 10-K.
EU GMP Certification
On July 8, 2020, Clever Leaves received EU GMP certification from the HALMED for
its post-harvest and extraction facilities located in Colombia. EU GMP
certification is expected to expand Clever Leaves' ability to serve the
burgeoning European medical cannabis and hemp markets, which have rigorous
quality, compliance, and regulatory requirements. Because we are among a small
number of companies globally to have earned EU GMP certification, EU GMP
certification is also expected to expand our early mover advantage in the
pharmaceutical channel as global demand increases and more legal cannabis
geographies emerge.
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Series E Round of Fundraising

In April and July 2020, Clever Leaves completed the Series E round of financing
(the "Series E Financing") and issued an aggregate of approximately $18,396 of
senior convertible Class D preferred shares (the "Class D preferred shares") and
$4,162 aggregate principal amount of Convertible Debentures due 2023 (the "June
2023 Convertible Debentures"). The Class D preferred shares and the June 2023
Convertible Debentures were converted into Clever Leaves common shares and then
into common shares of the Company as part of the Arrangement. For additional
details see "- Liquidity and Capital Resources - Debt - Series E Financing" and
Note 12. to our audited consolidated financial statements for the year ended
December 31, 2020 included in this Form 10-K.
Portugal Licensing
In August 2020, we received a license from INFARMED to cultivate, import and
export dried cannabis flower produced at our Portuguese cultivation site and,
similar to other licensed cannabis companies in Portugal, we are listed as of
August 2020 on INFARMED's Licensing Department's registry. Due to the COVID-19
pandemic and restrictions on INFARMED's ability to conduct a physical inspection
of our Portuguese operation, the license was issued under a special licensing
procedure and requires a confirmatory physical inspection from INFARMED. Our
license provides our Portuguese operations the same rights and qualifications as
licenses issued under the normal procedures, including the ability to conduct
commercial operations. The physical inspection took place on August 27, 2020
and, upon successful completion of the inspection review, we expect our current
license to be replaced with a license issued under the normal procedures. Under
the current license granted by INFARMED, our production facility in Portugal is
currently cultivating cannabis for commercial purposes. Our Portugal facility
received the GACP certificate in March 2021. To maintain the GACP certificate,
we must cultivate and operate under GACP guidelines.

Components of Results of Operations
Revenue - in our Cannabinoid segment, revenue is primarily comprised of sales of
our cannabis products, which currently include cannabidiol isolate, full
spectrum and standardized extracts. In our Non-Cannabinoid segment, revenue is
primarily composed of sales of our nutraceutical products to our retail
customers. As we have only recently begun to carry out our cannabinoid sales
operations, our main revenues are derived from our Herbal Brands business.
Cost of Sales - in our Cannabinoid segment, cost of sales is primarily composed
of pre-harvest, post-harvest and shipment and fulfillment. Pre-harvest costs
include labor and direct materials to grow cannabis, which includes water,
electricity, nutrients, integrated pest management, growing supplies and
allocated overhead. Post-harvest costs include costs associated with drying,
trimming, blending, extraction, purification, quality testing and allocated
overhead. Shipment and fulfillment costs include the costs of packaging,
labelling, courier services and allocated overhead. Total cost of sales also
includes cost of sales associated with accessories and inventory adjustments. In
our Non-Cannabinoid segment, cost of sales primarily includes raw materials,
labor, and attributable overhead, as well as packaging labelling and fulfillment
costs.

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Results of Operations

Year Ended December 31, 2020 compared to year ended December 31, 2019


Consolidated Statements of Net Loss Data
(in thousands of U.S. dollars)
                                                                            Year ended December 31,
                                                                                          2020                  2019
                                                                                     (Restated) (a)
Revenue                                                                            $        12,117          $    7,834
Cost of sales                                                                               (4,704)             (4,732)
Gross profit                                                                                 7,413               3,102
General and administrative expenses                                                         29,828              34,979
Sales and marketing expenses                                                                 2,577               3,183
Goodwill impairment                                                                          1,682                   -
Depreciation and amortization expenses                                                       1,854               1,480
Loss from operations                                                                       (28,528)            (36,540)
Interest expense, net                                                                        4,455               2,684
Gain on remeasurement of warrant liability                                                 (10,780)                  -
Loss on investments                                                                            464                 756
Loss on debt extinguishment                                                                  2,360               3,374
Loss on fair value of derivative instrument                                                    657                 421
Foreign exchange loss                                                                          491               1,575
Other (income) expenses, net                                                                  (284)                534
Total other (income) expenses, net                                                          (2,637)              9,344
Loss before income taxes                                                                   (25,891)            (45,884)
Current income tax recovery                                                                      -                   -
Deferred current income tax recovery                                                             -                   -
Equity investments and securities loss                                                           4                  96
Net loss                                                                           $       (25,895)         $  (45,980)
Net loss attributable to non-controlling interest                                                -              (6,450)
Net loss attributable to Company                                            

$ (25,895) $ (39,530)

(a) See Note 3. to our audited consolidated financial statements for the year ended December 31, 2020 included in this Form 10-K for information on the restatement adjustment as of December 31, 2020.

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Revenue by Channel
(in thousands of U.S. dollars)
The following table provides our revenues by channel for the year ended
December 31, 2020 and 2019.
                                                 Year ended December 31,
                                                                     2020            2019
Mass retail                                                       $  6,879      $ 3,318
Specialty, health and other retail                                     689        1,235
Distributors                                                         4,036        2,397
E-commerce                                                             513          885
Total                                                             $ 12,117      $ 7,834



Revenue
Revenue increased to $12,117 for the year ended December 31, 2020 from $7,834
for the year ended December 31, 2019. The increase was driven primarily by the
additional months of sales in the year ended December 31, 2020 from the Herbal
Brands business which was acquired in April 2019, as well as the sales in our
Cannabinoid segment.
Cost of sales
Cost of sales decreased to $4,704 for the year ended December 31, 2020 as
compared to $4,732 for the year ended December 31, 2019. The slight decrease in
2020 is primarily due to the inclusion in 2019 of additional costs related to
the fair value of Herbal Brands inventory following the Herbal Brands
acquisition. This was mostly offset by sales of Herbal Brands products, which
included an additional four months of sales in 2020, as well as the costs of
sales from our Cannabinoid segment sales.
Operating expenses
(in thousands of U.S. dollars)


                                      Year ended December 31,
                                     2020                  2019                Change
General and administrative      $    29,828             $ 34,979       $ (5,151)       (15) %
Sales and marketing                   2,577                3,183           (606)       (19) %
Goodwill impairment                   1,682                    -          1,682           N/M
Depreciation and amortization         1,854                1,480            374         25  %
Total operating expenses        $    35,941             $ 39,642

(as a percentage of revenue)
General and administrative              246   %                 N/M
Sales and marketing                      21   %               41  %
Goodwill impairment                      14   %                -  %
Depreciation and amortization            15   %               19  %
Total operating expenses                    N/M                 N/M


N/M: Not a meaningful percentage

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General and administrative. General and administrative expenses decreased to
$29,828 for the year ended December 31, 2020 from $34,979 for the year ended
December 31, 2019, primarily due to lower office and administration and
employee-related costs, such as salaries and benefits, following certain
measures we took to reduce costs in response to the COVID-19 pandemic.
Sales and marketing. Sales and marketing expenses decreased to $2,577 for the
year ended December 31, 2020 from $3,183 for the year ended December 31, 2019,
primarily due to our cost control measures to address the impact from COVID-19.
Additionally, in the prior year period, we incurred higher sales and marketing
costs in connection with the exploration of potential new export markets for our
cannabinoid products. The decline was partly offset by an increase in marketing
and selling costs related to the Herbal Brands business in the U.S., which
included an additional four months of costs in 2020 compared to 2019.
Goodwill impairment. For the year ended December 31, 2020, we recognized a
goodwill impairment of $1,682 related to our Herbal Brands business. For more
information, see Note 8. and Note 10. to our audited consolidated financial
statements for the year ended December 31, 2020 included in this Form 10-K.
Depreciation and amortization. Depreciation and amortization expenses increased
to $1,854 for the year ended December 31, 2020 from $1,480 for the year ended
December 31, 2019, primarily due to capital expenditures for the expansion of
our cultivation and extraction assets. Additionally, the increase is
attributable to the amortization of finite-lived intangible assets acquired as
part of the Herbal Brands acquisition, which included an additional four months
of amortization in 2020 compared to 2019, as well as higher amortization expense
during the second half of 2020 due to the acceleration of the period over which
the useful life of the GNC intangible asset is amortized, as described under
"-Recent Developments - GNC Bankruptcy" and Note 9. and Note 11. to our audited
consolidated financial statements for the year ended December 31, 2020 included
in this Form 10-K.
Non-operating income and expenses
(in thousands of U.S. dollars)


                                                   Year Ended December 31,
                                                   2020                    2019                     Change
                                               (Restated)(a)
Interest expense, net                        $        4,455          $  2,684          $   1,771                   66  %
Gain on remeasurement of warrant liability          (10,780)                -            (10,780)                    N/M
Loss on other investments                               464               756               (292)                 (39) %
Loss on debt extinguishment                           2,360             3,374             (1,014)                 (30) %
Loss on fair value of derivative instrument             657               421                236                   56  %
Foreign exchange loss                                   491             1,575             (1,084)                 (69) %
Other (income) expenses, net                           (284)              534               (818)                (153) %
Total                                        $       (2,637)         $  9,344          $ (11,981)                (128) %

(a) See Note 3. to our audited consolidated financial statements for the year ended December 31, 2020 included in this Form 10-K for information on the restatement adjustment as of December 31, 2020.

N/M: Not a meaningful percentage


Interest expense, net. Interest expense, net for the year ended December 31,
2020 was $4,455 compared to $2,684 for the year ended December 31, 2019. The
increase was primarily attributable to increased interest expense associated
with the 2022 Convertible Notes, as well as a promissory note issued in relation
to the Herbal Brands acquisition. Additionally, the increase reflects higher
interest rates during 2020 related to the amendment in March 2020 of the terms
of the 2022 Convertible Notes. For additional details, see Note 12. to our
audited consolidated financial statements for the year ended December 31, 2020
included in this Form 10-K.
Gain on remeasurement of warrant liability. Gain on remeasurement was $10,780
for the year ended December 31, 2020 compared to nil for the year ended
December 31, 2019. The gain is directly attributable to the remeasurement of the
warrant
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liability at December 31, 2020. For more information refer to Note 3. to our
audited consolidated financial statements for the year ended December 31, 2020
included in this Form 10-K.
Loss on investments. Loss on investment was $464 for the year ended December 31,
2020 compared to a loss of $756 for the year ended December 31, 2019. The loss
on investments was primarily related to the decline in the carrying value of our
investments in Lift & Co. shares and Cansativa. For more information refer to
Note 7. to our audited consolidated financial statements for the year ended
December 31, 2020 included in this Form 10-K.
Loss on debt extinguishment. Loss on debt extinguishment for the year ended
December 31, 2020 was $2,360 and related primarily to the conversion of the
Series E Debentures and the September 2023 Convertible Debentures at the closing
of the Business Combination. Loss on debt extinguishment of $3,374 for year
ended December 31, 2019 was due to the conversion of our Series C debt of Clever
Leaves in March 2019 into Class C preferred shares that were subsequently
exchanged for common shares of the Company at the closing of the Business
Combination. For more information, see Note 12. to our audited consolidated
financial statements for the year ended December 31, 2020 included in this Form
10-K.
Loss on fair value of derivative instrument. For the year ended December 31,
2020 we experienced a loss of $657 compared to loss of $421 for the year ended
December 31, 2019. The loss for the year ended December 31, 2020 was primarily
due to the conversion of the September 2023 Convertible Debentures. The loss for
the year ended December 31, 2019 was driven by the initial recognition of a
derivative instrument related to the Company's holding of Lift & Co. warrants.
For additional details, see Note 12. to our audited consolidated financial
statements for the year ended December 31, 2020 included in this Form 10-K.
Foreign exchange loss. The impact of foreign exchange for the year ended
December 31, 2020 was a loss of $491 compared to a loss of $1,575 for the year
ended December 31, 2019. The foreign exchange losses for the year ended
December 31, 2019 were primarily driven by the currency fluctuations of the
Colombian peso versus the U.S. Dollar.
Other (income) expenses, net. Other (income) expenses, net includes costs not
individually material to our consolidated financial statements.

Operating Results by Business Segment
Our management evaluates segment profit/loss for each of the Company's
reportable segments. We define segment profit/loss as income from continuing
operations before interest, taxes, depreciation, amortization, stock-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. For a reconciliation of segment profit to loss from continuing
operations before income taxes, see Note 17. to our audited consolidated
financial statements for the year ended December 31, 2020 included in this Form
10-K.
Revenue by segment
(in thousands of U.S. dollars)
                               Year ended December 31,
                                                   2020         2019
Segment Revenue:
Cannabinoid                                     $  2,511      $   133
Non-Cannabinoid                                    9,606        7,701
Total Revenue                                   $ 12,117      $ 7,834



Cannabinoid. Cannabinoid revenue increased to $2,511 for the year ended
December 31, 2020, from $133 for the year ended December 31, 2019, driven
primarily by the sale of cannabinoid products as we began to carry out our
Cannabinoid sales operations.
Non-Cannabinoid. Revenue for the year ended December 31, 2020 increased to
$9,606 from $7,701 for the year ended December 31, 2019 primarily attributable
to the Herbal Brands business in the U.S., which included four additional months
of sales in 2020, partly offset by the slower sales in 2020 due to the impact
from COVID-19.
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Segment profit/loss
(in thousands of U.S. dollars)


                                 Year ended December 31,                Change
                                   2020               2019           $           %
Segment Profit/(Loss):
Cannabinoid                $     (18,798)          $ (25,250)      6,452       (26) %
Non-Cannabinoid                    1,863                 614       1,249       203  %
Total Segment Loss (a)     $     (16,935)          $ (24,636)      7,701       (31) %


(a) For a reconciliation of segment profit/(loss) to loss before income taxes
see Note 17. to our audited consolidated financial statements for the year ended
December 31, 2020 included in this Form 10-K.
Cannabinoid - Cannabinoid segment loss decreased to $18,798 for the year ended
December 31, 2020 from $25,250 for the year ended December 31, 2019, primarily
due to cost control measures implemented by us in 2020, as well as increased
sales of cannabinoid products. The decrease was partly offset by costs incurred
on the expansion of our operations in Colombia, Portugal and Germany.
Non-Cannabinoid - Non-Cannabinoid segment profit increased to $1,863 for the
year ended December 31, 2020 compared to $614 the year ended December 31, 2019.
The increase is primarily attributable to cost control measures implemented
during 2020, as well as the additional four months of activity in the 2020
period, partly offset by lower sales in 2020 due to the impact of COVID-19.

Liquidity and Capital Resources The following table sets forth the major components of our Consolidated Statements of Cash Flows for the periods presented: (in thousands of U.S. dollars)

                                                                          Year ended December
                                                                                  31,
                                                                                      2020                2019
Net cash used in operating activities                                             $ (21,961)         $   (37,052)
Net cash used in investing activities                                                (3,665)             (33,901)
Net cash provided by financing activities                                            91,838               62,834

Effect of foreign currency translation on cash and cash equivalents

                                                                              50                   54
Cash, cash equivalents, and restricted cash beginning of period                      13,198               21,263
Cash, cash equivalents, and restricted cash end of period                            79,460               13,198
Increase (decrease) in cash and cash equivalents                            

$ 66,262 $ (8,065)




Cash flows from operating activities
The change in net cash used by operating activities during the year ended
December 31, 2020 compared to the year ended December 31, 2019, was primarily
related to a decrease in use of working capital, as well as a lower net loss,
net of non-cash items.
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Cash flows from investing activities
The decrease in net cash used in investing activities during the year ended
December 31, 2020 compared to the year ended December 31, 2019, was primarily
related to the Herbal Brands acquisition, our investment in Cansativa, as well
as higher capital expenditures during the year ended December 31, 2019.
During the year ended December 31, 2019, our capital expenditures increased by
approximately $14,209, primarily due to our investment in the expansion of our
operations of the cannabinoid business.
Cash flows from financing activities
The increase in net cash provided by financing activities during the year ended
December 31, 2020, compared to the year ended December 31, 2019, was primarily
due to the higher proceeds from debt and equity financings in 2020 compared to
2019. During the year ended December 31, 2020, the financing activities related
primarily to the Business Combination and the Series E Financing of Clever
Leaves, whereas during the year ended December 31, 2019, Clever Leaves issued
Series D preferred shares, 2022 Convertible Notes and debt incurred in
connection with the Herbal Brands acquisition. For more information, see Note 9.
to our audited consolidated financial statements for the year ended December 31,
2020 included in this Form 10-K.
Sources of Liquidity
We primarily financed our operations through the issuance of preferred shares,
the sale of convertible notes and cash from operations. As of December 31, 2020,
and December 31, 2019, we had cash and cash equivalents of $79,107 and $12,044,
respectively, which were held for working capital and general corporate
purposes. This represents an overall increase of $67,063.
In connection with the closing of the Business Combination we received
approximately $73,509 of net proceeds (refer to Note 8. to the audited
consolidated financial statements included within this Form 10-K). We have had
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, if ever, that it can generate significant revenues from the sale of its
available inventories. We anticipate that we will continue to incur losses from
operations due to pre-commercialization activities, marketing and manufacturing
activities, and general and administrative costs to support operations.

We have historically been able to manage liquidity requirements through cost
management and cost reduction measures, supplemented with raising additional
financing. While Clever Leaves has been successful in raising financing in the
past, and did so as recently as November 2020, there can be no assurances that
additional financing will be available when needed on acceptable terms, or at
all. The continued spread of COVID-19 (see "- Recent Developments - COVID-19
Pandemic" for a discussion on COVID-19) and uncertain market conditions may
further limit our ability to access capital. If we are not able to secure
adequate additional funding, we may be forced to make reductions in spending,
extend payment terms with suppliers, and suspend or curtail planned programs.
Any of these actions could materially harm our business, results of operations,
financial condition, and prospects.
Uses of Liquidity
Our primary need for liquidity is to fund working capital requirements, capital
expenditures, debt service obligations and for general corporate purposes. Our
ability to fund operations and make planned capital expenditures and debt
service obligations depends on future operating performance and cash flows,
which are subject to prevailing economic conditions and financial, business and
other factors. Our consolidated interim financial statements have been prepared
on a going concern basis, which assumes that we will continue to be in operation
for the foreseeable future and, accordingly, will be able to realize our assets
and discharge our liabilities in the normal course of operations as they come
due.

We manage our liquidity risk by preparing budgets and cash forecasts to ensure
we have sufficient funds to meet obligations. In managing working capital, we
may limit the amount of our cash needs by selling inventory at wholesale rates,
pursuing additional financing sources, and managing the timing of capital
expenditures. While we believe we have sufficient cash to meet working capital
requirements in the short term, we may need additional sources of capital and/or
financing, to meet planned growth requirements and to fund construction
activities at our cultivation and processing facilities.

In connection with the Clever Leaves audited financial statements for the year
ended December 31, 2019, our management determined that there were material
uncertainties which caused substantial doubt about Clever Leaves' ability to
continue as a going concern, absent additional financing and cost reduction or
cost management measures. In connection with the closing of the Business
Combination, we received approximately $73,509 of net proceeds (refer to Note 8.
to the audited consolidated
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financial statements included within this Form 10-K). We believe that cash on
hand is sufficient to satisfy the Company's estimated liquidity needs during the
twelve months from the issuance of the consolidated financial statements for the
year ended December 31, 2020. If this amount is subsequently insufficient for us
to continue to operate as a going concern, we may need to raise additional cash
through debt, equity or other forms of financing to fund future operations which
may not be available on acceptable terms, or at all.
Debt
Total net debt outstanding as of December 31, 2020 was $33,843. The balance is
comprised of 2022 Convertible Notes of approximately $27,750 issued in March
2019, the debt of $8,500 issued to finance the Herbal Brands acquisition in
April 2019, as well as other borrowings, net of principal repayments for the
Herbal Brands Loan and debt issuance costs. For more information, see Note 12.
to our audited consolidated financial statements for the year ended December 31,
2020 included in this Form 10-K.
Total debt outstanding as of December 31, 2019 was $33,728. The 2019 balance
relates to the 2022 Convertible Notes issued in March 2019, as well as the
Herbal Brands Loan.
Herbal Brands Debt
In April 2019, to facilitate the financing the Herbal Brands acquisition, Herbal
Brands entered into the Herbal Brands Loan with, and issued warrants to, a
third-party lender, Rock Cliff Capital LLC ("Lender"). The Herbal Brands Loan
was amended in August 2020. For further details on the Herbal Brands
acquisition, see Note 8. to our audited consolidated financial statements for
the year ended December 31, 2020 included in this Form 10-K.
The Herbal Brands Loan is a non-revolving loan with a principal amount of $8,500
and interest of 8% per annum due and payable in arrears on the first day of each
fiscal quarter, commencing July 1, 2019, and calculated based on the actual
number of days elapsed. In addition, Herbal Brands is required to pay in kind
interest ("PIK") on the outstanding principal amount of the Herbal Brands Loan
from August 27, 2020 until payment in full at a rate equal to 4.0% per annum,
with such PIK interest being capitalized as additional principal to increase the
outstanding principal balance of the Herbal Brands Loan on the first day of each
fiscal quarter. The Herbal Brands Loan is to be repaid or prepaid prior to its
maturity date of May 2, 2023. On a quarterly basis, the loan requires Herbal
Brands to repay 85% of positive operating cash flows. Herbal Brands can also
choose to prepay a portion or the Herbal Brands Loan, subject to a fee equal to
the greater of (1) zero, and (2) $2,337.5, net of interest payments already paid
(excluding PIK interest paid and PIK interest capitalized as outstanding
principal) on such prepayment date. The Herbal Brands Loan is guaranteed by
certain subsidiaries of the Company, secured by Herbal Brands' assets and equity
interests in Herbal Brands and is subject to certain covenants. The Herbal
Brands Loan remained outstanding following the closing of the Business
Combination.
Concurrently with the execution of the Herbal Brands Loan, Clever Leaves issued
warrants to the Lender to purchase 193,402 Class C preferred shares of Clever
Leaves on a 1:1 basis, at a price of $8.79 per share. The warrants can be
exercised in whole or in part at any time prior to the expiration date of May 3,
2021, and are not assignable, transferable, or negotiable. Following the closing
of the Business Combination, the warrants issued to the Lender remained
outstanding but entitle the Lender to purchase common shares of the Company
rather than common shares of Clever Leaves.
On August 27, 2020, we amended certain terms of the Herbal Brands Loan to
provide for an additional interest of 4% per annum, compounding quarterly and
payable in-kind at maturity. In addition, we extended the expiry date of the
outstanding 193,402 warrants until May 3, 2023. As part of the amendment, the
parties agreed to defer the covenant testing under the Herbal Brands Loan until
September 30, 2021.

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.
For further details, see Note 12. to our audited consolidated financial
statements for the year ended December 31, 2020 included in this Form 10-K.
Convertible notes
In March 2019, as part of the Series D financing, Clever Leaves issued $27,750
aggregate principal amount of secured convertible notes (the "2022 Convertible
Notes") with a maturity date of March 30, 2022 (the "2022 Maturity Date"). The
2022 Convertible Notes initially had an interest of 8% per annum, payable
quarterly in cash in arrears. The 2022 Convertible Notes are guaranteed by
certain subsidiaries of Clever Leaves and are secured by pledged equity
interests in certain subsidiaries. In
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March 2020 and June 2020, Clever Leaves and the noteholders amended the terms of
the 2022 Convertible Notes, to increase in the interest rate to 10% from January
1, 2020 and provided that such interest is to be paid in-kind on the 2022
Maturity Date.

In connection with the Business Combination, on November 9, 2020, Clever Leaves
and the noteholders agreed to amend the terms of the 2022 Convertible Notes to:
(i) decrease the interest rate to 8%, commencing January 1, 2021, and provide
that such interest is to be paid in cash, quarterly in arrears; (ii) provide for
the payment of all accrued and outstanding interest from January 1 to December
31, 2020 to be made in the form of PIK Notes; to consent to the transfer of the
PIK Notes to SAMA in exchange for the PIPE Shares to be issued as part of the
SAMA PIPE pursuant to the terms of the Subscription Agreements; (iii) at the
option of Clever Leaves, satisfy the payment of quarterly interest by issuing
our common shares to the noteholders, at a price per share equal to 95% of the
10-Day VWAP; (iv) at the option of Clever Leaves, prepay, in cash, any or all
amounts outstanding under the 2022 Convertible Notes at any time without
penalty; (v) at the option of Clever Leaves on each quarterly interest payment
date, repay principal and any other amounts outstanding under the 2022
Convertible Notes up to the lesser of (a) $2,000, or (b) an amount equal to four
times the average value of the daily volume of common shares traded during the
10-Day VWAP period, of the total amounts outstanding under the 2022 Convertible
Notes at such time by issuing common shares to the noteholders at a price per
share equal to 95% of the 10-Day VWAP; and (vi) at the option of each
noteholder, in the event, following the Merger Effective Time, Clever Leaves,
the Company or any of their respective affiliates proposes to issue equity
securities for cash or cash equivalents (the "Equity Financing") (save and
except for certain exempt issuances) at any time after Clever Leaves, the
Company or any of their respective affiliates completes one or more equity
financings raising, in aggregate, net proceeds of $25,000 (net of reasonable
fees, including reasonable accounting, advisory and legal fees, commissions and
other out-of-pocket expenses and inclusive of net cash retained as a result of
the Business Combination on the Merger Effective Time), convert an amount of
principal and/or accrued interest owing under the 2022 Convertible Notes into
subscriptions to purchase up to the noteholder's pro rata share of 25% of the
total securities issued under such Equity Financing on the same terms and
conditions as such Equity Financing is offered to subscribers; provided,
however, that if the noteholder does not elect to participate in such Equity
Financing through the conversion of amounts owing under the 2022 Convertible
Notes, then Clever Leaves shall be required to repay, in cash within five (5)
business days following the closing of such Equity Financing, an amount equal to
the noteholder's pro rata share of 25% of the total net proceeds raised from
such Equity Financing (collectively, the "November 2020 Convertible Note
Amendments").

In connection with the November 2020 Convertible Note Amendments, the Required
Holders (as that term is defined in the amended and restated intercreditor and
collateral agency agreement, dated as of May 10, 2019, in respect of the 2022
Convertible Notes) have agreed to waive Clever Leaves' required compliance with
certain restrictive covenants set forth in the 2022 Convertible Notes, solely
for the purposes of allowing Clever Leaves, the Company and their affiliates to
complete the Business Combination, and have agreed to direct GLAS Americas LLC,
as collateral agent in respect of the 2022 Convertible Notes, to further provide
its consent therefor.

In connection with the consummation of the Business Combination, the Company,
1255096 B.C. Ltd., an indirect subsidiary of the Company, and Clever Leaves US,
Inc. (as the surviving corporation of the Merger) each entered into a guarantee
agreement in favor of GLAS Americas LLC, as the collateral agent, in respect of
the 2022 Convertible Notes and became guarantors thereunder. In addition, the
terms of the amended and restated pledge agreement, dated as of May 10, 2019,
made by Clever Leaves in favor of the collateral agent was further amended and
restated pursuant to a second amended and restated pledge agreement such that
Clever Leaves pledged all of the shares in the capital of each of 1255096 B.C.
Ltd. and Clever Leaves US, Inc. (as the surviving corporation of the Merger) in
favor of the collateral agent. In addition, the Company pledged all of the
shares in the capital of Clever Leaves in favor of the collateral agent, 1255096
B.C. Ltd. pledged all of the shares in the capital of Northern Swan
International, Inc. in favor of the collateral agent, and Clever Leaves US, Inc.
pledged all of the shares in the capital of NS US Holdings, Inc. in favor of the
collateral agent, each pursuant to a pledge agreement.

Following the closing of the Business Combination, the 2022 Convertible Notes
remained outstanding, but are convertible into our common shares in accordance
with their terms. In connection with the issuance of the 2022 Convertible Notes,
Clever Leaves issued 9,509 warrants to acquire Clever Leaves common shares to
one of the noteholders. The warrants vest when the 2022 Convertible Note issued
to the warrantholder is converted into shares and expire on March 30, 2023. The
warrants will be cancelled if the 2022 Convertible Note issued to the
warrantholder is repaid.

In October 2018, as part of the Series C financing, Clever Leaves issued $17,890
aggregate principal amount of noninterest bearing unsecured convertible
debentures due 2021 (the "2021 Convertible Debentures"). The 2021 Convertible
Debentures had a maturity date of September 30, 2021. All of the 2021
Convertible Debentures were converted into an aggregate of 2,546,670 of Class C
preferred shares in March 2019.
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Series E Financing
In April and July 2020, Clever Leaves completed the Series E round of financing
(the "Series E Financing") and issued an aggregate of approximately $18,396 of
senior convertible Class D preferred shares (the "Class D preferred shares") and
$4,162 aggregate principal amount of Convertible Debentures due 2023 (the "June
2023 Convertible Debentures"). In April 2020, an investor in the Series E
Financing exercised its Put Right (as defined below) in full, and Clever Leaves
paid $6,250 in exchange for the purchase and cancellation of 711,035 Class C
preferred shares. As a result of the Series E Financing and the exercise of the
Put Right, the funds raised in the Series E Financing were approximately
$16,308.

The June 2023 Convertible Debentures were to mature on June 30, 2023 (the "2023
Maturity Date") and bore interest of 8% per annum, commencing June 30, 2021,
payable semi-annually in arrears. At the discretion of Clever Leaves, any
interest accrued and payable in respect of the June 2023 Convertible Debentures
might, in lieu of being paid to the holders of the June 2023 Convertible
Debentures, be added, to the principal amount outstanding under the June 2023
Convertible Debentures. The Business Combination constituted a Liquidity Event
(as defined in the indenture governing the June 2023 Convertible Debentures) and
resulted in the conversion of all June 2023 Convertible Debentures into Clever
Leaves common shares, which were exchanged for our common shares in the
Arrangement.

Class D preferred shares voted together with the Clever Leaves common shares,
and were not considered a separate class for voting purposes, except as required
by law or in cases of dissolution, liquidation, windup or bankruptcy proceedings
which require the consent of a majority of Class D preferred shareholders. The
Class D preferred shares carried a liquidation preference (the "Class D
Liquidation Preference") of 1.4 times the original issue price of $11.00 for the
one-year period following the original issue date, increasing by 0.02 times
quarterly to a maximum of 1.75 times the original issue price, in each case
subject to anti-dilution adjustments. The Class D Liquidation Preference is
payable on a liquidation or merger with, reverse takeover of, or other business
combination with, a public company, provided that such transaction does not
provide for the conversion of Class D preferred shares into Clever Leaves common
shares, or certain other deemed liquidation events (the "Class D Liquidation
Event"). The Business Combination did not constitute a Class D Liquidation
Event. The Class D preferred shares were not redeemable but were convertible at
any time, at the option of the holders, into Clever Leaves common shares on a
1:1 basis, subject to anti-dilution adjustments. Automatic conversion into
Clever Leaves common shares would occur at the applicable conversion price which
takes into account the Class D Liquidation Preference in the event of (1) the
holders of at least a majority of the outstanding Class D preferred shares
consenting to such conversion, (2) an initial public offering or direct listing
of Clever Leaves common shares on Nasdaq, NYSE or TSX, or (3) completion of a
merger with, reverse takeover of or other business combination with a public
company, provided that such transaction provides for the conversion of Class D
preferred shares into Clever Leaves common shares (otherwise such transaction
will trigger the payment of the Class D Liquidation Preference).

The Business Combination resulted in the conversion of all Class D preferred
shares into Clever Leaves common shares, which were exchanged for common shares
of the Company in the Arrangement.

As part of the Series E Financing in April 2020, Clever Leaves granted an
investor in the Series E Financing a right to cause Clever Leaves to purchase up
to 711,035 of the investor's previously purchased Class C preferred shares (the
"Put Right") at the investor's original purchase price of $8.79 per share. On
April 13, 2020, the investor exercised the Put Right in full, and Clever Leaves
paid $6,250 in exchange for its purchase and cancellation of 711,035 Class C
preferred shares. In addition, as part of the July 2020 portion of the Series E
Financing, three investors, in aggregate, exchanged 848,363 Class C preferred
shares for 646,846 Class D preferred shares.

Subsequent to the completion of the Series E Financing, 4,429,559 Class C
preferred shares, 2,319,215 Class D preferred shares and $4,162 principal amount
of the June 2023 Convertible Debentures were outstanding. All Class C preferred
shares, Class D preferred shares and June 2023 Convertible Debentures were
converted into Clever Leaves common shares and then into common shares of the
Company as part of the Arrangement.
2020 Fourth Quarter Debenture Financing
On October 23, 2020, Clever Leaves completed the first tranche of a financing
pursuant to which it issued $1,230 aggregate principal amount of convertible
debentures due September 30, 2023 (the "September 2023 Convertible Debentures").

The September 2023 Convertible Debentures were to mature on September 30, 2023
(the "September 2023 Maturity Date") and bore interest of 8% per annum,
commencing September 30, 2021, payable semi-annually in arrears. At the
discretion of Clever Leaves, any interest accrued and payable in respect of the
September 2023 Convertible Debentures might, in lieu of being paid to the
holders of the September 2023 Convertible Debentures, be added to the principal
amount outstanding under the
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September 2023 Convertible Debentures. Provided that no Liquidity Event has
occurred, on the September 2023 Maturity Date, the principal aggregate amount of
the September 2023 Convertible Debentures and the accrued and unpaid interest
thereon would be payable in cash. At any time prior to the September 2023
Maturity Date or a Liquidity Event, a holder of the September 2023 Convertible
Debentures might elect to convert its principal amount of the September 2023
Convertible Debentures and the accrued and unpaid interest thereon into Clever
Leaves common shares, at a price per share equal to $5.95 (subject to
adjustment). The September 2023 Convertible Debentures, including any accrued
and unpaid interest, would be automatically converted into Clever Leaves common
shares at a price per Clever Leaves common share equal to 70% of the price
attributable to the Clever Leaves common shares upon occurrence of a Liquidity
Event, subject to adjustment in the event of the subdivision or consolidation of
the outstanding Clever Leaves common shares, the issue of Clever Leaves common
shares or securities convertible into Clever Leaves common shares by stock
dividend or distribution, or the issue or distribution of rights, options, or
warrants to all or substantially all of the holders of Clever Leaves common
shares in certain circumstances.

On November 9, 2020, certain Subscribers in the SAMA PIPE signed subscription
agreements with Clever Leaves to invest $1,500 in the aggregate in additional
September 2023 Convertible Debentures.

The Business Combination constituted a Liquidity Event and resulted in the
conversion of all September 2023 Convertible Debentures into Clever Leaves
common shares, which were exchanged for common shares of the Company in the
Arrangement. For additional details see Note 12. to our audited consolidated
financial statements for the year ended December 31, 2020 included in this Form
10-K.
Neem Holdings Convertible Note and Neem Holdings Warrants
On November 9, 2020, Clever Leaves and the Company entered into the Neem
Holdings Convertible Note with a principal amount of $3,000 in favor of Neem
Holdings. On the same day, Clever Leaves issued the Neem Holdings Warrants that,
if exercised, would entitle Neem Holdings to receive 300,000 common shares in
the Arrangement. The Neem Holdings Convertible Note was repaid on December 23,
2020. The Neem Holdings Warrants were exercised prior to the Arrangement
Effective Time. For additional details see "- Recent Developments - Neem
Holdings Convertible Note and Neem Holdings Warrants" and Note 12. to our
audited consolidated financial statements for the year ended December 31, 2020
included in this Form 10-K.

Contingencies

In the normal course of business, we receive inquiries or become involved in
legal disputes regarding various litigation matters. In the opinion of
management, as of December 31, 2020 any potential liabilities resulting from
claims we have received would not have a material adverse effect on our
consolidated financial statements.

Off-Balance Sheet Arrangements
We did not have off-balance sheet arrangements during the periods presented,
other than the obligations discussed above.

Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance U.S. GAAP. A
detailed discussion of our significant accounting policies can be found in
Note 3. to our audited consolidated financial statements for the year ended
December 31, 2020 included elsewhere in this Form 10-K. We have identified
certain policies and estimates as critical to our business operations and the
understanding of our past or present results of operations related to
(i) consolidation, (ii) inventories, (iii) investments, (iv) property, plant and
equipment, (v) intangible assets, (vi) business combinations and goodwill,
(vii) equity method investments, (viii) leases, (ix) revenue recognition, (x)
complex financial instruments. These policies and estimates are considered
critical because they had a material impact, or they have the potential to have
a material impact, on our consolidated financial statements and because they
require us to make significant judgments, assumptions, or estimates. We believe
that the estimates, judgments, and assumptions made were reasonable, based on
information available at the time they were made. Actual results could differ
materially from these estimates.

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Share-based compensation

We estimate the fair value of equity classified stock options on the date of
grant using the Black-Scholes option pricing model. The assumptions used in the
Black-Scholes option pricing model to determine the fair value of stock options
are outlined in Note 15. to our audited consolidated financial statements for
the year ended December 31, 2020 included in this Form 10-K.

As Clever Leaves shares were not publicly traded at the time of grant, it
engaged independent third-party valuation specialists to assist with determining
the estimated fair value of Clever Leaves' common shares at each grant date
under a multi-stage process, which involved calculating the enterprise and
equity value of Clever Leaves. The enterprise value was initially calculated
using the discounted cash flows method under the income approach and the prior
sales of company stock method under the market approach, weighted based on
Clever Leaves' current stage of development, its financial projections and the
timing of the prior sales of a company's securities.

The discounted cash flows method under the income approach adds the present
value of projected cash flows generated by operations of the company and the
present value of the residual or terminal value of the company. The present
values of the cash flows and the terminal value are calculated using discount
rates that reflect the time value of money and the risk of the company and the
projected cash flows. The greater the perceived risk associated with the
forecasted cash flows, the higher the discount rate applied to them, and the
lower their present value. The prior sales of company stock method under the
market approach uses prices of actual transactions in a company's own securities
to infer the value of the security being valued. There may be adjustments needed
to deal with differences in the securities (e.g. preferred share instead of
common share), standard value (e.g. control vs. non-control or marketable vs.
non-marketable), and the passage of time.

The enterprise value was then adjusted for the Clever Leaves' cash and debt as
of the valuation date and the resulting equity value was allocated using the
option pricing method. The value per common share was then reduced by a discount
for lack of marketability to put it on a minority, non-marketable basis.

The Black-Scholes implementation of the option pricing method treats the rights
of holders of various classes of securities (preferred shares, common shares,
warrants, and options) as call options on any value of Clever Leaves above a
series of break points. The values of the break points were calculated by
reviewing:
•The liquidation preferences of preferred shares (including seniority of any
series of preferred shares);
•The participation rights of preferred shares (including any caps on such
participation); and
•The strike prices of warrants and options.

A Black-Scholes model requires a series of variables, including the:
•Value of company equity;
•Volatility;
•Time to liquidity event; and
•Risk-free rate.

Uncertain economic conditions, fiscal policy and other factors beyond our
control could have an adverse effect on the capital markets, which would affect
the discount rate assumptions, terminal value estimates, and transaction
premiums. Such uncertain economic conditions could also have an adverse effect
on the fundamentals of our business and results of operations, which would
affect our internal forecasts about future performance and terminal value
estimates. Furthermore, such uncertain economic conditions could have a negative
impact on the industry in general. In addition, the risk factors that we have
identified in this Form 10-K and will identify from time to time in our reports
could have an adverse effect on our internal forecasts about future performance,
terminal value estimates and transaction premiums. There can be no assurance
that our estimates and assumptions made for the purpose of estimating grant date
fair value of stock options will prove to be accurate predictions of the future.

In March 2020, Clever Leaves closed a round of class D Convertible Preferred
Shares (Class D). Clever Leaves sold 1,308,740 shares of Class D to several
investors, for a total of $14,400. While prior sales of a company's securities
can be considered in establishing the current value of a company, the
circumstances surrounding such a sale must be considered. In this case, these
circumstances included:
•The transaction involved other considerations, specifically a financing for
Clever Leaves;
•The transaction involved new investors in Clever Leaves; and
•The transaction occurred just prior to the valuation date.

The Class D transaction did not involve common shares, but instead involved
preferred shares. In addition, in light of the substantial economic and legal
advantages for Class D shareholders, common shares of Clever Leaves were viewed
to be worth less than shares of Class D. The Class D shares have liquidation
preferences, the power to block financings or sales, and the ability to withhold
approval of any new series or shares of capital stock that have any rights that
are senior or pari passu to
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Class D. Common shares do not have these advantages and the value of Class D
does not reflect the value of the Clever Leaves' common share.

However, subject to the valuation date, the economic differences between common
shares and Class D shares noted above may be accounted for in the calculation of
the indicated equity value. The Class D transaction was considered an
arm's-length transaction and that the price derived from this transaction can be
relied upon in calculating the fair value of Clever Leaves' common share at a
valuation date close to the occurrence of the transaction. However, the
transaction involving another class of stock (Class D) occurred more than six
months prior to the valuation date, and was determined to have included other
considerations involved in the investment decision (such as financing reasons,
etc.), all of which suggest that the price derived from this transaction cannot
be relied upon in determining the fair value of common shares as of the
valuation date. As such, the discounted cash flows method under the income
approach is used in calculating the fair value of Clever Leaves' common shares.

© Edgar Online, source Glimpses

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